India: Energy Efficiency Enhancement Project in Assam (Financed by the Japan Special Fund funded by the Government of Japan)

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1 Technical Assistance Consultant s Report Project Number: September 2010 India: Energy Efficiency Enhancement Project in Assam (Financed by the Japan Special Fund funded by the Government of Japan) Prepared by Pricewaterhouse Coopers Pvt. Ltd. India For Assam State Electricity Board This consultant s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project s design.

2 PricewaterhouseCoopers Global Network: Energy, Utilities & Mining Practice Performance Improvement Advisory Building Organizations Performance Management and Appraisal System Successor Companies of ASEB

3 Table of Contents Introduction... 3 Background... 3 Scope of this Study... 4 Objectives of the Study... 4 Approach & Methodology for the study... 4 Structure of the Report... 5 AS-IS Analysis... 7 Performance Appraisal... 7 Appraisal Coverage and Period... 7 Classification of employees in ASEB... 7 The Existing System of Performance Appraisal... 8 Filling of Appraisal Records... 8 Analysis of the Performance Appraisal Forms... 9 Main observations based on analysis of the forms filled by Officers Overall Analysis of the Performance Appraisal System Highlighting gaps in the existing system Benchmarking of Performance Management and Appraisal System Implications from Benchmarking Proposed Performance Management and Appraisal System The proposed PMAS Model PMAS for Class I and II employees PMAS for Class III and IV employees Timeline for performance appraisals Maintenance of Database for performance management system: Appraisal of employees who have been transferred during the financial year: Annexure Annexure 1 List of Personality Traits Annexure 2 New Forms Annexure 3 Calculating the performance scores of employees Annexure 4 KPIs for CGM s of ASEB and successor Companies Annexure 5 Indicative ideas for providing incentive linked to performance PricewaterhouseCoopers Page 2 of 65

4 Introduction Introduction Background The Assam State Electricity Board (ASEB) was unbundled into five companies by the State Government of Assam (GoA) in December 2004 under the provisions of Electricity Act, The companies that were formed were Assam Power Generation Corporation Limited (APGCL), Assam Electricity Grid Corporation Limited (AEGCL), and three distribution companies named Lower Assam Electricity Distribution Company Limited (LAEDCL), Upper Assam Electricity Distribution Company Limited (UAEDCL), and Central Assam Electricity Distribution Company Limited (CAEDCL). The three discoms were later merged to form one company Assam Power Distribution Company Limited (APDCL). The objectives of unbundling were to encourage efficiency, improve the quality of service and increase the accountability of the management. The restructured power utilities were created with the intention of encouraging them to adopt healthy and sound business processes and systems to ensure faster and efficient achievement of business goals. Thus, all the three new organizations APDCL, AEGCL and APGCL are going through a process of organizational transformation. In order to develop a performance driven work culture which will in turn ensure responsibility and accountability at all levels of the organisation, there is a need to revise the existing performance management system (PMS) of the three organizations. An effective employee PMS can play an important role in improving organizational productivity and motivating individual performance. It is critical that PMS be designed in such a manner that it leads to achievement of organization's goals and objectives and at the same time it enables people to achieve their full potential, lead to job enrichment and job satisfaction. Experience of the last 6 years of unbundling suggests that though the Assam power sector has improved, much scope for improvement in efficiency still remains. Presently, with regard to performance appraisal and subsequent promotions, a common seniority list of erstwhile employees (executives - class I) is maintained for successor companies for promotions and employees are promoted as successors to the available vacancies in any of the three companies. This is exactly similar to the way promotions were handled during the bundled stage under ASEB. The concept of common seniority can address employee concerns on short term basis but it also limits the possibility of developing business experts in the long run. The companies are however keen to achieve their business objectives and achieve customer service, efficiency and financial viability. To achieve the same, they are ensuring that capacity is built among their workforce and experience is retained within the company. This project undertaken by PricewaterhouseCoopers aims at strengthening the Performance Management System of the three organizations and enabling the organizations to monitor the performance of their employees in a more systematic, objective and efficient manner. PricewaterhouseCoopers Page 3 of 65

