How can organizations build an effective performance evaluation system?

Viren Kapadia December 9, 2020
How can organizations build an effective performance evaluation system?

An organization’s performance is the product of the performance of all the employees of the organization put together. Thus, it is natural to see that the way to improve business outcomes for an organization is to improve the performance of every employee that it has on its payroll. However, to improve the performance of employees, it is important to have the right standards on which their performance could be evaluated. However, organizations also need to be very careful when they devise a performance evaluation system. As per Gallup, only 14% of employees say their performance reviews inspire them to deliver more. Thus, if performance evaluation is badly carried out, it can massively backfire. So how does an organization go about building an effective performance evaluation system? Read on to know more:

Step 1: Map Business Objectives expected from each Job Role

Here, business objectives need not necessarily refer to commercial terms such as revenues brought in. Every role will have different objectives that have to be met for the business to prosper. For example, for someone in a customer servicing role, it could be a certain level of average on-call interaction rating. For someone who is into sales, it could be a certain lead conversion ratio. For someone into operations, it could be the efficiency of operations. Moreover, there will also be sub-objectives to be met for every job role. Once the expectations of what is to be expected in every job role are determined, it will then become easy to devise performance evaluation standards.

While these are objective parameters, there are also some subjective parameters that most organizations are keen to ensure performance on. This could include team collaboration, soft skills, attitude towards work, conduct in office, punctuality at work, and so on. While such aspects may not always reflect in the tangible results, they could affect the overall team performance. Therefore, organizations must devise metrics to measure an employee’s performance on these aspects.

Step 2: Review the existing performance evaluation system, if any

This step would only be for those organizations that already have such a system in place (though most organizations will have some of the other employee rating systems). You need to assess the existing system on:

  • The frequency at which employee evaluation is performed
  • Whether the evaluation is undertaken on the right parameters for every job role
  • Whether the system leaves any scope for individual bias to affect employee ratings
  • Whether the feedback provided to employees has proven to be actionable
  • Whether there has been a reasonable improvement in the performance of employees overtime

If on any of the above aspects, there is a scope for improvement, the same should be duly noted down.

Step 3: Devising/Revising a performance evaluation system

This is the most important step. Here, you would want to build an evaluation system that is fair and reasonable for everyone. Thus, you would want to create a system that would be able to:

  • Set quantitative parameters of performance for every job role
  • Create a mechanism to obtain non-quantitative feedback about the employee’s work from the manager and team colleagues
  • Map the progress made by the employee at work over some time in terms of a better quantity of output, higher work-rate, and better quality of service delivery.
  • Devise an easy to understand, objective feedback format which could be confidentially shared with the employee
  • Ensure that there are mechanisms in place to enable the employee to act upon any critical feedback received
  • Have a periodic reward structure built around the performance evaluation
  • Determine the protocol for dealing with perpetually under-performing employees (most likely it could include an initial informal verbal discussion, followed by an official written warning if need be, and if the performance continues to be below par, termination of the employee.

The reward structure that the company would want to create should include:

  • Performance bonuses for the past performance of the employee
  • Compensation hike to incentivize continued good performance and loyalty to the company
  • Promotion within the company

Besides, the company also needs to determine how frequently the performance evaluation discussions need to be held with employees. Most companies have a yearly appraisal cycle. However, there are two disadvantages to this:

  • Because there is a long duration between two appraisals, the most recent performance tends to dominate the manager’s feedback
  • Since there is a gap of an entire year between two appraisals, employees may not feel motivated to ensure consistently good performance to obtain a good rating

Therefore, companies should try to have more frequent performance feedback systems with employees. Ideally, a quarterly review of performance supplemented with a more extensive yearly meeting should keep employees on their toes to keep their performance levels high.

Step 4: Regular review of the performance evaluation system

The nature of job roles today is highly dynamic, and thus, expectations are bound to change. Some roles may also become obsolete. Thus, it is important for a company to regularly review its performance evaluation system to ensure that such changes are reflected in the rating parameters and metrics. This will ensure that any evaluation done will stay relevant to the current working of the business. For example, a previously high-performing employee may find it difficult to cope up with changed expectations in his or her role or find it difficult to adjust to new technology. By ensuring that the reviewing standards are regularly updated, a company can ensure that the past performance of an employee does not continue to have a lingering effect, and that, the feedback that is generated by the contemporary business needs.

To enforce an effective performance evaluation system, an organization needs to execute it over a technology platform. One of the best such platforms could be a Learning Management System (LMS) which could be integrated with the HRIS. Not only would it allow effective performance assessment of employees, but the LMS integration would also recommend different training modules to the ones who need it. This can ensure timely plugging of skill-gaps, so that employee performance would not suffer due to a lack of skills. Employees would also feel valued and there would be a far lower need to fire low performers. Thus, LMS integration could ensure that the desired objectives of implementing a performance evaluation system would be met.

What is eLearning?

  • E-Learning allows the online delivery of training with real-time tracking of training analytics, optimizing time and reducing costs associated with traditional learning methods.

What is an LMS?

  • E-Learning allows the online delivery of training with real-time tracking of training analytics, optimizing time and reducing costs associated with traditional learning methods.

SCORM, AICC & XAPI

  • SCORM and AICC are an international standard for tracking E-Learning activities. xAPI (formerly Tin Can API) is the Learning Objects new standard. The Gyrus Learning Management System supports both of these standards.