Here’s How You Can Evaluate and Reward Employees Effectively
Key Result Areas and Key Performance Indicators are essential for setting an effective performance-based system. Here's what you need to know.
One of the most common mistakes of business owners is to evaluate and reward their employees based on a non-measurable or subjective assessment of their work performance. For example, in one of the companies I know, the owners are evaluating the performance of their managers based on a subjective ranking of excellent, very good, average, and poor ratings.
In another company, the owners are evaluating managers based on an evaluation form template that asked questions such as (1) Did the manager properly supervise his staff? (2) Did the manager regularly reported on time?, (3) Did the manager submit reports in a timely manner, (4) Did the manager achieve his or her targets?
And so on and so forth.
Disadvantages of a Subjective Evaluation
The problem with this process is that all the managers are being assessed with the same set of criteria (or questions)—which may not truly capture their actual work performance. For example, if a sales manager was always late or absent but was able to exceed his target by 200%, will he be rated overall as “average” because of his absences or will he be rated as “excellent” because he exceeded his target tremendously? Or how about an accounting manager who was never absent and submits reports on time, but the staff complains a lot about him or her? Will the manager still be rated overall as “excellent”?
In many instances, this kind of evaluation could result in the employees’ envy, distrust, and disappointment with the company’s management. Moreover, favoritism or patronage politics in the workplace will become the norm because of the absence of a measurable way or guide when assessing employee performance.
Key Result Areas and Key Performance Indicators
So how can business owners address such issues? One of the best practices in assessing the performance of employees is to identify specific Key Result Areas (KRAs) and to set measurable Key Performance Indicators (KPIs) for each employee.
While this process takes time, once it's complete, you can use the information as the basis for a comprehensive performance management system. That way, you can drive up the performance of your employees which, in turn, should significantly boost the company’s performance. Obviously, the KRAs and KPIs of each manager (or employee) will be different from each other because those will depend on the nature of the work being performed.
But take note—most companies who practice this systematic review revise their KRAs and KPIs every two years.
Key Result Areas, Explained
To further explain, Key Result Areas, or KRAs, are specific areas of concern or areas for improvement in a company. This can include operational items such as profits, processes, locations, markets, customers, accounts, structures, and assets. But what are examples of KRAs? If you are in the sales department, sales, repeat orders, and customers are your KRAs. On the other hand, if you are in the production department, KRAs include accidents, production costs, products produced. And if you are in the HR Department, hiring time, employee turnover, and training count as KRAs.
As you can surmise, each employee has different KRAs—depending on the nature of their work.
Key Performance Indicators, Explained
Key Performance Indicators, or KPIs, are business metrics—which can include numerical or quantitative metrics. These are used to measure the achievements of an organization and its employees. KPIs can be in the form of achieving an increase or decrease in certain factors, the percentages of achievements, specific target numbers, or the amount and attainment of specific timetables.
Examples of KPIs include 20% increase, PHP 100 million, zero, 10% decrease, or 1,000 bags of products.
