Tag: Banking Operations and Innovations Bangalore University BBA Notes

The objective of the Ind AS 107 is to require entities to provide disclosures in their financial statements that enable users to evaluate:

• The significance of financial instruments for the entity’s financial position and performance; and
• the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the  reporting period, and how the entity manages those

The qualitative disclosures describe management’s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel. Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposures to risks they create

The Ind AS applies to all entities, including entities that have few financial instruments (e.g., a manufacturer whose only financial instruments are accounts receivable and accounts payable) and those that have many financial instruments (e.g., a financial institution most of whose assets and liabilities are financial instruments).

When this Ind AS requires disclosures by class of financial instrument, an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the statement of financial position.

Objective

1. The objective of this Indian Accounting Standard is to require entities to provide disclosures in their financial statements that enable users to evaluate:

(a) The significance of financial instruments for the entitys financial position and performance; and

(b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks.

The principles in this Indian Accounting Standard complement the principles for recognising, measuring and presenting financial assets and financial liabilities in Ind AS 39 Financial Instruments: Recognition and Measurement and Ind AS 32 Financial Instruments: Presentation.

Scope

This Indian Accounting Standard shall be applied by all entities to all types of financial instruments, except:

(a) Those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with Ind AS 27 Consolidated and Separate Financial Statements, Ind AS 28 Investments in Associates or Ind AS 31 Interests in Joint Ventures. However, in some cases, Ind AS 27, Ind AS 28, and Ind AS 31 permits an entity to account for an interest in a subsidiary, associate or joint venture using Ind AS 39; in those cases, entities shall apply the requirements of this Indian Accounting Standard. Entities shall also apply this Indian Accounting Standard to all derivatives linked to interests in subsidiaries, associates or joint ventures unless the derivative meets the definition of an equity instrument in Ind AS 32.

(b) Employers rights and obligations arising from employee benefit plans, to which Ind AS 19 Employee Benefits applies.

(c) [Refer to Appendix 1]

(d) Insurance contracts as defined in Ind AS 104 Insurance Contracts. However, this Indian Accounting Standard applies to derivatives that are embedded in insurance contracts if Ind AS 39 requires the entity to account for them separately. Moreover, an issuer shall apply this Indian Accounting Standard to financial guarantee contracts if the issuer applies Ind AS 39 in recognising and measuring the contracts, but shall apply Ind AS 104 if the issuer elects, in accordance with paragraph 4(d) of Ind AS 104, to apply Ind AS 104 in recognising and measuring them.

(e) Financial instruments, contracts and obligations under share-based payment transactions to which Ind AS 102 Share-based Payment applies, except that this Indian Accounting Standard applies to contracts within the scope of paragraphs 57 of Ind AS 39.

(f) Instruments that are required to be classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of Ind AS 32.

This Indian Accounting Standard applies to recognised and unrecognised financial instruments. Recognised financial instruments include financial assets and financial liabilities that are within the scope of Ind AS 39. Unrecognised financial instruments include some financial instruments that, although outside the scope of Ind AS 39, are within the scope of this Indian Accounting Standard (such as some loan commitments).

This Indian Accounting Standard applies to contracts to buy or sell a non-financial item that are within the scope of Ind AS 39 (see paragraphs 57 of Ind AS 39).

Classes of Financial Instruments and Level of disclosure

When this Indian Accounting Standard requires disclosures by class of financial instrument, an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the balance sheet.

Recognition and Measurement outlines the requirements for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-financial items. Financial instruments are initially recognised when an entity becomes a party to the contractual provisions of the instrument, and are classified into various categories depending upon the type of instrument, which then determines the subsequent measurement of the instrument (typically amortised cost or fair value). Special rules apply to embedded derivatives and hedging instruments.

IAS 39 was reissued in December 2003, applies to annual periods beginning on or after 1 January 2005, and will be largely replaced by IFRS 9 Financial Instruments for annual periods beginning on or after 1 January 2018.

