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Talk to people in most companies and one common villain that most people have is HR. Probe deeper and the villain would turn out to be an unfair or unjust performance appraisal. If we go down another level, it would be unhappiness with history of increments.

The objective of performance appraisal system is to provide a feedback to an employee on his or her performance. The appraisal process is a feedback on factors affecting performance. The inputs from performance appraisal system along with guidance and mentoring are supposed to help a person shape his or her career.

Linking performance to appraisal leads to distortion of the process. The employees are keen to get a better rating, than hear the feedback. The discussion shifts from feedback to debate on rating between the employee and supervisor and what is written on the paper. The supervisor and supervisee in most cases are also not able to bring in instances, attitudes or behaviours that do not conform to format of appraisal but do affect the final rating. A poor rating is not seen as reflection of performance but an outcome of inter-personal relationship between supervisor and supervisee. The companies tried to address it by bringing in super boss into the equation but did not help anyone as the underlying assumption was not addressed.

Despite all the efforts of HR to make the system work and to make the process more fairer and agreeable to all, the supervisee who gets a bad rating mostly leaves the table with a feeling that I got a poor appraisal as my boss played favourites. Companies have tried experiments and methods like 360 feedback but they all backfire. This is because of lack of trust. A closed 360 degree means that people feel the feedback was taken from people who have connived with the supervisor.

Linking performance appraisal to increments may defeat exercises like bell curve as people may not like to take smart people in their team for that will squeeze them to centre of the bell curve. This affects competence of the team and would breed mediocrity.

The only way the damage can be undone is by delinking performance appraisal from salary. The performance appraisal is a continuous exercise and should be retained that way with both formal and informal components.

This would surely shock most of my colleagues from business school who believe good performances should be rewarded and bad performances should be punished. The underlying assumption still being that money or salary is a motivator or it can be both carrot and stick. This world view still comes from industrial revolution where the assumption was people are lazy or do not want to work unless they are provided incentives or penalised for not working.

Bell curve ensures that people just do not have to give their best but just be ahead of rest of the team mates. This breeds a feeling of competitiveness where colleagues do not like to pass on knowledge or play in team. This also leads to situations where people can only show a better performance by downplaying someone else’s performance leading to sub-groups and office politics. This does nothing to raise standards in office.

In this age of knowledge workers, organisations that do well are organisations that are able to tap intrinsic motivation in their employees. Companies need to figure out what kind of employees it wants. People who need money to excel or people who want to excel. The latter would pull up their peers and raise the standard of company and in the process make money. Money is an outcome and not an input resource.

This is why, we at Srijan delinked our salaries and performance appraisal.