Performance reviews are an important organisational tool for effective human development and talent management.  This article examines some of the problems and issues related to performance management based on a case study.  The case, based on a case study in Harvard Business Review, presents a specific problem related to performance appraisal.  And the commentary on it which follows examines the problem in a broader, holistic perspective in the light of integral management.

Key perspectives: the case; Commentary; Downside of Downsizing; a more holistic approach; need for growth-orientation; some methodologies; rewarding performance: an evolutionary perspective.

The Case

Mahadevan, the CEO of Prithvi Electronics, a diversified multi-product company, wants a 10 million cut in the pay roll.  After many new acquisitions, there was so much of duplication of functions across departments, which has created the urgent need for reorganization.  The downsizing has to be based on an objective performance evaluation review by managers, which was developed by Ashok, head of human resources of Prithvi Electronics.  In the outer doors of the multistoreyed head-office of Prithvi Electronics, Ashok met Sheila Dikshit, CFO of the company.  Sheila said, “We have to start working on those cuts”  “I am doing it” replied Ashok and added with an emphasis.  “But I don’t want it to be just numbers or head-clopping. I also want to make sure, after the reorganization we have the right people in the right job.”  Sheila replied, “I think at present numbers are more important.  We don’t have the time for a perfect match-making.  Ashok brushed aside the unwarranted dig and moved on.

 The system of review created by Ashok is a simple form for managers to fill out on seven performance dimensions on a five point scale beginning with a1 which means “significantly below others,” a2 means, “somewhat below others” and moving up to “significantly above others” which is a3, and so on upto a5..

 A day after the deadline date for receiving the performance reviews, Ashok started perusing the data.  His heart sank when he saw most managers gave a4 to almost all employees and very few a2 or a1.  Ashok called one of his managers, Ram Gopal, who was dealing with performance appraisals. “This is absurd” said Ashok to Ram Gopal.  “We told them to be objective.  But none of these guys wants to look hard and objectively at their employees.  Its nonsensical for all employees to be significantly above their peers, what do you suggest”?  Ram Gopal said hesitantly, “shall we ask them to do it again.”  Ashok thought for a while and said:

 “Yes, but we have to hold training sessions and make them aware of the absurdity of their first ratings.  We must also explain to these fellows that performance reviews are not just for doing layoffs and promotions.  Well-executed evaluations give a company the data required to develop talent.  Employees need to know what they are doing well and what they are doing poorly so that they can improve.”

After the training sessions, managers again filled up the forms.  Ashok gleamed through the data with an expectant eagerness.  After a few minutes, Ashok banged his fist on the chair with irritation and frustration, “There was so many 3’s” muttered Ashok to himself, “there was no variations.  These fellows do not want to give low scores.”

Should Ashok order another round of reviews or make do with the data he has?

The Commentary

This case, apart from the specific problem presented in it, raises some larger issues related to downsizing and performance management.

The Downside of Downsizing

Why most of the managers don’t want to give low rating to their subordinates? When they knew that their review will be the basis of downsizing, they don’t want to be a source of pain to their employees.  This means either goodwill or guilty conscience but it obscures objective judgement.

This brings us to the larger issue of the validity of downsizing.  Most managers resort to this questionable practice because it is the easy way for cost-cutting.  When there is a financial crunch and there is pressure from the top or from the investors to cut costs, tossing off people is the immediate quick size solution.  But at present there is a growing volume of research studies which indicate downsizing is counterproductive in the long term.

In a front page story on downsizing in Newsweek, Jeffrey Pfeffer, professor of organizational behaviour at Stanford University, admirably sums up all the latest research on downsizing and their conclusion.  Pfeffer argues convincingly, based on an array of new research studies and many examples, that the benefits of downsizing interms of productivity or profit are either nil or negative or illusory and their negative impact on morale and human wellbeing are crippling and destructive.  The Stanford professor concludes his article with the following message:

 “The facts seem clear Layoffs are mostly bad for companies, harmful for the economy and devastating for employees.  This is not new or should not be.  There is a substantial research literature in fields from epidemiology to organizational behaviour documenting these effects.  The damage from overjealous downsizing will linger even as the economy recovers─and as it does perhaps managers will learn from their mistakes.”

 Many downsizing initiatives can be avoided if manager explore other alternative options and ask suggestions from employees how to tide over the crisis.  For example, a well-known textile firm in south India, when it was in a difficult financial situation, asked its employees and workers how to solve the problem without downsizing.  The employees of the firm gave many creative suggestions for cost-cutting which helped the firm to cope with the crisis without firing people.

 A More Holistic Approach

Let us now move from the larger issue of downsizing to the more specific problem presented in the case.  Assuming that in Prithi Electronics downsizing has become inevitable how best to use performance reviews to execute it.  The first requirement is objectivity.  To make the performance reviews more objective Ashok has to educate the managers on the urgent need for it and also assure them that those who are asked to leave would be treated with fareness and compassion.  He must tell them clearly in detail what are the measures taken by the company to ensure that the process of downsizing will be as painless as possible.