Initial Recognition

IAS 39 requires recognition of a financial asset or a financial liability when, and only when, the entity becomes a party to the contractual provisions of the instrument, subject to the following provisions in respect of regular way purchases. [IAS 39.14]

Regular way purchases or sales of a financial asset. A regular way purchase or sale of financial assets is recognised and derecognised using either trade date or settlement date accounting. [IAS 39.38] The method used is to be applied consistently for all purchases and sales of financial assets that belong to the same category of financial asset as defined in IAS 39 (note that for this purpose assets held for trading form a different category from assets designated at fair value through profit or loss). The choice of method is an accounting policy. [IAS 39.38]

IAS 39 requires that all financial assets and all financial liabilities be recognised on the balance sheet. That includes all derivatives. Historically, in many parts of the world, derivatives have not been recognised on company balance sheets. The argument has been that at the time the derivative contract was entered into, there was no amount of cash or other assets paid. Zero cost justified non-recognition, notwithstanding that as time passes and the value of the underlying variable (rate, price, or index) changes, the derivative has a positive (asset) or negative (liability) value.

Initial measurement

Initially, financial assets and liabilities should be measured at fair value (including transaction costs, for assets and liabilities not measured at fair value through profit or loss). [IAS 39.43]

Measurement subsequent to initial recognition

Subsequently, financial assets and liabilities (including derivatives) should be measured at fair value, with the following exceptions: [IAS 39.46-47]

• Loans and receivables, held-to-maturity investments, and non-derivative financial liabilities should be measured at amortised cost using the effective interest method.
• Investments in equity instruments with no reliable fair value measurement (and derivatives indexed to such equity instruments) should be measured at cost.
• Financial assets and liabilities that are designated as a hedged item or hedging instrument are subject to measurement under the hedge accounting requirements of the IAS 39.
• Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, or that are accounted for using the continuing-involvement method, are subject to particular measurement requirements.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. [IAS 39.9] IAS 39 provides a hierarchy to be used in determining the fair value for a financial instrument: [IAS 39 Appendix A, paragraphs AG69-82]

• Quoted market prices in an active market are the best evidence of fair value and should be used, where they exist, to measure the financial instrument.
• If a market for a financial instrument is not active, an entity establishes fair value by using a valuation technique that makes maximum use of market inputs and includes recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and option pricing models. An acceptable valuation technique incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments.
• If there is no active market for an equity instrument and the range of reasonable fair values is significant and these estimates cannot be made reliably, then an entity must measure the equity instrument at cost less impairment.

Amortised cost is calculated using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or liability. Financial assets that are not carried at fair value though profit and loss is subject to impairment test. If expected life cannot be determined reliably, then the contractual life is used.

Recognition and Derecognition

A financial instrument is recognised in the financial statements when the entity becomes a party to the financial instrument contract. An entity removes a financial liability from its statement of financial position when its obligation is extinguished. An entity removes a financial asset from its statement of financial position when its contractual rights to the asset’s cash flows expire; when it has transferred the asset and substantially all the risks and rewards of ownership; or when it has transferred the asset, and has retained some substantial risks and rewards of ownership, but the other party may sell the asset. The risks and rewards retained are recognised as an asset.

Measurement

A financial asset or financial liability is measured initially at fair value. Subsequent measurement depends on the category of financial instrument. Some categories are measured at amortised cost, and some at fair value. In limited circumstances other measurement bases apply, for example, certain financial guarantee contracts.

The following are measured at amortised cost:

• held to maturity investments; non-derivative financial assets that the entity has the positive intention and ability to hold to maturity;
• loans and receivables; non-derivative financial assets with fixed or determinable payments that are not quoted in an active market; and
• Financial liabilities that are not carried at fair value through profit or loss or otherwise required to be measured in accordance with another measurement basis.

