Why a democratic employee appraisal system is difficult to put in play

Frappe, an 11-year-old firm that sells cloud ERP solutions is in the third year of implementing its “pick your own pay” policy. Under this arrangement, employees decide their pay.

By far, the only wish every corporate employee has between March and April is to get the desired salary increment. However, macroeconomic conditions facing the company, and the candidate’s performance as perceived by the managers, come into play when deciding the hike.

Nevertheless, some corporations are trying to change the game. Their “democratic appraisal” policy is based on the idea of allowing employees to deliberate and decide what kind of increment they deserve and need.
Such examples are not common in India Inc, but there are always outliers.

Such as?

Frappe, an 11-year-old firm that sells cloud ERP solutions, is in the third year of implementing its “pick your own pay” policy. Under this arrangement, employees decide their pay.

But after they have gone through Frappe's finances through another policy called “radical transparency at work.” Its CEO thinks transparency allows people to judge how much the company can afford. Frappe was inspired by Ricardo Semler, who implemented it at the engineering and management firm Semco.

The cornerstone of the policy is trust and the idea that people are “not stupid.” “They understand that asking for an unreasonably high pay can lead to stress, pressure, and job insecurity,” Rushabh Mehta, Founder and CEO of Frappe, told Moneycontrol.

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Sahaj Software has tried to democratise its increment process as long back as 2014, the year in which the company was founded.

At Sahaj Software, the whole organisation comes together to debate, discuss, and arrive at what should be the company-wide wage hike percentage, which is then cascaded to an individual level.

Anyone who is dissatisfied with her/his numbers takes it up with the leaders for an open conversation and arrives at a mutually agreed-upon conclusion. Further, the organisation-wide hike percentage doesn’t come into effect until every individual has signed off on her/his hike.

“In a nutshell, while the overall organisation-wide hike may be, say, 13 percent, individuals may get a bit higher or lower than that,” said Akash Agrawal, Co-Founder and CEO, Sahaj Software, adding that in developed economies, the hike is mapped to the country parity as well.

What’s the impact?

At Frappe, if people are not comfortable with their hike they can consult anyone they like, including their leaders, but the final call is still theirs. Last year there was a massive inflation in engineering salaries. Seeing their peers outside Frappe, the company gave itself a 62 percent pay hike.

This spurred many to perform exceedingly well. Sadly, Mehta said that it also led some to overestimate their contribution.

“Picking your pay is not about free lunches, so we had to let a few of them go,’’ he said, adding, “While it had a very positive impact on engagement and motivation, it also led to higher attrition.”

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Sahaj claims to have lower attrition thanks to fine-tuning of the appraisal process to reflect the changing patterns in the industry, work environment, and needs of employees.

“This has been a major factor behind our low attrition rate of 10-12 percent compared to 25-26 percent in the rest of the industry,” said Agrawal.

Scalability

Experts say that the idea of infusing democracy and enabling transparency, all centred around the idea of trust, is easier said than done. More so, when in the age of job-hopping the average tenure of employees is getting shorter.

Jang Bahadur Singh, Director of Human Capital Solutions at consulting major Aon, feels such policies are not scalable for large organisations, and most compensation tools don’t support it.

“Culturally, we have been brought up in an environment where top performers associate recognition with high compensation and differentiation, which may be difficult to drive through this,” he said.

Singh added that most organisations do not want to experiment with something that is at the core of their talent management programme and “there isn’t enough evidence if this approach will work.”

Besides, the idea of group deliberation with all employees in a room poses other dangers.

According to Kartik Narayan, CEO of Staffing at TeamLease Services, said that in India's hierarchical culture it may be perceived as disrespectful for junior employees to provide feedback to their seniors, which could inhibit the implementation of a truly democratic appraisal policy.

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He said the policies in question are highly employee-centric and require a further evolution of the socio-economic landscape of our workforce before becoming practically implementable.

“These practices can only take root when a majority of the population already enjoys a reasonably high quality of life. Only in a society with a fair and adequate distribution of resources can pure meritocratic thinking emerge,” Narayan said.

However, Singh believes the present models can be used in future when companies adopt a hybrid or quasi-democratic appraisal.