5 Scope of this Study The overall scope of this study includes: Reviewing and benchmarking of the existing organization structure with other well-performing utilities and proposing appropriate head office and field organization structures for each company, given the overall objectives of the company Undertaking a human resource profiling exercise of the employees in successor companies Analyzing and presenting options for a promotion policy that addresses concerns regarding immediate transition and evolving requirements over a five year period across successor companies Reviewing the efficacy of the existing performance management system and proposing options to make it more objective and aligned to each successor company objectives Proposing Key Performance Indicators for each company and analyzing alternatives for an employee performance linked incentive scheme for each organization in consultation with the company s top management. This should draw from experiences in other similarly placed organizations in the country. This report pertains to re-designing of performance management system and developing KPIs for successor companies of ASEB. Objectives of the Study The objectives of carrying out this study are to: Review the existing performance management system consisting of the annual confidential report (ACR) and propose changes to facilitate the performance monitoring & evaluation culture in the company. Develop key performance indicators (KPIs) till the level of chief general managers of each company, which are aligned to business objectives Suggest suitable linkages of proposed PMS with other HR initiatives like training, succession planning, reward mechanism etc. Approach & Methodology for the study The overall approach adopted to conduct this study was interactive and based on discussions with the top management, functional heads and field staff. The various stakeholders at HQ were consulted and field visits were made to understand the actual operation of Annual Confidential Report (ACR) within each company. The entire process was divided into two phases: PricewaterhouseCoopers Page 4 of 65

6 As Is Analysis To Be recommendations The entire approach is pictorially depicted below: The existing performance appraisal process was studied and analyzed to highlight key concerns and limitations. The annual confidential reports (ACRs) that are currently filled by the employees were also studied and evaluated. Discussions with various employees facilitated an overall understanding of the existing issues and outcomes of the performance appraisal system. Based on the as-is analysis, gaps were identified. A comprehensive new system of performance appraisal has been recommended that ensures: Greater objectivity of the process of performance measurement and more quantifiable results. Inclusion of certain areas of performance important to the organization that were earlier not being covered and measured Better linkages of the result with aspects of incentives, training, succession planning and promotions Structure of the Report This report on the PMAS of successor companies of ASEB is divided into 5 chapters. PricewaterhouseCoopers Page 5 of 65

7 Chapter 1 - Introduction: The first chapter is an introduction to the report and covers the background of the study, scope of the study, objectives of the study and the approach followed by PwC to conduct the study. Chapter 2 AS IS Analysis: The second chapter is an as-is analysis of the performance appraisal system and covers the details of the present system being followed. Chapter 3 Benchmarking. The third chapter covers the benchmarking exercise that has been carried out to compare the PMAS in other organizations vis a vis the three successor companies of ASEB Chapter 4 - Proposed PMAS: The fourth chapter covers the proposed performance management system for all the three organizations. Chapter 5 Conclusion and Way Forward: The fifth chapter of this report covers the conclusion and way forward for the three companies. PricewaterhouseCoopers Page 6 of 65

8 Present AS IS Organization Analysis Strucutre AS-IS Analysis Performance Appraisal Performance appraisal can be defined as the method by which the performance of an employee on the job is assessed (generally in terms of quality, quantity, cost, and time), usually by the immediate manager/superior. A performance appraisal system is generally used to manage career development. The process of performance appraisal includes obtaining, analyzing, and recording information about the relative worth of an employee to the organization. This chapter captures the existing system of performance appraisal in all the successor companies of ASEB. In ASEB, the annual performance appraisal process is primarily followed for the assessment of employee performance and is aligned to employee promotions. The employee performance is assessed in terms of job-related objectives and basic personal attributes such as dedication, innovation, capability, initiative etc. Appraisal Coverage and Period The appraisal process covers all classes of employees belonging to the successor companies of ASEB. The appraisals are conducted for the technical as well as the non-technical employees. The appraisal year is the financial year from April 1 st to March 31 st for all classes of employees. If an employee has served in more than one Region/Department/Unit or with more than one Reporting Officer for any period in the Appraisal Year, separate reports are required to be sent from each Region/Department/Unit. Classification of employees in ASEB PricewaterhouseCoopers Page 7 of 65

