A Research Study on. Examining the Best Practices in Performance Appraisal

A Research Study on Examining the Best Practices in Performance Appraisal By: Prof.Archana Ernest Author(s) affiliation: Assistant Professor Address : Sinhgad Institute of Business Administration & Research S.No. 40/4A + 4B/ 1, Near PMC Octroi Post, Kondhwa- Saswad Road, Kondhwa(Bk), Pune- 411048 (INDIA) Email id: nanusathe.sathe@gmail.com 1

Abstract This research study is conducted on one of the core activities of the human resource department. Irrespective of whether a particular company is small or big in size, companies do have a proper appraisal process in place. Wherever there are enough employees to do appraisal, this activity is followed in that company. Other than salary hike, performance appraisal has several objectives. It is also equally important that it is a periodic, transparent, motivating, effective, and an unbiased activity. It should not be a cause of disharmony amongst emlpoyees. In this research study, what all best practices are observed in industry with respect to performance appraisal are studied carefully. This is done so to improvise the appraisal procedure followed at one of the major IT companies in India- L&T Infotech. Like most big companies, L&T Infotech also has a well thought appraisal process to evaluate more than 14,000 employees. To investigate any shortcomings, if any and further what all new steps could be incorporated into the current appraisal process, a thorough understanding of what other IT majors do, was crucial. During the initial phase of the study, assimilation of L&T Infotech s appraisal process was very important. This helped in giving the very first glimpse of how IT companies evaluate employees. Based on this, the rest of the study was carried out by strictly keeping in mind what practices are observed in L&T Infotech and what improvements it needs. To have a fair idea of the best practices followed at various companies, a few select companies from both IT and Non-IT sector were considered. Key words: Performance appraisal, S-M-A-R-T, MBO-KRA, Appraisal method. Field of Research: Management (Human Resource Management) 2

Introduction: The history of performance appraisal is quite brief. Its roots in the early 20th century can be traced to Taylor's pioneering Time and Motion studies. But this is not very helpful, for the same may be said about almost everything in the field of modern human resources management. As a distinct and formal management procedure used in the evaluation of work performance, appraisal really dates from the time of the Second World War - not more than 60 years ago. The human inclination to judge can create serious motivational, ethical and legal problems in the workplace. Without a structured appraisal system, there is little chance of ensuring that the judgements made will be lawful, fair, defensible and accurate. In many organizations - but not all - appraisal results are used, either directly or indirectly, to help determine reward outcomes. That is, the appraisal results are used to identify the better performing employees who should get the majority of available merit pay increases, bonuses, and promotions. By the same token, appraisal results are used to identify the poorer performers who may require some form of counselling, or in extreme cases, demotion, dismissal or decreases in pay. Problem statement: A research study conducted to examine the appraisal system followed in various IT and Non-IT organisations, June 2009. Hypothesis: An appraisal process if, 1. Customized exactly to the organisation s requirements can be more effective in terms of satisfying the very basis (intention) of conducting appraisal. 2. Not transparent, may cause lack of motivation amongst employees. Objectives: 1. To understand how performance is measured and appraisals conducted. 2. To study pros and cons of the appraisal system followed. 3. To investigate the scope for improvement and suggest possible improvisations (For appraisal procedure at L&T Infotech). Research Methodology: Research design Exploratory design- Experience survey method 3

In exploratory research design any specific problem can be studied. Here, it is to study the effectiveness of appraisal procedure followed in various organisations. To do so, the Experience survey method of exploratory research design is adopted. According to this method, people who have practical experience in the problem under study are considered as respondents. These respondents are then interviewed by an investigator. This gives the respondents the opportunity to give some thought and suggest possible solutions to it. In this way they contribute effectively to the research. A questionnaire was given to every respondent in this research. It is provided in the annexure for ready reference. After filling it, respondents had to discuss it point wise, answering all queries thus initiated. Sources of data Primary The primary data was collected with the help of a questionnaire. Also after getting the questionnaire filled, the respondents were asked to explain once again the appraisal procedure in detail. The key point is that data thus collected is unique to this research, and does not form basis of any other study. The data however is nearer to perfect if not accurate. Secondary The secondary data is collected from reference books, online books, newspapers, magazines, and the Internet. Sampling plan Universe of population Universe: In this research, IT organisations and Non-IT organisations in India are considered. Population: It is a finite population. The inferences drawn in this study are on the topic- Performance appraisal system. Population element: The broad elements of appraisal system that are included here are- type, way of calculating the appraisal, its shortcomings, and ways to overcome limitations. Sampling units It is a Construction units as all are organisations from IT & Non-IT sector. Size of the sample In all 18 organizations are considered out of which, 11 are IT companies and 7 are Non-IT companies. 4