The following are measured at fair value:

• Financial assets and financial liabilities held for trading this category includes derivatives not designated as hedging instruments and financial assets and financial liabilities that the entity has designated for measurement at fair value. All changes in fair value are reported in profit or loss.
• Available for sale financial assets: All financial assets that do not fall within one of the other categories. These are measured at fair value. Unrealised changes in fair value are reported in other comprehensive income. Realised changes in fair value (from sale or impairment) are reported in profit or loss at the time of realisation.

A related party transaction is a transfer of resources, services or obligations between RE (reported entity) and related party regardless of whether a price is charged or not.

Objective

Related party relationships are a normal feature of commerce and business. Entities frequently carry on their business activities through its subsidiaries, joint ventures, associates and etc.

In general, users presume that the transactions in financial statements are presented on an “arm’s length” basis. However, the presumption may NOT be valid in case of the transactions between the related parties as the terms and conditions of related parties generally different from unrelated parties. Sometimes related parties may not charge anything for their services like interest free loans, free management services etc. Hence the related party relationship will have an effect on the financial position (BS) and operating results (P&L) of the entity.

Operating results and financial position will be affected because of related party relationship even if there is NO transaction between them.  The mere existence of the relationship may be sufficient to affect the transactions of the entity with other parties. For example: a holding company can ask its subsidiary to stop the relationship with a trading partner or it may instruct the subsidiary not to engage in research and development.

Sometimes, transactions would not have taken place if the related party relationship had not existed. For example, a company that sold a large proportion of its production to its holding company at cost might not have found an alternative customer if the holding company had not purchased the goods.

As the related party transactions may not take place at arm’s length, the entity should give sufficient information about the related party relationship and related party transactions so as to make the users understand the financial positions in its perspective. This standard establishes the requirements of such disclosures.

Scope

This standard is applicable to the consolidated & separate financial statements of a parent or investors with joint control/significant influence over an investee – who prepared financial statements under Ind AS 110, Ind AS 27. It is applicable to individual financial statements.

This Standard shall be applied in:

(a) identifying related party relationships and transactions;

(b) identifying outstanding balances, including commitments, between an entity and its related parties;

(c) Identifying the circumstances in which disclosure of the items in (a) and (b) is required; and

(d) Determining the disclosures to be made about those items.

This Standard is NOT applicable in the following circumstances:

• Entities need not follow the standard if the disclosure under this Ind AS affects the reporting entity’s duties of confidentiality.
• In case a statute or a regulator or a similar competent authority governing an entity prohibit disclosing certain information which is required to be disclosed as per this Standard disclosure of such information is not required. For example: banks are obliged by law to maintain confidentiality in respect of their customers’ transactions.
• In case of consolidated financial statements (CFS): Intra group transactions need NOT to be presented as CFS present information about the holding and its subsidiaries as a single reporting entity. This is not applicable for those between an investment entity and its subsidiaries measured at fair value through profit or loss, in the preparation of consolidated financial statements of the group.

This Standard applies only to the below related party relationships.

Disclosures to be made:

• Relationships between parent and subsidiaries should be disclosed irrespective of whether there have been any transactions or not. If the entity’s parent or the ultimate controlling party does not produce consolidated financial statements, then the next senior parent must be named in the consolidated financial statements for public use.
• An entity must report the compensation to the key management personnel in total and each of the categories such as short term employee benefits, post-employment benefits, termination benefits, share-based payment, and other long-term benefits.
• If key management services are obtained from another entity, then only the amounts incurred for the provision of such services shall be disclosed.
• If the entity has transactions with the related party during the financial year, then it shall disclose the nature of such transactions, and also all the details such as amount, outstanding balances including commitments, provision for doubtful debts, and the expense recognised in respect of bad and doubtful debts.
• The above disclosures will be made separately in respect of a parent, subsidiaries, associate, entities with joint control or significant influence over the other entity, joint ventures in which the entity is the venturer, and key management personnel of the entity or parent and other related parties.