9 The Existing System of Performance Appraisal The following is how the present system of performance appraisal is conducted in all the three companies of former ASEB: The process of appraisal begins at the end of the financial year. The Class I and II officers are appraised using the Annual Confidential reports (ACR), while the Class III and IV officers are appraised using performance reports. Performance reports are also used for Class I officers when the ACRs cannot be submitted due to certain circumstances. The employee is given the performance appraisal form for the first time at the end of the year and fills in what targets he/she was expected to achieve and how much he/she has actually achieved against it. Then, it is forwarded to the controlling officer for further processing. Filling of Appraisal Records Presently, there are four people involved in filling the forms of all classes of employees. These are the employee himself/herself, the recording officer, the reviewing officer and the accepting officer. Self Appraisal Each employee is expected to fill the Self Appraisal section and forward the form to his/her recording officer. Recording officer The recording officer will complete the report in the light of the periodic records/data of the individual's targets and hand it over to the reviewing officer. Reviewing officer The reviewing officer will validate the recording of the reporting officer Accepting Authority The reviewing officer after recording his review will send the appraisal report to the final countersigning authority/accepting officer. The forms/reports are expected to be completed and submitted by the 15 th of April. These forms/reports are then sent to the Director Personnel. The team assisting the Director Personnel compiles these reports and monitors the receipt of the forms to ensure that everyone participates in the process. Then, the reports of the people eligible for promotion are compiled and summarized by this team and forwarded to the Departmental Promotion Committee (DPC). The DPC has the final authority of deciding who gets promoted based on the reports presented to them. The promotions are made based on the recommendations provided by the DPC. There are 4 levels of DPC DPC 1, 2, 3 and 4. PricewaterhouseCoopers Page 8 of 65

10 !" # $$$$% The DPC generally considers the ACRs of the employees of the past five years to conclude the promotional decision of employees. Maintenance of appraisal records The appraisal records of class I and II employees are compiled and maintained by Director Personnel at HQ for all employees of successor companies and appraisal forms of class III and IV employees are maintained by the respective establishment sections at HQ in case they are employed at the HQ or at the respective circle offices, depending on their place of posting. Analysis of the Performance Appraisal Forms The following table depicts the various forms that are filled by the employees in the organization. The 2X2 matrix represents which level of employee in which class fills which form. The level of class I officers has been elaborated in detail in the table. The bands coloured the same represent those who are filling the same appraisal form/report/record. Class I CGM GM DGM SM M/DM AM Class II Class III Class IV Technical Non Technical PricewaterhouseCoopers Page 9 of 65

11 Main observations based on analysis of the forms filled by Officers Different types of appraisal forms are used for different class of employees. For the technical cadre among class I employees, the forms varies between the various levels for CGM/GM, DGM and SM/M/DM/AM. The forms do not clearly identify the routine Job/Position responsibilities. It is recognized to a certain extent in the forms filled by DGMs, but is not consistent across all formats and does not capture all the aspects an employee is expected to perform under. The attributes assessed in the form mostly address the behavioural aspects. No weights are attached to job responsibilities and the final assessment is based more on perception than an objective summation of scores. This leads to subjective scores than quantifiable scores. The form does not address the issues of self appraisal & the achievements with respect to various performance areas. The forms do not capture the training needs of the employees Overall Analysis of the Performance Appraisal System The diagram below highlights the process of performance appraisal as against a typical Performance Management & Appraisal System in an organization. It brings forth the gaps in the existing system and sets the guideline for the new system that will address the gaps. The following is the diagram that pictorially depicts the existing process of PMAS and Areas of Improvement. PricewaterhouseCoopers Page 10 of 65

