How 2020 changed appraisals, performance evaluation

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The world around us has become more considerate lately. People are contributing to charities and social initiatives; emails are starting with “hope you’re doing well” and ending with “stay safe”; colleagues genuinely want to know about your well-being. There are more volunteers to help elderly neighbours; old friends are getting in touch (partly driven by boredom); and above all, people are appreciating the pre-lockdown life and expressing gratitude towards everyone who made it possible. Empathy has never been more in vogue. To know if this theme extends to the way organisations in India are managing performance, we interacted with about 150 HR leaders.

Most organisations use performance ratings to differentiate among employees that later distils into financial rewards. Therefore, first we asked HR leaders if they plan to change the degree of differentiation in FY20. With a tighter budget, this decision is among the most critical right now. Organisations generally have three options: 1) retain the differentiation factor but lower increments, if any, for everyone; 2) increase differentiation to ring-fence the top performers; and 3) reduce differentiation and treat everyone the same way. These choices remind us that being a consultant is much easier than being a practitioner.

It was business as usual for clients who were lucky enough to close their pay review cycles before the lockdown. Most others are still largely undecided on the approach towards performance differentiation. Directionally, however, based on our interaction with the HR leaders, this is our sense of where most organisations seem to be headed now:

• Most organisations are likely to defer increments or not give any at all
• Not just past performance but the duration and impact of lockdown, expected recovery, budget, cash-flow availability, etc., are expected to drive the bell curve distribution and differentiation
• Organisations are likely to have stronger governance and scrutiny around performance ratings but differentiation is expected to largely look similar to earlier years

One reason why organisations have been increasing differentiated rewards for top performers in recent years is to drive retention (and that hopefully is not one of the critical challenges at this point). We also asked the HR leaders if they changed their plan with respect to promotions in response to Covid-19. Our key finding indicates fewer promotions are likely this year with promotion criteria becoming more stringent. Need-based promotions in critical roles are likely to be prioritised over time-based promotions. Average promotional increment might decrease. In fact, two organisations have already announced dry promotions (no change in compensation).

Next we quizzed them on target setting. The RBI’s April monetary policy report states that “forecasts for real GDP growth in India are not provided here, awaiting a clear fix on the intensity, spread, and duration of COVID-19.”* In light of this, it is understandable that organisations are taking time in setting FY21 targets. Only a small percentage of the organisations we spoke to have set FY21 goals and are not planning to revise them. Other organisations can broadly be classified into three categories: those that had set a January−December target and would review it during the mid-year assessment; those that had already decided targets and would revisit them after the lockdown (or next board meeting); and those that had deferred the exercise by one-two months. Interestingly, while most organisations agreed that they might revise their targets, they are waiting for their boards to provide the strategic direction for the year before changing their variable pay and incentive plans.

In summary, organisations are taking immediate short-term steps to save costs (decrease or defer increments/bonuses and promotions) rather than redesigning their performance management architecture. However, the HR leaders shared interesting ideas (top five listed below) about what could change in the future:

• Set short-term business targets; review longer-term targets regularly.
• Lower tolerance for organisation-wide poor financial performance (focus on affordability)
• Use variable pay more to save cost than incentivise outperformance. Also, payouts may not be entirely formula-based
• Encourage frequent check-ins and in-depth performance discussions (focus on manager maturity).
• Cost-saving initiatives and identifying digitisation opportunities to be incentivised

Organisations could consider the following three priorities:

1. Focus on company performance rather than business unit or individual performance. Organisational revival cannot be achieved by working with silo-ed performance goals. Building a culture of “all hands on deck” may be important in the current financial year.
2. Bring structural changes driving organisational agility to focus on specific priorities. Decision-making chains are becoming shorter in a technology-driven work from home environment. Even after we go back to office, these chains may not revert to their earlier shape.
3. Inculcate this agility in goals and targets. We do not expect organisations to adopt Objective and Key Results (OKRs) immediately but we expect variants of the core OKR model becoming prominent. Goals are expected to be more team driven, outcome oriented with shorter-term targets.

The challenging, and therefore interesting part of being an HR professional is to help business take hard decisions in the most objective yet humane way possible. Therefore, perhaps rightfully, we have not found one single solution/thought process emerging across organisations.

Gabriel Garcia Marquez said, “Our code of ethics supposes that we doctors are made of wood.” There is similar thinking on HR as well and we hope it changes this time.

Stay safe!

The authors are Anandorup Ghose, Partner and  Dinkar Pawan, Associate Director, Deloitte India

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The thoughts and opinions shared here are of the author.