The Troika of Appraisal Ratings, Salary Hikes and Promotions [+ a proposed solution]

The Indian IT industry has grown blazingly fast, with its share of total Indian exports increasing from less than 4% in FY1998 to about 25% in FY2012. Salaries grew in sync with this as well. Apart from the growth, the gap between the Rupee and the Dollar was big enough to sustain higher double digit growth in salaries than most other industries in India. Alongside, people went “up the ranks” with incredible velocity – oftentimes defying rationale and logic.

Obviously, HR practices that evolved during these years took a certain shape.

The reality today goes something like this : the company decides what the total increments it can afford are, and what will be allocated to each group. This then trickles down – eventually to the frontline managers who need to message this to people in their teams. The most common approach – formally or otherwise – it to try and fit the appraisal ratings distribution such that it matches the increments one (rings a bell?). Promotions too sometimes follow this thinking – though less explicitly – with the only other input being the threat of a good employee leaving because they’ve spent too much time in their current band or grade.

Doesn’t that whole approach sound not only crude, but unfair?
So here’s a few thoughts about how you – especially as an entrepreneur with the freedom to innovate – could do things differently.

For starters – do realize that each of those tools serve a different need.

  • Appraisal Ratings give feedback about how the person has performed over the past cycle.
  • Hikes (or Increments) plus bonuses serve a dual purpose – first to make sure the employee considers it worthwhile to spend his/her effort and time for your work, and then as a mechanism to share the company’s good performance and fortunes in the market with everyone who was involved.
  • Promotions are a way of telling people that you see greater potential in them, and would like them to shoulder more responsibilities.

There three above are of course correlated, but the strong cause-effect linkage amongst them is plain wrong, and messes up the desired communication across the forward looking and the retrospective messages that employees derive out of these. For instance, appraisal ratings are usually done against objectives (those themselves are ideally not a static set of goals defined one a year) – and applying relative grading to them is incorrect, and un-smart.

Some ideas you could try out – from minor changes to the far-out:

  • Separate the appraisal and the increment cycles completely : Also separate the messaging completely!
  • Be transparent about how well or badly the company is doing, and what products, parts are impacting both the topline and bottomline the most.
  • Have shorter and more frequent appraisal cycles, and make them a little less formal : Revisit objectives on a continuous basis as well.
  • Remember the “team sails and sinks together” adage at the time of increments. The enablers often get left out easily since those with the most direct impact on a products or client satisfaction are most visible; those in less visible roles often create space and the framework for the high impact work to actually get done and its important to reward them as well.
  • Apart from monetary increments, track skill and value growth. This is both an addition to the employee as well as the foundation of bigger opportunities within the organization.
  • Promotions should not come easy. Its a commitment to a vision one buys into, and the readiness to explore and experiment with ideas, practices and execution at a level one has not tried before. You should be able to undo a role-experiment. Try a different word for “promotion” so you don’t have to “demote” someone if they or you feel they’d rather do something else.
    Delink roles from “salary bands” and suchlike. Create them based on levels of responsibility, impact and effort needed.
  • Create a larger role for self-appraisals and self-gradation for hikes etc. If you have smart, ethical employees (i.e. if you have hired right), overall, you’re likely to stay within the same ballpark for errors in the process. Balance with sanity checks at random. If you cannot trust your folks at all, well, you have bigger issues!

Look at creating a self-managed and transparent organization where you do not have to conjure up untenable explanations or make people look unproductive or inefficient merely because there’s not enough to give everyone a good hike. Most people do not work only for monetary rewards, and establishing a culture merely around rewards and punishment will not help people identify with any sort of a bigger cause.

And for startups, work better be a crusade!

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