Related Party

A related party can be a person, an entity, or an unincorporated business.

A related party is a person (individual) or entity that is related to the entity that is preparing its financial statements.

(a) A person or a close member of that person’s family is related to a reporting entity if that person:

(i) Has control or joint control of the reporting entity;

(ii) Has significant influence over the reporting entity; or

(iii) Is a key management personnel (KMP) of the reporting entity or it’s parent entity.

(b) An entity is related to a reporting entity if any of the following conditions applies:

(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member i.e., associate or joint venture of co-subsidiary);

(iii) Both entities are joint ventures of the same third party;

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity;

(vi) The entity is controlled or jointly controlled by a person identified in (a);

(vii) A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity);

(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.

Control is the power over the investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns.

Joint Control is the contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control of those policies.

 (a) An INDIVIDUAL becomes related party to the reporting entity, when that individual or his family’s close member

• Has Control or Joint control or Significant influence over the reporting entity;
• Is Key managerial personnel in the reporting entity or it’s parent entity; (Not in co-subsidiary entity)

Close Member of the family:

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity including:

(a) That person’s children, spouse (married) or domestic partner (a person who is living with another in a close personal and sexual relationship but not married), brother, sister, father and mother.

(b) Children of that person’s spouse or domestic partner.

(c) Dependents of that person or that person’s spouse or domestic partner.

Related Party as per Companies Act, 2013 According to section 2(76) of the Company’s act, 2013 related party with reference to company means:

i) a director or his relative;

) a key managerial personnel or his relative;

i) A firm, in which a director, manager or his relative;

ii) A private company in which a director or manager or his relative is a member or director.

iii) A public company in which a director or manager is a director and holds along with his relatives, more than 2% of its paid-up capital;

iv) Anybody corporate who’s Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager.

v) any person on whose advice, directions or instructions a director or manager is accustomed to act provided that nothing in sub-clauses (vi) and(vii) shall apply to the advice ,directions or instructions given in a professional capacity.

vi) any body corporate which is:

A) A holding, subsidiary or an associate company of such company;

B) A subsidiary of a holding company to which it is also a subsidiary; or,

C) An investing company or the venturer of a company means a body corporate

Related party Transaction

Related Party Transaction can be understood as a deal or arrangement made between two parties or entities that are joined by a pre-existing business relationship or common interest. It is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.

All related party transactions require approval of Audit Committee. All contracts that are (1) not in the ordinary course of business but at arm’s length (2) in the ordinary of course of business but not at arm’s length or (3) not in the ordinary course of business and not at arm’s length require prior approval of board of directors or shareholders based on certain thresholds.

Penalties: Any director or any other employee of the company, who had entered into or authorised the contract in violation, as per section 188 of the companies act they are punishable:

a) In case of listed companies, imprisonment upto 1 year or fine from 25,000 to 5 lakhs or both

b) In case of other companies , fine from 25,000 to 5 lakhs.

Main purpose of Related Parties regulation: To regulate transactions between the company, its subsidiaries and its related parties with a view to ensure that such transactions are executed on an arm’s length basis and is transparent and fair manner.

Importance

They provide transparency on how its financial position and financial performance may be affected by transaction with related parties which may or not be conducted on an arm’s length basis.

Under the new law, in relation to every RPT, directors have to necessarily check most importantly the following two criteria:

a) Whether the contracts or arrangements is in the “ordinary course of the business” of the company.

b) Whether the terms and conditions of such contracts or arrangements are on “arms length basis”.

The transaction will be with Related Party in case it is with any of the following:

a) With any Director of Company.

b) With any relative of a Director.

c) With any KMP or relative of a KMP.

d) With any firm in which Director or his relative is a partner.

e) With any private Company in which a Director is a member or Director)

f) With a Public Company in which a Director is a member or Director and additionally holds along with his relative(s) 2% or more paid-up share capital of a Public Company.

g) With a Subsidiary Company h) With an Associate Company in which Company has more than shareholding.

i) With a body corporate which is significantly influenced by a Director of a company.

j) With a person who has control or significant influence over the Company.