Sampling frame The source list is as given below- Sr. IT Companies Sr Non- IT No No. Companies 1. Accenture 1. TATA Teleservices Ltd 2. Infosys 2. Vodafone Essar 3. Persistent Systems 3. Ericsson Ltd. 4. Patni Computers 4. Reliance Communication 5. Cognizant 5. Reliance Industries Technology Solutions 6. Satyam 6. Aditya Birla Retail- more. 7. TCS 7. General Mills 8. WIPRO 9. Mphasis an EDS Company 10. IBM 11. HP Sampling techniques The technique used here is non-probability sampling as the researcher has chosen the companies to be included in the study. Statistical tools for analysis The analysis of data is a process under which the relationships or differences supporting or conflicting with the original or new hypothesis, should be subjected to statistical tests of significance, to determine with what validity the data can be said to indicate any conclusion. Here Microsoft Excel is used for doing data analysis. Here the primary data collected is converted in the percentage format. The data analysis is displayed in the form of pie-charts and bar-charts. The data is converted to percentages of the total and these percentage segments give a clear picture of the relationship among the components parts. Questionnaire design and analysis The questionnaire was designed in order to collect data relevant to the problem. The questionnaire in all has 15 questions. Out of the total number of questions, 8 are open - ended and 7 are close - ended. Further, Q1 to Q3 provide company s basic information and Q4 to Q14 provide information on the topic. Q15 was specially added to obtain comments of the respondents. 5

Limitations i) The sample space considered is small. ii) The data obtained is dependent on personal opinions. LITERATURE SURVEY PERFORMANCE APPRAISAL SYSTEM Performance appraisal is the process of obtaining, analyzing and recording information about the relative worth of an employee. The focus of the performance appraisal is measuring and improving the actual performance of the employee and also the future potential of the employee. Its aim is to measure what an employee does. According to Flippo, a prominent personality in the field of Human resources, Performance appraisal is the systematic, periodic and an impartial rating of an employee s excellence in the matters pertaining to his present job and his potential for a better job." Performance appraisal is a systematic way of reviewing and assessing the performance of an employee during a given period of time and planning for his future. It is a powerful tool to calibrate, refine and reward the performance of the employee. It helps to analyze his achievements and evaluate his contribution towards the achievements of the overall organizational goals. By focusing the attention on performance, performance appraisal goes to the heart of personnel management and reflects the management s interest in the progress of the employees. DATA ANALYSIS AND INTERPRETATION ( I ) DATA COLLECTION Performance appraisal system in L&T Infotech: objectives : 1. Establish and document individual and unit performance commitments related to committed work. 2. Regularly discuss the performance related to committed work in order to identify actions that can improve it. 3. Identify areas of performance concerns and initate remedial actions. 4. Provide a foundation for planning future development. The performance appraisal system is primary based on Commitment Setting. Commitment is a simple, short and clear statement specifying what the appraisee wish to achieve. It is mutually agreeable between the appraiser and appraisee. This commitment setting should meet the S-M-A-R-T criteria. It has to be within the framework mentioned below. 6