12 Decide on Departmental/Individual KPI s Set and agree upon targets Initiate Appraisal Discussion between employee and manager Feedback and Follow up Results Linkages Finalisation of Grade Points/Score Completion of Appraisal Promotion Training Succession Planning Rewards/incentives Processes not followed currently Processes followed currently The existing process is highlighted in dark colour and areas in light blue are the steps in the process that are presently not captured in the performance appraisal system PAS of successor companies of ASEB. The critical areas that need improvement are setting clear and defined goals, communicating them to the employees, measuring the performance objectively, giving feedback to employees and linking performance with rewards, training, promotion, and appropriate usage of available skill set for the right job. Discussions with the stakeholders revealed that mostly, the ACRs for class III & IV are filled up when promotions are due. The Director Personnel owns the accountability of ensuring that the forms are filled and the appraisal process is completed. However, since the ACRs do not have a appropriate linkages with training, reward etc and do not lead to any consequence except when promotions, the system of performance appraisal is not considered as a tool that employees could use for career development. PricewaterhouseCoopers Page 11 of 65

13 Highlighting gaps in the existing system Stage of Performance Appraisal Defining performance standards and target settings Mid year review Monitoring of appraisal process Performance management & outcomes of appraisal Performance to employees feedback Gaps in existing system The performance of employees in all three companies of ASEB is measured in terms of job-related and personal characteristics like personality traits, supervisory traits, technical/engineering traits and health conditions. The performance standards - Key Performance Indicators (KPI) are not clearly defined, which is the primary reason for lack of defined targets against KPIs. There is no mid year review of the performance of employees as the process does not initiate at the beginning of the year. Thus there is no scope to take corrective action in case there is a digression between what is expected of the employee and what is actually being rendered. Based on the interaction with stakeholders, it has been observed that performance appraisal process is not strictly adhered to by the employees and there is no defined clear system available to monitor or track 100% recording, reviewing and compilation of appraisal reports. Further, appraisal reports are not centrally maintained for all classes of employees, which makes it even more difficult to ensure the completion of appraisal process. The performance appraisal process at ASEB focuses only on evaluation of employee s performance once the promotions are to be done for eligible employees and does not emphasize on performance planning, analysis, review and development of employee. The outcomes of appraisal are limited to promotions and there is lack of focus on employee career development plan & succession planning. In the existing appraisal process, any adverse remark recorded in the PAS form is communicated to the employee; however feedback on employee performance is not communicated to the employees and employees remain unaware of their strengths and potential for improvement. PricewaterhouseCoopers Page 12 of 65

14 Present Benchmarking Organization Strucutre Benchmarking of Performance Management and Appraisal System PMAS across various companies This section presents the analysis of the benchmarking exercise carried out for the successor companies of ASEB in relation to the PMAS. In order to develop an appropriate PMAS, PwC has obtained relevant data from following organisations for comparison purpose: North Delhi Power Limited Calcutta Electric Supply Company Power Grid Corporation India Limited National Aluminium Company Link the PMS process with the business goals of the organization The table below is a step wise comparison of the PMAS system followed in successor companies of ASEB vis a vis the practices in other companies: NDPL CESC PGCIL NALCO Successor Cos. of ASEB N Form Key Performance Indicators for each role P Key Performance Indicators are specific & measurable P Employee communication & expectation setting N Train Assessors on critical aspects of the PA process N Conducting the PA process & closing appraisal discussions through appraiser-appraisee participation Y Employee Counseling N Providing informal feedback ongoing N Monitoring Progress ongoing N Training Needs Identification N Career Development N Rewards & Recognition Programs N Promotions Y Succession Planning N Building/ Updating Competency Directory N Mentoring N Y: Done; P: partially done; N: Not doing PricewaterhouseCoopers Page 13 of 65

15 Implications from Benchmarking Stage of Performance Appraisal Implications for re-design of PMAS PMAS Process To create a system where the process can be linked to business goals and KPI s To communicate expectations at the beginning of the year itself To close the process with participation of appraiser and appraisee and give appropriate feedback Monitoring Employees Employee Development recognition Organizational Development of and To take corrective action at an appropriate time in the year based on initial targets set To create appropriate linkages for the development of employees based on the results of appraisal To create appropriate linkages for the organization in terms of succession planning, training programs, engagement initiatives etc. PricewaterhouseCoopers Page 14 of 65