Following transactions with above related parties will constitute related party transactions:

a) Sale, Purchase or supply of any goods or material by a Company.

b) Selling or disposing off or buying any property by Company.

c) Leasing of any property by Company.

d) Availing or rendering of any services by Company.

e) Appointment of any agent for purchase or sale of goods, materials, services or property by Company.

f) Any related party’s appointment to any office or place of profit in Company.

g) Company or its subsidiary Company or its associate Company.

h) Underwriting the subscription of any securities or their derivatives of Company To determine a transaction a related party transaction following points to be ensured:

a) The transaction should be entered on an Arm’s length basis.

b) Take prior approval of Audit Committee of the Board in respect of all related party transactions

c) Approval of shareholders through special resolution if the related party transaction during a financial year exceeds 10% annual consolidated turnover of a company.

d) Prior approval of the Board is required in case a related party transaction is not in the ordinary course of business and not on an Arm’s length basis.

Related-party transactions are legitimate activities and serve practical purposes:

They are recognized in corporate and taxation laws.

They have their own standards for accounting treatment.

Systems of checks and balances have been built around them to make sure they are conducted within these boundaries.

Performance evaluation is the process of evaluating how effectively employees are fulfilling their job responsibilities and contributing to the accomplishment of organizational goals.

Performance evaluations are extremely important to an organization, although they may be difficult to conduct. They tell organizations whether their selection methods are right.

They demonstrate where training, development and motivational programs are needed and later help to assess whether these have been effective.

As a matter of fact, many organizational policies and practices are evaluated, in large part, through their impact on performance.

Performance evaluations, after all, are the basis on which managers make decisions about compensation, promotion, and dismissal.

Purpose of performance evaluation

• Periodic performance evaluation is an employee’s report card from his/her manager that acknowledges the work he/she has done in a specific time and the scope for improvement.
• An employer can provide consistent feedback on an employee’s strengths and strive for improvement in the areas that the employees need to work on.
• It is an integrated platform for both the employee and employer to attain common ground on what both think is befitting a quality performance. This helps in improving communication, which usually leads to better and more accurate team metrics and, thus, improved performance results.
• The goal of this entire process of performance evaluation is to improve the way a team or an organization function, to achieve higher levels of customer satisfaction.
• A manager should evaluate his/her team member regularly and not just once a year. This way, the team can avert new and unexpected problems with constant work being done to improve competence and efficiency.
• An organization’s management can conduct frequent employee training and skill development sessions based on the development areas recognized after a performance evaluation session.
• The management can effectively manage the team and conduct productive resource allocation after evaluating the goals and preset standards of performance.
• Regular performance evaluation can help determine the scope of growth in an employee’s career and the level of motivation with which he/she contributes towards the success of an organization.
• Performance evaluation lets an employee understand where does he/she stands as compared to others in the organization.

Performance evaluation;

• Is the systematic evaluation of the performance of employees and to understand the abilities of a person for further growth and development,
• Is a process of evaluating an employee’s performance of a job in terms of its requirements,
• Is the process of evaluating the performance of employees, sharing that information with them and searching for ways to improve their performance,
• Provides the basis for assessment of employee contributions, coaching for improved performance and distribution of economic rewards,
• Refers to the outcome of the behaviour of employees.

360-degree review

The 360-degree survey is a comprehensive review mechanism that helps gather the greatest insights and feedback on an employee’s performance from his/her supervisor, peers, colleagues, and subordinates.

Supervisor evaluation

The supervisor evaluation survey is deployed to collect feedback and information from employees related to their supervisor. Supervisor evaluation helps an organization and its leadership understand the accuracy of the work done by the supervisor and also help them evaluate the overall value the supervisor adds to his/her team and to the organization as a whole.

