Performance Management System at Kaveri Boilers

Below is a fictionalized case study that presents dilemma faced in real organizations. And written by me is the recommended solution to the problem. This has been published in Business Manager Magazine January 2015 edition.

Kaveri Boilers Private Limited is a medium-sized company engaged in the production of industrial boilders for the past 40 years. It has 5,800 employees. It is basically a non-unionized company with traditional HR policies and practices. The performance management (PM) policy of this company primarily focused on rewarding efficiency and chastising incompetence. The company attached immense weight age to its annual performance evaluation practice and treated it as a major event in the organization. Even though the outcome of the performance evaluation process often formed the basis for compensation fixation, promotion, transfer, and disciplinary actions, many employees viewed it as a mere fault-finding exercise without any performance improvement initiative. The PM system of Kaveri worked as follows.

When an employee's performance declines beyond the permissible levels, a warning is issued to him and he is usually asked to explain the reason for the decline. In the absence of any convincing reply or significant improvement in his performance within a reasonable time-frame, the company resorts to lateral transfers and the poor performer is normally shifted out of his present department and moved to another. However, the same appraisal system is continued there too and the employee is monitored closely. If the employee still continues to fare poorly, his services are terminated after due notice. This practice goes will with the over-all objective of the company's performance management system, which focuses on quality sustenance at all levels without making any compromise even while preserving the morale of the performing employees by quickly recognising their talents and rewarding them rightly.

Although the current performance management system has succeeded in maintaining the quantity and quality of the products at barely satisfactory levels,  the response of the employees to this kind of evaluation has been far from encouraging. The employees have a grudge that the appraisal system has always been keeping them on tenterhooks. To make matters worse, the indifferent attitude and low morale of those employees who have been transferred as part of the penalty has made the situation uneasy and caused anxiety among other employees. The HR manager is a mystified man and has no clues as to why the current system has not been able to produce the desired results of optimum productivity and adequate patronage of employees. Now, the challenge before the HR manager and his team is to pin-point the real reason for the problems of the organization on the labour front and then decide whether to continue with the existing evaluation system after making necessary modifications or replace it with some other system that will be more acceptable to one and all.

Questions for discussions & solutions:

1. Can we blame the existing performance management system for all the problem of the company? Are there any HR issues other than performance appraisal involved? If yes, what are they?

The objective of the annual PMS at Kaveri Boilers focused on rewarding efficiency and reprimand incompetence. The outcome of the PMS process formed the basis for compensation raise, promotion, transfer and resignations / terminations. This PMS process was not viewed favorably by the employees who merely saw it as a fault-finding exercise without any concrete performance improvement initiatives arising out of it. This led to indifference in attitudes of the employees and decline in their morale. The PMS process seemed to create a negative experience for the employees and a stressful environment overall. All of this ultimately affected work productivity for Kaveri Boilers which could not achieve optimum production output that had the HR Manager baffled.

Performance appraisals are only as good as the performance management system it operates within. Organizations that only do performance appraisals for the sake of doing them are wasting their time. Annual appraisals are carried out in order to recognize the achievement and recommendations for promotions. However this was not the scenario existing at Kaveri Boilers.

It is to be noted that during annual appraisals, most recent accomplishments and disappointments may get noticed as these are fresh in the memory while the events which date back a few quarters could go unnoticed. This is an issue with the annual appraisal system which may very well be happening at Kaveri Boilers also. One year is too long a time to wait to appraise people and get their feedback.

The existing PMS cannot be blamed for all the problems of the company. The problem lies in the work environment at Kaveri Boilers that does not seem to focus on accomplishing organizational objectives, improve performance, and attain vision. The employees at Kaveri Boilers seem to be disengaged.  

There seems to be lack of initiatives to foster an open culture, open communication, and engaged employees that would otherwise help create a stronger bond between employees at all levels in the organization thereby inculcating a sense of ownership in them.

There also seems to be an issue with respect to the organization’s values and with that of the supervisors, managers, and workers throughout the organization. It is the responsibility of the top leadership at Kaveri Boilers and not of the HR Manager to ensure that organization’s values and their own actions actually guide the behavior of the entire workforce of the organization. To enhance performance the right values must be adopted.

2. If you were to be the HR manager, what will you do to resolve the crisis?

The following steps would be initiated to change the existing PMS at Kaveri Boilers and thus aim to resolve the crisis:

• Introduce mid-year performance reviews. The move is aimed at making managers and employees more accountable.
• The mid-year review should not be about ratings but geared towards reviewing and providing guidance to the employees, bringing them back on the path of growth, in case they have strayed. 
• Hold structured review meetings every quarter / six months as per the needs, to keep the employees on track. The year-end process, on the other hand, should focus more on assessment and involve feedback. This will add a lot of value to the whole process of performance evaluation with the objective of helping in course correction, with an aim to give positive feedback.
• Make the performance requirements more objective so that they are easy to understand and implement. This is based on a research that shows that people to whom the performance objectives are communicated well perform 25% better.
• Put in place a workforce performance management system that ties reward, recognition, compensation, and/or incentives to the achievement of performance objectives. Match the compensation and recognition systems to the work necessary for organizational success.
• Introduce compensation and recognition approaches like rewarding exemplary team or unit performance, and links to customer-satisfaction and loyalty measures, achievement of organizational strategic objectives, or other essential organizational objectives.
• Conduct Employee Satisfaction Survey once in every 6 months by an external organization. The feedbacks from the employees to be considered while taking future policy decisions thus getting them engaged with the organization.