Performance Management System Mahindra N Mahindra Ltd
- 1. Performance Management System in M&M Ltd Following is overall process of Goal Setting in M&M Ltd. STRATEGY, VISION, MISSION & BUDGET BUSINESS GOALS ORGANIZATION’S OBJECTIVES DEPARTMENTAL / FUNCTIONAL OBJECTIVES ROLE / INDIVIDUAL OBJECTIVES KEY RESULT AREA (KRAs) The PMS process starts with setting of business goals & organisation’s objectives. In M&M Ltd., organizational goals are set in the month of March every year. After this step, departmental and individual goals are set. Here, in M&M Ltd., Top Down approach is followed for goal setting. Departmental Goal Setting: For departmental goal setting, Balanced Score Card approach is adopted. It is derived from the Business Plan and Functional Strategies. In 1992, Robert S. Kalpan and David P. Norton’s concept of the Balanced Score Card revolusionised conventional thinking about performance metrics. The balanced scorecard measured performance on four perspectives: a. Customer b. Internal processes c. Learning & Development d. Financial
- 2. The balanced scorecard allows managers to look at the business from these four important perspectives. The scorecard wasn’t a replacement for financial measures; it was their complement. It provides answers to four basic questions: a. How do customers see us? (Customer perspective) b. What must we excel at? (Internal processes perspective) c. Can we continue to improve and create value? (Learning and Development perspective) d. How well do we look to our stakeholders? (Financial perspective) In M&M Ltd., weightages are assigned to all four perspectives. The weightages may vary according to the department. Balanced Score Card also depends upon business plans for the particular year. Individual Goal Setting: After setting Departmental goals, Individual goals are set. Following diagram shows various steps in the process of individual goal setting: process PMS Survey for Communication Feedback Workshop Feedback & Counseling KRA Setting Performance Mid-Term Appraisal Review (Review) Step 1: Communication Workshop: Communication workshop is conducted in months of May or June every year. It is compulsory for all employees, right from operational level to strategic level. This workshop is conducted for two days. KRA setting and How to conduct appraisal are the topics which are covered on first and second day respectively. It is useful to both appraisers as well as appraisees. It helps appraisers for KRA setting and review meetings. It helps appraisees as they
- 3. get to know the whole procedure of KRA setting and the review which is useful for them during review discussions. Step 2: KRA setting: Measurable goals for every individual, linked with the business goals are set before the beginning of the financial year. Each individual has 3 to 5 KRAs. Each KRA set has a weightage and the total of weightages is 100%. All the targets i.e. KRAs are set after discussion between superior i.e. appraiser and subordinate i.e. appraisee. Performance with respect of KRAs forms a basis for the calculation of Performance payout amount for an individual. There is a particular format in which KRAs are set (Annexure E). Level of Performance (LOP) and Measure of Performance (MOP) are decided at the time of setting KRAs. MOP means a measurable parameter which will indicate progress of GOAL set. E.g. Goal - cost reduction has MOP - reduction in Variable Cost / Vehicle - 5% LOP i.e. Level of performance is method to set targets for MOPs to indicate good, superior and excellent performance. E.g. Reduction in variable Cost per vehicle - Level 3 - 5% Level 4 - 10% Level 5 - 15% Normally, KRAs for the next year are set before the final review. Signatures of both i.e. appraiser as well as appraisee are taken on the KRA sheet. The KRA sheets are sent to Corporate HR Department. Step 3: Mid – Term Review: Mid – term reviews are conducted in the month of October. Mid – term reviews are done with a view to know how much goals the appraisee has achieved. If the appraisee has failed to achieve the targeted level then the superior can have a discussion with the appraisee regarding this and the reason for not achieving the desired level of performance is found out. Step 4: Performance Appraisal (Review): Performance appraisal or reviews are done in the month of May. Appraisees are reviewed on the basis of achievement of KRAs, assessment of significant tasks other than KRAs, if any, leadership competencies (M&M Ltd has adopted 7 leadership competencies) and strengths of the appraisee. Employee & Superior together fill up the appraisal form based on which the assessment is carried out.
- 4. Performance appraisal is a one to one discussion between the appraiser & the appraisee about * Performance based on goals set & results achieved * Training and the developmental needs for the employee At the end of the appraisal process employee’s comment on the process of appraisal feedback is recorded, to validate transparency & fairness of the appraisal process. Discussion is held between appraiser & reviewer to jointly arrive at overall rating of the employee. There is validation & moderation by Corporate HR. Distribution of letters to all employees is carried out on 1st August. In M&M Ltd., employees are rated on two scales: Performance Pay Rating Overall Rating Performance Pay Rating: • The rating scale 5, 4, 3, 2, 1 • Rating would be based on the level of Performance on a specific KRA based on the Achievement levels agreed at the beginning of the Financial Year. • No Distribution norms will be applicable. Overall Rating: • The rating scale ES, S, G, MI, U • DH level and above:- 50% competencies + 50% performance • Below DH level:- 40% competencies + 60% performance • Agreed distribution norms would be applicable. For the performance pay calculation, the overall performance is divided into two parts: • Business Performance • Individual Performance As an employee goes higher on hierarchy, the share of business performance increases and that of the individual performance starts reducing. The following table shows hierarchy wise (band wise) performance pay distribution: Step 5: Feedback and Counseling: In M&M Ltd., superior gives the feedback to the subordinate immediately after the final performance appraisal. Following points explain the very purpose of Performance Dialogue:
- 5. • The appraiser and the appraisee together review overall performance of an individual against agreed targets. • Helps in identifying Areas for Improvement. • Provides development opportunities for the growth of people. • Agree / Generate Data for actions relating to Increments, Promotions, etc. The next step that the Corporate HR department takes after collecting all performance appraisals is checking whether all the performance appraisals are normally distributed. If they are normally distributed, then Corporate HR department contacts the relevant departments and then after discussion, final letters are sent to the employees on 1st August every year.