Manager evaluation

A manager evaluation survey offers a set of questions that are answered by the employees to evaluate their direct or indirect manager’s effectiveness at work. This survey is extremely useful for the management to understand the manager’s performance, the attitude at work, willingness to help his/her subordinate, and more.

Senior management evaluation

Senior management evaluation survey questions are used to understand the employee’s perspective of the senior management and evaluate their abilities to be able to run the organization smoothly. This questionnaire should have questions that help an organization gather insights on effectiveness, direction, policy-making abilities, and other useful traits. 

Employee satisfaction surveys and employee engagement surveys are also one of the best ways to conduct the performance evaluation. A satisfied and engaged employee is most likely to perform 14% better than his/her counterparts (Gallup).

Employee satisfaction

An employee satisfaction survey is deployed to understand how satisfied or dissatisfied your workforce is. It is essential you measure employee satisfaction as dissatisfied employees not only not perform well but also can be a major reason for high levels of employee attrition in an organization. This survey can power your workforce and HR strategies to cultivate a work culture that enables your organization to win from within. Many times, if an employee doesn’t feel challenged enough, then he/she remains unsatisfied with the work. Performance evaluation can find reasons behind one’s contribution to the company and ways of enhancing it.

Employee engagement

Employee engagement survey enables you as an organization to test the levels of engagement of your employees and to understand how motivated they are to perform well in the workplace. Employee engagement is a matter of concern for most organizations, and disengaged employees set a negative example for other employees. Disengaged employees perform poorly as compared to their colleagues. Thus, this survey can be used to analyze and review the level of performance of an employee and take corrective measures immediately.

Objectives:

• To confirm the services of probationary employees upon their completing the probationary period satisfactorily.
• To effect promotions based on competence and performance.
• To assess the training and development needs of employees.
• To decide upon a pay raise where (as in the unorganized sector) regular pay scales have not been fixed.
• To let the employees know where they stand insofar as their performance is concerned and to assist them with constructive criticism and guidance for the purpose of their development.
• To improve communication, performance evaluation provides a format for dialogue between the superior and subordinate and improves understanding of personal goals and concerns. This can also have the effect of increasing the trust between the rater and the ratee.
• Finally, performance evaluation can be used to determine whether HR programs such as selection, training, and transfers have been effective or not.

Advantages

Career Development

Performance evaluations allow managers to help employees with career development. Performing an unbiased evaluation can point out where employees are excelling and the areas needing improvement. After the evaluation is completed, managers can develop plans with specific tasks to help employees develop in their career and meet goals that benefit the company. Evaluations can help employees increase their commitment to the firm and productivity. Employees that add value to the firm are considered first when better positions open up and employers decide to promote from within.

Work Achievement Recognition

Performance evaluations give managers a chance to recognize employees who performed well during the evaluated year. Recognizing employees for their achievements builds their morale, and employees with high morale are more productive. If monetary bonuses and raises are given based on performance evaluations, employees possess tangible evidence that shows the company values their hard work. Employees can list achievements received by an employer as awards on their resume if ever looking for another job.

Disadvantages:

A disadvantage of performance evaluations is that the managers evaluating employees may show bias to certain employees, which may happen intentionally or unintentionally. One major risk of using performance evaluations is that some managers unconsciously favor employees that possess similar characteristics as the manager. Bias causes managers to focus more on the personality and style of the employee instead of the actual achievements. This can result in good employees feeling slighted, which may cause tension in the workplace. Bias also affects the favorable employee because he may miss much-needed guidance to improve his performance.

One-Sided Feedback

Another disadvantage of performance evaluations is that the meeting can result in a one-sided conversation. Although a manager may give an employee a chance to offer feedback, some managers already make up their mind about an employee and are not opened to two-sided dialogue. If the performance review is one-sided, employees may feel as if their opinions do no matter. This may cause an employee to shut down and refuse to communicate with management in the future. Managers should listen to feedback presented by employees, and correct evaluations if employees make valid points.

