Article: How companies are leveraging appraisal for cost optimisation?

Compensation & Benefits

How companies are leveraging appraisal for cost optimisation?

The appraisal cycle has backwashed lots of job cuts lately. Mulling over the trend, People Matters spoke to experts to know their perspective on the ongoing development.
How companies are leveraging appraisal for cost optimisation?

The months from March to April are jittery in the corporate calendar, not just because it marks the increment season; also as it causes high volatility in the job market. Of late, the news related to ‘Layoffs’ are persistently prevailing in the media. Recently, a healthcare firm, Practo has laid off 150 employees, post its appraisal process and Cognizant, a software service company, also announced its plan in the month of March to lay off 6,000-10,000 non-performing employees. Ruminating on the scenario, the current trend indicates massive job cuts in industry around the appraisal time. 

appraisal cycle - job cuts

“Organizations across sectors, size and maturity are finding it tough to survive. 80% of start-ups have run out of funding and had to shut down operations. In a market flooded with skills, there is always a fresh, young, more agile and of course cost-effective option available for all skill sets. Those in niche roles such as big data, business analytics, digital marketing or cyber security can still command a premium whether on campus or in organizations while hiring or during appraisals. But even in these roles, increasing experience eventually leads to negative returns. No wonder, if you are in a generic role such as project management, application development or maintenance you might be feeling like you are walking in a minefield during appraisal time. There is, however, a new encouraging trend in companies. Many astute employees are now clamoring to acquire these new digital skills at a lower compensation package in return for getting re-skilled. These conversations are often happening before or during appraisal discussions. A lower wage bill combined with future skills and more importantly an agile mindset is an irresistible combination for employers,” says Gurpreet Bhatia, Sr. VP, TalentSprint. 

People- cost forms a significant component of the cost structure. After appraisal cycle, companies are able to identify its bottom percentile performers and further acting upon, companies utilize this outcome for cost- optimization purposes. Expounding more in detail, Mohinish Sinha, Partner at Deloitte, says, “With falling margins, cost optimization is a central strategy for most companies. Simply put the companies are looking to redirect wastage and under-utilised assets to better use. People cost typically becomes a significant component of the cost structure. The question in front of companies regarding people is whether they are geared to contribute the best. Companies make investments (such as training, workplace tools etc) in the workplace so that employees are primed to give their best. When employees do not perform to the expectations consistently, they become the weak links in the performance cycle of the organization. Appraisals is one of the ways companies use to drop out the bottom percentile performers. In high performing organizations people get this. Provided of course the appraisal process is regarded as robust by the workforce. When it is not then the appraisal is seen as an excuse for firing people, which in turn creates paranoia and fear amongst people. People then become risk-averse, unwilling to push boundaries which to my mind costs more to the organization.”

Sharing a different point of view- talent refresh as strategic imperative, Srikanth Balachandran, Global Chief Human Resources Officer at Airtel, says, each employer has its own way and cycle to refresh. He says, “Talent refresh is a strategic imperative. This need cuts across sectors and is quite agnostic to individual employer practices. The need to refresh gets further accentuated if there are other burning platforms such as industry upheavals, economic downturns, regulatory fall-outs and global factors. Different employers tend to refresh in their own ways and cycles. The more traditional ones tend to follow annual cycles. Start-ups fall in line with 'fundraising' events, with talent refresh either being a precursor or consequence. The more agile ones are those who are constantly refreshing talent by linking people capabilities to business outcomes and project milestones.  Whether the process of refresh results in scaling up or downsizing, it is dependent on multiple variables. Increasingly, it is dependent on 'ROTI', return on talent investment. 

TN Hari, HeadHR, Big Basket says, “Some of the companies that are saddled with excess manpower, for whatever reasons, tend to look at appraisal time to downsize. The basic motive being downsizing; can then be attributed to ‘poor performance’.  That’s not being honest and transparent. People easily see through this sham. And the company loses credibility and respect from employees and the rest of the ecosystem. A better way to deal with this is to be open about it and have an honest conversation. Genuinely letting go of people who have not lived up to the performance expectations is perfectly alright after following due process. And appraisal time isn’t the only time for this, though one may argue (and I don’t entirely agree with this argument) that performance data available after this process helps in making such decisions more objective. But using the alibi of performance to meet an ulterior objective of downsizing and cost trimming is neither fair nor prudent.”

Asif Upadhye, Director & Chief Fun Officer, Never Grow Up, says, “Appraisal systems are more than tools for reviewing performance. They allow the opportunity to set futuristic benchmarks through retrospective insight and are meaningful conversations that help create a roadmap for better performance, deeper engagement and increased happiness at work. When it comes to cost optimization, appraisals play a dual function. Firstly, they provide an opportunity to understand expectations that employees have from their roles. How does this help in managing costs? It leads to better retention and thus saves you time and money necessary in replacing resources. Understanding your employees is the key to making sure that they are happy at work, are provided with the growth avenues that they seek and feel secure knowing that they are valued, integral parts of the system. Secondly, appraisals allow you the platform to ensure that the expectations of the organization form the employee are reiterated and clarified. This also has positive financial implications because that’s how you can put a check in place, measure the ROI of each resource and take necessary steps to help every employee realize their potential and put in their best efforts willingly. Plus if you look at things from a ‘bottom-line’ approach, retaining an employee is 5 times [for lack of a better word] cheaper than hiring a new recruit, investing in training and expecting them to get into your culture and perform immediately / or over a period of time.”   

Sahil Chopra, CEO and Founder, iCubeswire, says, “The appraisal system has been the yardstick of measuring not just the performance of employees, but the organization as a whole. Only when a resource is completely utilized, will the company reach a point of maximized returns. This is not to say that organizations need to be lean and mean; it means taking on additional roles and multitasking given the corporate ecosystem that businesses function in today. For example, at lower levels, it could be planning human resources for capacity utilization – how many people do I really need to pull the day to day functioning on the company. Not too many and not too few – and I need to build in redundancies. While employees are our greatest strengths, they are also significant cost heads. The success of an appraisal program lies in striving for the perfect balance. Another example – we expect our senior management to take on roles beyond their areas of expertise. An Operations head should be able to look at team HR or be involved in company CSR programs for example. Whenever we win new business, we first look to find the bandwidth internally. The appraisal system gives us the information and insights into the abilities of each employee and how we can all grow together and better by taking that one more additional step!.”

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Topics: Compensation & Benefits, #Jobs

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