PRAGATI : A Customized Software:L&T Infotech makes use of a customized software named as PRAGATI. It keeps track of the three types of appraisal conducted in the company. They are Project appraisal Task appraisal Annual appraisal In the above appraisings, project manager is the defualt reviewer for an appraisee. Also appraiser can be the reviewer. There is a difference between the appraisal procedures followed at IT sector companies and the Non-IT sector companies. Therefore the loopholes identified thus, are also different. In next few pages of this report, the appraisal process at every above mentioned company is explained. However the emphasis is more on IT companies because 1. L&T InfoTech is an IT company and 2. Secondly, functioning, work profiles, work environment, qualifications of employee and other similar aspects in these two sectors vary equally. Hence their appraisal process also varies accordingly. ACCENTURE 1. Has international presence with around 40,000 employees striving for delivering high performance. 2. Bi-annually, 2 or 3 appraisers per employee, conduct the appraisal process. 3. The appraisal process is a combination of different methods, and it makes use of customized software My Performance Tool. INFOSYS 1. Has international presence with around 1,15,000 employee strength. 2. The appraisal is conducted bi-annually, by 1 or 2 appraisers per employee. 3. Every employee to be eligible for this process, has to complete six months for lateral and trainees have to complete one year. 4. The appraisal process is a complex combination of various methods. PERSISTENT SYSTEMS LIMITED 1. Has international presence with around 4,000+ employees. 2. Annually, 2 or 3 appraisers per employee, conduct the appraisal process. 7

3. The appraisal process is a combination of different methods like weighted checklist, critical incident, management by objectives, and partly 360 degrees. 4. Every permanent employee is eligible for this process. No hire-n-train employees. TATA CONSULTANCY SERVICES 1. Has international presence with around 1,40,000 employees. 2. Appraisal is conducted bi-annually, by 2 or 3 appraisers per employee. 3. The appraisal process is a combination of balanced scorecard and forced distribution. 4. Everyone is eligible for this process on completion of one year of service in TCS. SATYAM COMPUTER SERVICES LIMITED 1. Has international presence with around 45,000 employees. 2. Appraisal is conducted bi-annually, by 2 or 3 appraisers per employee. 3. The appraisal process is a tailor-made activity to suit and satisfy the requirements of Satyam. 4. Every employee who has joined on or before in the month of December of the previous year, is eligible for this process. PATNI COMPUTERS 1. Has international presence with around 14,000 employees. 2. Appraisal is conducted annually, by 2 or 3 appraisers per employee. 3. The appraisal process is a combination of 360 degree and MBO. 4. Every employee is eligible for this process on completion of one year of service. WIPRO 1. Has international presence with around 90,000 employees. 2. Appraisal is conducted annually, by 4 to 6 appraisers per employee. 3. The appraisal process is a combination of forced ranking, weighted checklist and paired comparison. IBM 1. Has international presence with around 80,000 employees. 2. Appraisal is conducted annually, by 2 or 3 appraisers per employee. 3. The appraisal process is a combination of 360 degree. 4. Every employee is eligible for this process on completion of one year of service. 5. Employee is evaluated based on observation from Project manager and People s manager. COGNIZANT TECHNOLOGY SOLUTIONS 1. Has international presence with around 60,000+ employees. 8

2. Appraisal is conducted bi-annually, by 2 or 3 appraisers per employee. 3. The appraisal process is Forced distribution. 4. Every employee is eligible for this process on completion of one year of service. M PHASIS Has international presence with around 60,000+ employees. Appraisal is conducted bi-annually, by 2 or 3 appraisers per employee. The appraisal process is Forced distribution. Every employee is eligible for this process on completion of one year of service. Employee is evaluated based on behaviour, ability to utilize resources efficiently, feedback from others and likewise. HEWLETT PACKARD 1. Has international presence with around 8,000 employees only in Bangalore office. 2. Appraisal is conducted bi-annually, by 2 or 3 appraisers per employee. 3. The appraisal process is combination of BARS, MBO and 360 degrees. 4. Every employee is eligible for this process on completion of six months of service. TATA TELESERVICES LIMITED 1. Has international presence with around 7,500 employees. 2. Appraisal is conducted bi-annually, by 2 or 3 appraisers per employee. 3. The appraisal process is a combination of forced distribution and MBO. 4. Every employee who satisfies all KRAs allotted is eligible for appraisal. ERICSSON INDIA PVT LTD 1. Has international presence and has around 4,000 employees. 2. Appraisal is conducted bi-annually, by 1 appraiser per employee. 3. The appraisal process is Forced distribution. 4. Every employee is evaluated on observation. RELIANCE COMMUNICATIONS LTD 1. Has 1374 employees. 2. Appraisal is conducted quarterly, by 1 appraiser per employee. 3. The appraisal process is Balanced score card. 4. Every employee is evaluated on observation. ADITYA BIRLA RETAIL LTD 1. Has around 11,000 employees. 2. Appraisal is conducted annually, by 2 or 3 appraiser per employee. 3. The appraisal process is Forced distribution and 360 degree. 9