Performance evaluation process

Step 1

In most organizations, a performance evaluation process states that an employee’s performance is tracked every three and six months, provided, the employee has worked with the organization continually for that tenure. The HR department can send across an online survey for the employees to fill out regarding their satisfaction and engagement levels.

Step 2

The employee’s immediate manager will decide his/her performance quality after evaluating the yearly performance, conducting an employee engagement survey, and eventually having a face-to-face meeting.

Step 3

The feedback received from the online employee satisfaction survey can be kept anonymous. This feedback can be analyzed in real-time from a centralized dashboard. On the basis of the analysis, the manager can prepare further questions for the face-to-face performance evaluation meeting.

For a probationary employee to be termed as a tenured employee, he/she must perform as per their supervisor’s expectations for six months. The first six months of an employee’s tenure are crucial as the management always has a watchful eye on them for all their contribution towards assigned tasks, ownership skills, and punctuality in task completion.

Mid-cycle Review Process

The Mid-cycle Review is an informal 1:1 meeting between supervisor and employee to discuss the performance plan previously established. During the mid-cycle review, teams informally assess whether expectations are being met and if any readjustments need to be made.

Mid-year evaluations are formal, and they’re needed. People may leave anytime. You don’t want to have a poorly performing employee leave the company one month before the annual performance reviews. Also, bonus policies are dependent on performance. The more transactional the work is, the more consistent and continuous it becomes concerning performance metrics. Therefore, this mid-year formal review allows managers to sit with their team members and figure out the roadblocks, objectives, and achievements.

• Adjustments to goals may occur, where appropriate.
• Conversations may be documented, if desired.
• Supervisor and employees should acknowledge successes and note opportunities for improvement.

Steps:

No Last-Minute Meetings

Book the meeting a few days in advance and be consistent with your check-ins and provide the employee with proper meeting objectives and time to prepare.

Let the employee know that it is not a quick meeting to talk about small issues. But rather a formal conversation on things that matter. Communicate the purpose of the meeting clearly and make sure the employee understands the agendas without any confusion.

Adequate Preparation

A great manager ensures that their employees know they are as invested in their success as they are. That’s why it’s better to start preparing in advance. Talk to peers or stakeholders the employee has worked with and take notes. Prepared a detailed list of goals and responsibilities and what was achieved concerning those objectives. A list of actionable items will help you provide constructive feedback instead of vague conversation.

During the Review Meeting

Keep it formal, direct, and backed by data. Listen to employee input and incorporate acknowledgment of different perspectives. Also, this meeting is as much about the next 6 months as it is about the last 6. Refresh objectives, create plans, and help your employees feel motivated.

• Meet somewhere quiet, with no distractions.
• To start, re-iterate the purpose of the meeting with the agenda for the day.
• Allow the employee to share his version of the happenings of the last 6 months first.
• Review the progress of goals and communicate your feedback.
• Discuss the action plan for the next 6 months.
• Allow the employee to ask questions.

Follow-Up

A manager’s duty isn’t over once the meeting is over. Do follow-up on the items discussed in the meeting. Send an email after the mid-year review to talk about key points and tasks for the employee. It will help you keep a check on the promise made during the meetings.

Performance Review

The Performance Review is the process in which both supervisor and employee formally assess performance and meet 1:1 to discuss the overall performance of the year, according to the expectations set in the plan and any adjustments made during the mid-cycle review.

• Employee self-assesses online.
• Supervisor assesses employee online.
• Both supervisor and employee meet 1:1.
• Acknowledgements from the employee and employee supervisor.

