The atmosphere in the past few months has made individuals genuinely sympathetic and concerned. A lot of empathy is going around now due to the effects of the pandemic. Now, people genuinely pick an interest in the well-being of others, due partly to a newly found value to the nature of human relations. Something that some might say had been taken for granted. For organizations, though, this is the period when performance evaluation of employees takes place. It remains to be seen if empathy would influence employee evaluation.
The success of a company depends totally on the quality of work put in by its employees. In other words, to meet set goals and objectives, employees must produce excellent results. So, to measure the effectiveness of every employee in an organization, their performance must be evaluated. According to Investopedia, performance evaluation or performance appraisal is a regular review of an employee’s job performance and overall contribution to an enterprise. It is the evaluation of an employee’s skills, achievements, and growth in an organization over a specific period.
Despite what it is called, a performance review is not only used as a system of assessing the productivity levels or job performance of an employee. Information gathered from employee performance evaluation is used for many other reasons. Companies use performance appraisals to identify top-performing employees. These top performers are then rewarded, usually in the form of raises and bonuses. This serves both as a means of motivating employees and providing feedback for improvement.
Also, the performance evaluation system in organizations helps employees and their managers identify additional training needed for employee development. With a performance review, employees and managers can create a development plan that would increase employee skills and increase productivity. There are different methods of carrying out employee evaluation:
- Peer assessment
- 360-degree feedback assessment
- Negotiated appraisal
Performance evaluation in 2020
COVID-19 has affected everything so much that it’s becoming a cliché to say this. However, with the real effects of the pandemic unfolding, it is almost unavoidable. There is increased job losses across industries amid reducing revenue. However, these issues birthed other problems, and one of these is the issue of performance evaluation and planning.
Typically, this is the time of the year when organizations conduct mid-year employee evaluations. Now, organizations have to decide whether to maintain their traditional performance appraisal practices or adopt a different approach. Generally, organizations use a rating based performance evaluation system. These ratings enable companies to differentiate among job performances of employees; thereby, recognizing employees due to financial rewards.
However, given the current situation of tight budgets and decreasing revenues, organizations face a situation where they have to decide on changing their degree of differentiation for the year. In this regard, organizations can only choose from three options:
- Retain the differentiation factor but lower increments, if any, for everyone
- Increase differentiation to ring-fence the top performers; and
- Reduce differentiation and treat everyone the same way
Organizations that could close their review cycles before the lockdown don’t have to face this dilemma. Unfortunately, this issue applies only to businesses that couldn’t close their pay review cycles. In light of this, many companies are still largely undecided about the approach towards performance evaluation. However, it is anticipated that many organizations will either delay increments or not give any.
Not just past performance but the duration and impact of the lockdown, expected recovery, budget, cash-flow availability, are expected to drive the bell curve distribution and differentiation. Organizations are likely to have tougher governance and scrutiny around performance ratings, but differentiation is expected to look similar to earlier years.
Since performance review results in increased compensation for employees who had performed well, companies had to develop compensation structures that addressed performance-driven rewards. In the past, companies were restricted to specific compensation plans. As a result of technological advancements, enterprises can now develop innovative compensation structures. At the moment, companies generally use varied reward programs to enhance an unbiased appraisal process.
The varied reward mechanism ties employees’ compensation to the financial performance measures of companies, such as company sales or revenue. As such, companies can vary their compensation budget based on the state of their financial performance measures. Consequently, the reward that comes with performance evaluation fluctuates following the bottom line of organizations. However, companies have been increasing rewards for top performers recently irrespective of revenue to increase employee retention. In the present reality amid COVID-19 pandemic, businesses face a situation where they have to review this practice.
Typically, at the end of every employee evaluation cycle, some employees get promoted upon reviewing an employee’s performance rating. This is another way companies use performance evaluation in motivating employees. With the current situation, fewer promotions are expected this year because of more stringent promotion criteria. Companies are likely to prioritize need-based promotion in critical roles over time-based promotion. It is expected that there will be a reduction in average promotional increments across the board.
An employee’s performance depends largely on set targets. Usually, these targets reflect organization goals and objectives, and every employee plays a role in meeting these objectives. Due to the effects of the pandemic, only a handful of companies have targets for 2021. In terms of target setting, organizations can be classified into the following 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
Today, organizations are resorting to saving costs by deferring increments, bonuses, and promotions to weather the pandemic. With experts predicting recovery soon, hopefully, 2021 will turn out to be much more rewarding.