 The other important requirement is a more holistic and long-term perspective.  We do not know what are the dimensions of appraisal in Prithvi Electronics.  But in most companies performance reviews give a too heavy weightage to delivering results in the short term.  In a more long-term perspective equal weightage has to be given to character, integrity, loyalty, temperamental fitness to cultural values of the company, willingness to learn and grow, readiness to accept a negative feedback and take corrective action.  And finally instead of a single performance review in one  year, it is better to look at the reviews of past three to five years.

 The Need for Growth-Orientation

This brings us to the question what is the main purpose of performance reviews?  As Ashok in the case-study rightly points out the true purpose of performance reviews are not mere punishment and reward or promotions but providing an objective feedback which helps people to grow.  John Bersisford, the executive Vice-president of human resources of McGrahill Company makes a similar point when he states:  “Too often, leaders emphasize the process of ranking performance and attaining specific scores. In doing so, they forget the most important outcomes: improved organizational performance and personal growth.”  The following suggestion by Bersisford for improving the effectiveness of performance review are worth pondering over:

“Managers should pay greater attention to having meaningful conversations with their people. High-quality exchanges between managers and employees almost always yield insights for both parties and lead to professional development. Such conversations should focus on the outcome of providing crystal-clear, honest feedback while keeping the employee’s well-being in mind.  Of course, no one likes to get a low score or to have an uncomfortable conversation about performance. Yet people can be deployed effectively only if managers are willing to be completely honest about their direct reports’ weaknesses, not just their strengths. “

Reflecting further on his own personal experience with performance reviews, Bersisford  observes:

 “Once, after what I thought was a very successful year in a new job, I received a performance rating that was a click lower than I thought I deserved. It was upsetting, but if you have the right mind-set, you can always learn from a negative evaluation, even one you don’t agree with. Again, what matters is the quality of the conversation that the evaluation prompts. You have to listen and then try to see yourself objectively. Over the years, my performance appraisals have helped me grow, understand what was important, and perform at a higher level.”

 Some Methodologies

The next practical question is how to do it? What are the right methodologies of appraisal which are at once objective and developmental?  It is relatively easy to measure the target-oriented productivity of people.  But to assess the competencies and performance of people in the psychological, moral and spiritual domains are much more difficult.  Nevertheless, most of the progressive companies have included these moral and psychological factors like for example, integrity, maturity, emotional intelligence, interpersonal skills in their appraisal systems.

 There are some interesting innovations like the 360-degree system of appraisal in which an employee is assessed not only by his immediate superior but also by his peers and subordinates, and sometimes by the customer, if his or her work involves direct contact with the customer.  This method provides a certain amount of objectivity to the appraisal.  However, one of the major short-coming of 360° appraisal is that it may hamper sincere and spontaneous behaviour.  Most of us consciously or subconsciously adjust our behaviour to please others, whatever may be our inner conditions.  And 360° system of appraisal will only accentuate this hypocritic element in us.  Moreover, this system of assessment cannot eliminate the subjective biases, prejudices, irrational, emotional dislikes and prototypal judgments, which are almost universal.

This brings us to the question, are there better alternatives? There are two conditions, when they are fulfilled may lead to a better appraisal.  On the part of the appraiser, an intuitive understanding of the inner condition of the appraisee and a compassionate approach to human development.  On the part of the appraisee, an honest, candid and courageous self-assessment; respects for and trust in the wisdom of the appraiser; and a sincere urge for improvement.  These conditions may be difficult to fulfill but worth striving for.  And when these two conditions are fulfilled then 360° method of appraisal provides an additional tool for improving the accuracy and objectivity of appraisal.  Obviously, these conditions and the values or qualities related to it like self-knowledge, compassion, honest self-assessment, intuition, cannot be created overnight.  They have to be built into the consciousness and culture of the organization through a long process of education.

Rewarding Performance: An Evolutionary Perspective

This is another very important aspect of performance management and performance reviews are the main instrument for rewarding employees.  To work without expecting any reward may be the spiritual ideal.  But very few of us are in that level of spiritual development.  Most of us need some kind of physical and psychological reward to remain motivated.

What should be the main basis or criterion for rewarding employees?  The employee’s contribution to the realization of organizational goals has to be the primary measure for determining the reward, which can be monetary as well as non-monetary.  However as we have indicated earlier, the motivation and reward system must promote the progressive development of the individual.  So the other important factors to be considered in designing the reward system are the needs, motives, values, aspirations and expectations, which arise from the evolutionary condition of the individual.

 For example, the physical man who lives in the physical consciousness has to be pushed towards his higher evolution by rewarding target-oriented achievement with money, power, social status, which help him to grow into his vital consciousness and become the vital man.  Similarly, rewarding the vital man with more wealth, power, autonomy and recognition for accomplishing tough, difficult and challenging tasks, help him to develop fully all the potentialities of his vital being.  Although, when the vital and the mental men are awakened to their mental, moral or spiritual needs, they may not seek for money, wealth and power, but for the fulfillment and self-actualization of these higher needs.  In such cases, non-monetary rewards, like free educational opportunities, or more time and leisure for pursuing their newly formed mental and spiritual needs or capacities or a new job in which they can express better their new evolutionary status, will lead to a greater sense of fulfillment, better performance and also help in their higher evolution.  For those who are in these higher stages of their evolutionary development, the rewards have to be tailored to their unique evolutionary needs and aspirations through a process of consultation, discussion and negotiation with the immediate superiors and others who are in charge of designing the reward system.

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