Demystifying Employee Performance Measurement and Rewards Management

One of the key HRM rituals in organisations is carrying out employee performance reviews, pay hikes and enhancing job responsibilities. This is also known as PMS, Performance Appraisals, Employee Appraisals, Rewards Management etc. But why do Business owners want this? To segregate performers from non-performers. Why? To recognize performance. Why? To motivate performers to repeat or improve their performance. Why? To get good or better business performance and profitability. So good individual performance is an imperative for getting good business performance.

So business owners or employers have reasons to ensure that their employees perform well. But how do they measure employee performance? Typically, employers consider performance to be directly proportional to utilization or productivity, i.e. (output / input) or (output hours / available hours).  It means, more the hours of work or output with the available man-hours, higher would be the performance! Though this hypothesis is far from being correct, usual behaviour of any employer (or management) is to monitor if the employees are busy or not, if they are coming to work in time and not leaving work before the scheduled time, if they are doing anything other than work and so on. Control steps are considered when unfavourable observations are noticed. Policies in many organisations include monetary penalties in such cases. In many SMEs the evaluation of an employee and subsequent reward is based on some informal relationships with the compliance to above or similar such requirements. 

Employees try to comply with the above expectations at work in the hope of getting noticed for their performance, which could lead to their increments or job promotions. The organisation culture gets aligned with such expectations and behaviour. But productivity measures being an incorrect indicator of employee or business performance, no real improvement in business performance is achieved by these organisations. As a result, both profitability and satisfaction of employees are compromised in these situations. Stagnation in business performance is observed. In worse cases, the employees leave the organisations causing a further downward business performance very soon. 

I suggest business owners take a holistic view and look at business profitability and employee satisfaction targets. They also need to understand that in any supply chain all the links can never be evenly balanced for getting the maximum or best end results! In fact, in a system, only the system constraint or bottleneck process can achieve maximum productivity / utilization. So it is desirable in a system to show mismatches in utilization or productivity of different employees / teams for getting the maximum performance out of the system. Which means, expecting all employees in a system of interlinked business processes, to be equally productive is grossly incorrect and counter productive! Yes, some of the measures in place could have some importance for maintaining certain levels of discipline at work, but should not be the guiding factors for evaluating employee performance. 

What do we do then? The amount of time and effort that is being consumed in measuring performance incorrectly is utilized in setting up proper job targets for employees / teams that lead to achievement of business goals and explaining them clearly, then the employers can expect a much  improved business performance and profitability in the long term. When the profitability rises, the management can consider sharing part of the gains with employees. The basis for distributing the amount among individuals or teams could be connected to pay levels, positions or some other established standards. The discipline standards also could be considered to exclude / penalize indisciplined employees. A rewards system that is simple, transparent and objectively linked with employee behaviours supporting the business performance should be developed and practiced. It should also identify employee learning and development needs so that necessary steps could be taken for growth and advancement of the employees thus opening up further growth opportunities for the business.