4. Every employee is evaluated on data against KPI s and feedback from Supervisor and Function Head GENERAL MILLS INDIA PVT LTD 1. Has international presence and around 300+ employees in Mumbai office. 2. Appraisal is conducted annually, by 2 or 3 appraiser per employee. 3. The appraisal process is carried using a customized software My Performance Tool. It has partly 360 degree. 4. Every employee is eligible for appraisal as soon as they join. RELIANCE INDUSTRIES LIMITED 1. Has international presence and around 1, 50, 000 employees. 2. Appraisal is conducted annually, by 2 or 3 appraiser per employee. 3. The appraisal process is Balanced score card. 4. Every employee is eligible for appraisal completing one year. (II) DATA ANALYSIS Based on data interpretation, following is the data analysis. A comparison between practices at different companies is made here for easy understanding. However only those areas which have scope for improvement are considered for this analysis. Following is a colour code table depicting scope for improvement: 2 to 3 appraisers do appraising 2 or 3 2 or 3 4 to 6 2 or 3 2 or 3 1 or 2 Forced Distribution (FD) method BARS + MBO+ 360 degree FD FD FD Highly customize d Goal Setting S-M-A-R-T S-M-A-R-T S-M-A-R-T BSC North-star MBO- KRA Allotting weightage to KRAs Complex combination of many methods S-M-A-R-T Yes Yes Yes Yes Yes Yes Equivalent to L&T I s practices Scope for Improvement No change required The reasons for choosing these companies for comparative analysis are: 10

1. L&T Infotech is an IT company. Hence the comparison has to be between IT companies rather than non-it companies. 2. Of total 11 companies studied, these six companies have a competent appraisal process from which something new can be adapted. 3. With respect to areas of improvement required in L&T Infotech s process which are: Change in number of appraisers. Change in appraisal method followed. Change in goal setting technique. Change in the process of appraising, by allotting weightage to KRAs. Percentage wise, IT organisations using a particular Performance Appraisal System is as shown below: Percentage wise, how many performance appraisals are conducted yearly is shown below: Number of appraisers performing appraisals (for every company) is shown below : Bar-chart showing number of shortcomings identified in the respective PAS followed in every company : 11

Bar- chart showing measures adopted to tackle the shortcomings in the PAS followed in every company: NON IT ORGANISATIOS Percentage wise, Non-IT organisations following a particular performance appraisals system is shown below: CONCLUSION L&T InfoTech has been using Pragati for a long time now. However they are making certain changes in it. Therefore it was important to understand the industry best practices first. And then what changes can be incorporated to make it an effective system. During this study, it was observed that if the appraisal process is not transparent then, it becomes one of the causes for lack of motivation amongst employees. This further may also lead to disharmony in the organization. Whether it was the information technology companies or others, the bar chart for the same showed this very result. Primarily the reason for this upsets is because every employee wants to be recognised for the work he does. And if he feels that evaluation is an internal activity of management then this leads to unrest in his mind and so he starts losing interest in the job role. 12

Appraiser s bias is yet another issue associated with appraising. It is hard to have an unbiased system. However, companies like Persistent, Infosys, Satyam, HP have managed to incorporate such practices within their system that, biasing is reduced to a minimum level. It is even more important that a company has an exclusive appraisal system just according to its needs, similar to what is observed at Satyam or Infosys. Right from goal setting, an employee is made to participate in almost all activities. Having just one method to determine the entire performance of an employee seems an unfair practice. From immediate implementation point of view, it is better to have a combination of various methods. The appraisal process surely has scope for improvement. And when all the aspects are modified, it will turn out into an effective appraisal system. RECOMMENDATIONS 1. Allotting weight ages to KRAs. At L&T InfoTech, objective is not broken down into KRAs and also KPI concept is not observed. This leads to people concentrating on many tasks at the same time leading to poor performance. It would be much better if KRA KPI concept is implemented. Also employees should be made to participate actively into this entire activity. 2. Appraisal method Instead of having only forced distribution, there are three ways in which appraisal method can be changed. A combination of three to four different methods is a bit simpler option. The combination can be of paired comparison- for comparing any two competing employees with same job role, BARS- a ready set of descriptive statements for every job role, 360 degrees- so that peers can also input their contribution, and MBO- to breakdown organizational goals into KRAs. Appraisers Like Wipro, having more number of appraisers will help reduce appraiser s biasing. The more appraisers contribute, the more accurate the evaluation will be. Also colleagues or peers need to be included as any employee spends maximum time with his colleagues in the office than with his superiors. So their opinion is also important from evaluation point of view. 3. Goal Setting Balanced score card considers four perspectives while setting goals for an employee. Having individual employee s goals in line with company s goals or objectives would enhance the working of the organisation as a whole. 13