16 Proposed Performance Appraisal System Proposed Performance Management and Appraisal System The proposed model of PMAS aims: To have pre-defined goals/targets to enhance employee performance To provide scope to align performance with business goals as well as to take course correction To provide inputs for other linkages, HR processes and strategic decisions The proposed PMAS Model The PMAS process as follows: It is proposed that the performance management & appraisal system be a round the clock system that begins at the beginning of the year, is monitored after six months and then is finally closed at the end of the year. The following figure pictorially represents the cycle of the performance appraisal system for the organization. It begins with clear setting of the targets for the employees at the beginning of the year, then following up in six months with the mid year review, finally ending the year with the end year appraisal and closing the cycle with suitable linkages. Performance Planning Job related targets are set in discussion with supervisor Training needs are established in agreement with supervisor Feedback/ Development Plan Performance Rating Training & Development Succession Planning Promotions, Rewards & Recognition Mid Year Review Formal feedback session with supervisor to review : 1. Progress so far 2. Revisit & if needed revise goals and targets Year End Review Self appraisal Formal performance review and evaluation Communicate appraisal rating to employees Feedback to employee PricewaterhouseCoopers Page 15 of 65

17 The goals will be set officially at the beginning of the year, based on a joint discussion and agreement between the employee and the recording officer. Also, at the beginning of the year, the employee will also list down his/her training needs for further action by the organization in case of class I,II and III employees. The mid year review will be a formal discussion but will not have any bearing in the scoring system of the employee. There will be only two stakeholders involved in this process the recording officer and the employee. They will have a discussion in the middle of the year and check the progress of the employee against set targets. In case the two stakeholders feel that any corrective action needs to take place, the appropriate measures will be taken. The end year review will capture the performance of the employee in terms of a final performance rating. The process will be a stage wise process beginning from the employee going to the accepting officer. The final score will be communicated to the employee and feedback for better performance will be given. The process will close with appropriate linkages being decided in terms of succession planning, training programs, rewards, promotions etc, depending on the firm s objectives and goals. Stage wise explanation of the Performance Management and Appraisal System: Stage 1 Performance Planning Performance planning is the first stage in the appraisal process. It begins with the officer in the HR department (HQ) communicating to the unit and department heads to initiate the appraisal process. It is driven by a dialogue between the recording officer and the employee to set SMART (Specific, Measurable, Achievable, Realistic and Time bound) targets. The appraisal process is also driven by setting of Key Performance Indicators (KPIs) by the employees. Initiate process with target setting: HR department sends communication to all unit heads as per specified timelines and appraisal calendar to initiate appraisal process. The communication has to be sent through circulars to inform employees at corporate and field offices to initiate target setting. Performance planning discussion: Subsequent to the communication to initiate the appraisal process, recording officer and employees engage in one-to-one discussion sessions to finalize performance parameters and training needs (in case of class I,II and III employees) for the year. This stage enables employee to raise any concern wrt achieving of the target at the beginning of the period. PMAS form filling: Once the KPIs, targets and training needs are mutually discussed by the recording officer and employee, the employee completes the relevant section of the PMAS form as per specified timeline. The filled PMAS form is duly signed by the employee and the recording officer. The section on training need analysis is detached and forwarded to the HR department for further use and action. PricewaterhouseCoopers Page 16 of 65

