How SMEs can deal with performance measurement and compensation challenges

Measuring performance of employees in the early stage itself will help SMEs grow more professionally.

A small business normally gets started because of an idea and the need to be on one’s own. The challenge is always about keeping the business running while working to make it grow for the long term.

In the early stages of the new business, it needs generalists who are like jacks of all trade. Later in the life cycle of the business, specialists and subject matter experts will be needed. They could be full time, contractual or on an assignment basis. Their compensation will be based on their contribution either direct or indirect. SMEs normally compensate them initially based on the perceived competence and the market conditions. The ensuing compensation changes have to be performance linked. Measuring performance in the early stage itself will help SMEs grow more professionally.

Performance measurement is successful when you accurately measure the contributions and are able to peg it to a scale ranging from inadequate to excellent performance. It has to be linked to certain targets and expectations for the work content/contract/role.

In the early stages of a business, an employee may perform multiple roles. But even then, there is always a primary role for every employee. As the organisation grows, more and more people may come and occupy the additional roles but the initial employees have to also grow in their role to meet the organisational demands. That means the individual has to acquire new skills and take on additional specialised responsibilities to grow his or her career.

Develop a job description (JD) to start with. This should also record the additional requirements as needed. Clarity on this from the beginning is a must for the leadership and this should be explained to individual employees. The rationale is that the increasing complexity that comes with growth needs more time and effort and hence the need for more dedicated roles with boundaries

SME owners should know that they do give multiple roles to some. For instance, in an IT company, HR, Admin, procurement, and resource allocation could end up with one senior loyal employee or friend of the founder.

Figure out what the primary role is. This will lead to a job evaluation, which ties in more closely with compensation and benefits. For the purpose of assessment, the JD is a particularly good starting point. It is extremely important to understand the organisational structure as it impacts the accountabilities and hence the expected contribution of the roles.

When seen as a process, every role will have an input, throughput and output. The input would be on what this role needs to know in order to handle its complexities that would include identifying problems. The know-how needed could be technical or practical knowledge, managerial skills like planning, organising or delegating, communicating, listening, presenting, and negotiating or persuading.

Throughput would involve the gamut of problems the role holder needs to solve. These could be internal, customer related or macro issues related to environment, government policies etc. The output would be the contribution of this role to the overall results of the organisation, such as engagement levels, revenue targets, customer satisfaction, productivity, etc.

For SMEs beginning the journey on performance assessment, the chronology of events would be as follows:

- Set targets for key performance indicators (KPI) as the starting point and do this before the beginning of the financial year. They may get modified a little during the period. The metrics for measuring the performance and for the attainment of results in different achievement levels need to be set and communicated. If there are multiple roles, the primary role will hold the maximum weightage. These will flow from the overall strategic objectives and business plans.

- Plan periodic intermediate measurements to track the goals, objectives and results. The targets must be quantifiable to track better. Behavioural areas are more difficult but can be tracked by having norms to cover these. For example, being cooperative is a three, going out of the way to help other team members in their task could be the maximum of five, etc. This can be done as a self-assessment by the assessee in addition to the tracking by the manager.

- Final assessment at the end of the period is the one that will impact financial compensation decisions and progressions. This would be easier if there is an objective measurement in place and if the observations are communicated transparently to the employees.

Performance measurement is complex and requires a deep dive into many of the areas touched above. SMEs are in a position to start this early with less complexity than large corporations.