Supporting Long-Cycle Appraisals
Three years ago, a medium-sized insurance Company X deployed a long-cycle performance management solution from a major provider. The approach included annual appraisals with a six months check-in. HR department attempted to apply both top-down and 360 degree feedback.
While introduction of appraisals provided Company X some measure of organization, the net effect of the system fell short of goals. Specifically, the following problems were observed:
- memory – when assessments were happening, people only remembered the last 2 months (at best), resulting in frustration within teams due to what was perceived to be unfair assessment. This lead to engagement and retention problems – in two divisions in particular due to internal politics.
- no peer feedback – peers were reluctant to give each other feedback. When questioned “why”, one employee put it as: “Why seek conflict? I don’t stand to benefit anything.”
- insufficient mid-management engagement – managers were reluctant to give tough feedback to employees and, when time came for annual appraisals, churn was higher and post-assessment engagement was lower than desired. The upper management attributed such to a) managers firing “unproductive” employees and b) a drop in morale due to “unfair assessments” and observation of firings.
- time – the process of performing evaluations took a significant amount of time and was perceived as an unnecessary bureaucratic burden. It was not uncommon for the process to take over a week per person to complete.
- high cost of bad hires – it took 6-12 months to identify bad hires, resulting in extra spending. The company was estimating that as much as 37% of its churn was due to bad hires.
According to upper management, long-cycle appraisals gave somewhat better insight into the organization, but instead of driving performance, the primary application turned out to be talent development. While a positive influence, this did not address management’s needs.
Deployment of FairSetup
The head of HR came to FairSetup looking for a solution. FairSetup was rolled out in three stages: a pilot with 3 teams, scaling to 7, then 15 teams, followed by gradual adoption across the organization.
Phase I: A Pilot
The pilot was rolled out within a 2 week timeframe to three small teams (7 people or less per team). Management communicated to the teams that this was a test of a novel approach, the purpose of which was to introduce a better/more fair way to do performance management and bonus distributions.
Within one month, there were noticeable improvements, which included:
- more constructive peer feedback within the team
- shorter and more focused regular team meetings
- better goal-setting
Phase II: Multiple Teams
After one month, management added four more teams and kept a close watch over Key Performance Indicators (KPIs).
After three months, management added eight more teams and allocated a bonus pool that was to be distributed in accordance with the FairSetup model assuming above-expectation outcomes.
At the six-month check-in, productivity was measured to have increased an average of 17.2% (as compared to teams not on FairSetup).
By the time annual reviews came about, productivity increased by 39.4% (as compared to teams not on FairSetup). Moreover, the annual review process ended up being significantly quicker and, in a post-review poll, talent indicated that they felt that their annual assessments and bonus distributions were, by and large, “surprisingly fair”.
Phase III: Full Roll-out
Phase II was considered a success, which resulted in the company gradually deploying FairSetup across the organization. After 6 months of FairSetup, average productivity increased by 32.4% and employee churn/attrition was down by 44.3%.
FairSetup was rolled out in parallel to, and in support of, an existing performance management systems and was a resounding success. Productivity went up, culture improved, transparency and autonomy improved, cost of bad hires went down, annual appraisals started working as intended, and, most importantly, everyone was happy with the outcomes: management and employees alike.