18 Stage 2 Mid Year Review After the target setting at the beginning of the appraisal year, the recording officer and employee meet mid year for a formal feedback session to review progress or targets achieved by the employee. During the mid year appraisal, the employee discusses the issues faced by him to achieve the targets and recording officer provides feedback to the employees on the performance so far. The HR Department shall send out the communication to unit heads as per specified timelines to initiate the mid year review. The communication is sent through circulars to unit heads to inform employees at corporate and filed offices to initiate mid-year review. Compilation & Recordkeeping: The mid year review form is the last page of the appraisal form. This is again populated by the employee and recording officer.. Stage 3 Year End Review Year end review is the annual performance evaluation of the employee for the entire year. The recording, reviewing and accepting officers appraise the employee for the performance targets achieved and competencies demonstrated during the year. Year end review also comprises employee selfassessment HR Department shall communicate to unit heads as per timelines to initiate the year end review through circulars to unit heads to inform employees at corporate and filed offices to initiate year-end review. The employee will first fill the relevant sections in the form that they need to fill. Then, review discussions will be held between employee and recording officer on the following agenda: o o o Whether performance met, exceeded, or did not meet expectations. Employee self assessment of the targets achieved, the efforts taken to reach the desired proficiency level against desired competencies agreed upon. The discussion also aims to discuss plans for professional development. Employee annual appraisal: The recording, reviewing and accepting officers then rate the employee and submit their final verdict. The complete PMAS form shall be sent to the HR department for further processing. Stage 4 Feedback PricewaterhouseCoopers Page 17 of 65

19 As mentioned earlier, a system of performance management not only evaluates the performance of an employee as against what is expected of him/her, but also takes appropriate action on the performance and creates strategic linkages with various actions to derive better results and further enhance performance. The following are some suggested recommendations that can be linked to the performance appraisal system. Recommendation for promotion: Presently, there is no clarity in the system of merit cum seniority when employees are considered for promotion. Fast track promotions: In case ASEB decides to create a policy for fast track promotions, then in order that an employee be considered for fast track promotions, the employee must have achieved a defined level of performance as per the fast track policy in past performance appraisal years. Training and Development: Any specific training needs of the employee not met during the year shall be captured from the performance appraisal form and shall be communicated to the HR Department for appropriate action. Performance Linked Incentive: This can be used as a motivating strategy for employees who are well performing. Annual performance appraisal ratings should also lead to a bonus/incentive. A performance linked incentive plan must be created for employees at all levels of the organization to keep them motivated. Job Rotations: This option enables employee to choose alternative department or function to gain a wider knowledge of other departments and functions, thus preparing employee for jobs at higher organization levels. Please refer to Annexure 5 for indicative ideas of developing incentive / reward mechanism for successor companies of ASEB which is for company wide incentive scheme and individual performance reward. The model of PMAS has been recommended separately for Class I and II employees and Class III and IV employees. The main differences between the two models are on the basis of: Performance appraisal forms Stakeholders involved (reviewers) Stages involved in the review Appropriate linkages and outcomes Class of Employee PMAS for Class I and II employees Stakeholders in the entire process are as follows: Level Recording Officer Reviewing Officer Accepting Officer PricewaterhouseCoopers Page 18 of 65

20 Class I AM/DM/M/SM DGM GM CGM Immediate reporting officer (DM and above till MD/Chairman) CGM/GM (HoD) MD MD/Directors Chairman Class II As per the classification of Office Order Immediate reporting officer (AM and above till Zone Head) Head of station/division/circle/zone CGM/GM Coverage and Applicability of the Performance Management System: PMAS shall be applicable to all regular class I and II employees (technical & non-technical) of all the successor companies of ASEB at corporate and filed offices. It will also be applicable to all regular new joinees who have completed six months in the organization from the date of joining. It shall not be applicable to apprentice trainees, part-time employees and contractual employees. Performance Assessment Year: The time period of the appraisal shall be the financial year from April 1st to March 31st for technical as well as non-technical class I and II employees. Performance Bands for Employees: The proposed performance appraisal will use the system of scoring to evaluate the performance of employees. This table explains the categorization of employees on the basis of the marks they score in their performance evaluation. Point Rating Description Outstanding performance Constantly exceeds requirements & standards. Highly effective with self initiative and minimal guidance Very good performance Exceeds job requirements. Works independently with periodic guidance & supervision Good performance Meets reasonable job requirements Average performance Performance does not meet expectations in important areas of job. Requires improvement to perform Below average performance Performance below acceptable standards. Requires continuous supervision & direction. Immediate improvement required. PricewaterhouseCoopers Page 19 of 65

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