Having employee goals to be: specific-measurable-accountablerealistic-time bound, it would be a better option to have them with respect to customers, financial, internal business and learning & growth criteria. Because even L&T InfoTech ahs regular interactions with its client customer, a financial dimension to the business and also other two aspects. 4. Following is a suggestion as to how objective can be broken down and allotted weightage and grades. Here, the organizational objective constitutes to a total of 100%. This is broken down into three different KRAs such that, KRA1 has maximum weightage of 80%, followed by KRA 2 and KRA3 having equal weightage of 10% each. So when all 3 KRAs are completed, that will complete the objective 100%. Word Count- 3,451 BIBLIOGRAPHY Books: Personnel Management by Human Resource Management by Ashwathappa Personnel Management by C B Mamoria Websites: www.citehr.com http://books.google.co.in http://businesstoday.intoday.in/ http://appraisals.naukrihub.com www.lntinfotech.com L&T InfoTech Intrasite Magazines: 14

Business Week Business Today Company HR manual ANNEXURE Questionnaire Kindly fill the following questionnaire with appropriate choices in the boxes provided. You can add comments wherever necessary in blue colour. The information provided by you will be strictly used for academic purpose only. 1) Name of the organization: 2) Does your organization have international presence and / or offices outside India? a) Yes b) No 3) Total number of employees: Performance Appraisal 4) In the box below, please mention the eligibility criteria for an employee to be considered for performance appraisal: 5) Performance appraisal is conducted: (More than one can be chosen) a) Annually b) Bi-annually c) Quarterly d) Monthly e) Project/ Assignment wise 6) Number of superiors / managers / appraisers appraising an employee during a particular appraisal is a) 1 b) 2-3 c) 4-6 d) more than 6 7) Performance Appraisal method being used in the organization: Performance Appraisal Method (More than one can be chosen) Put mark in respective rows a) Balance Scorecard b) Weighted checklist c) Critical incident method d) Management By Objectives (MBO) e) Forced ranking / Bell Curve 15

f) Behaviourally anchored rating scales g) 360 degree performance h) Paired comparison method i) Other (specify) 8) Since how many years are you following the above mentioned method? 9) Goal setting I] what is the approach adopted towards goal setting? a) MBO - Key Result Area (KRA) b) Balanced score card (financial, customer, internal, learning & growth) c) S-M-A-R-T d) Other (please specify) II] Are organizational goals broken down into KRAs so that they can be cascaded to lower levels? a) Yes b) No (please specify) III] Are the KRAs allotted weightage according to KPIs? a) Yes b) No (please specify) 10) Which parameters are used for evaluation of an employee (e.g. 1] observation 2] feedback from other employees, etc) 11) How is the evaluation done for the objectives achieved? 12) what according to you are the shortcomings of the Performance Appraisal System (PAS) followed? Sr No Shortcomings (More than one can be chosen) Put mark in respective rows A B C D E F Appraiser s bias System not transparent enough Inefficient procedure for feedback collection Implementation issues No single PAS followed for long period Appraisal errors (specify) 16

G H Lack of motivation amongst employees Other (Specify) 13) What measures are taken up to tackle above shortcomings? Sr No Measures taken (More than one can be chosen) Put mark in respective rows A B C D E F G H Measurable Performance Parameters Appraiser Training Bonding between appraiser & appraisee Multiple Feedback Review Mechanism Transparency Normalizing Others (Specify) 14) Does the HR dept. use the appraisal data thus obtained, for other developmental decisions like job rotation, job enrichment, training & development etc? a) Yes b) No (please specify) 15) Any comments on the Performance Appraisal System followed in the organisation? THANK YOU! 17