End-cycle Review Process

End of the Rating Period

• Employees should complete the Self-Assessment around eleven (11) months and give to their supervisor. Employees may leave sections blank if appropriate or desired.
• At the end of the performance review period, the supervisor will complete the Annual Review and Salary Review Addendum and submit it to the school/department management center HR office for approval to ensure the Annual Review language is appropriate and pay guidelines are followed.
• Once the Annual Review and proposed salary increase are approved and signed, the management center returns the Annual Review to the Supervisor.
• The supervisor will hold an end of the rating period performance discussion with the employee. Supervisors should give employees sufficient notice of when their performance discussion will be scheduled so that employees may prepare for the discussion. It is recommended to give employees at least one to two (1-2) days’ notice.
• The supervisor and employee together will review the past year’s performance, including objectives and goals and the performance rating appropriate for the performance over the same time frame. If the evaluation of the employee’s performance changes based on their self-evaluation or the discussion, the supervisor should re-submit the Annual Review Form for review and approval by the management center.
• Employees should sign the completed Salary Review Addendum Form that has already been approved by the management center. The form is a means of documenting the outcome of the discussion, but is not a substitute for a one-on-one discussion with the employee. Employee’s signature acknowledges receipt only, not agreement. The Salary Review Addendum and Annual Review should then be submitted to the management center’s HR office (or directly to HR Records if instructed by the management center) within one (1) business day of signature so the Annual Review can become part of the Employee’s personnel file and any salary increase, if applicable, can be entered into the Employee’s next paycheck.

A review is not a guarantee of an increase. Additionally, employees who have below average ratings do not qualify for a salary increase.

Reliable and Valid:

Appraisal system should provide consistent, reliable and valid information and date. Appraisals should measure what they are supposed to measure. For example, if the objective of appraisal is to show potential of an employee for promotion, it should supply the date relating to potentialities of the employee.

Clear Objectives:

The objectives of performance appraisal should be clear, specific, timely and open. The appraisal system should be fair and beneficial to both the individual employee and the organization should be linked with other subsystems of personnel management.

Standardisation:

The appraisal form, procedures and rules should be standardised. There should be well-defined performance criteria and standards. Employees should be made fully aware of these standards as appraisal decisions affect all employees of the group.

Fob Relatedness:

The appraisal system should focus attention on job-related behaviour and performance. It should provide information on job related activities and areas.

Training:

Evaluators should be given training in procedures and principles of appraisal. They should be provided with knowledge and skills in designing appraisals, conducting post appraisal interviews and correcting rating errors.

Mutual Trust:

Before introducing the appraisal system, a climate of mutual trust, cooperation and confidence should be created in the organisation. Under the system, the employees should be treated in a supportive manner.

Help Focus:

Appraisal should not judegemental. It should not be purely control- oriented. The evaluator should also play the role of coach and counsellor. He should- help people reach their full potential. The overall purpose of appraisals should be developmental.

Feedback and Participation:

The ratings should be communicated to both the employees and the raters. The appraisal r system should be open and participative. The employees should get information on their performance. The system should involve employees in the goal setting process.

Recognition of Differences:

Organisation differs in terms of work, size, resources, needs and environment. Hence, the appraisal system must be designed to meet the needs of particular organisation. It should be specific and tailor made for the particular company.

Post Appraisal Interview:

An appraisal system is only as effective as the manager is iii communications. Hence, an interview with the employee should be arranged after appraising his performance. It will help to know the difficulties of work and training needs of employees. In interview, problem solving approach should be adopted and counseling should be provided for improving performance.

Role of Top Managers in Performance Management

The top managers play a lead in the entire process by setting trends for the lower rung and acting as role models for the employees. Their responsibility is to design policies which ensure an efficient management of performance in an organization and to define and act upon the core values relating to performance. Top management plays a vital role in convincing the line managers that performance management can be instrumental in the achievement of business goals and thus ensure that they take this aspect seriously in their work front for maximizing employee satisfaction and productivity.

Top managers are expected to develop a high performance culture in an organization by ensuring the following:

• By communicating an organization’s mission and values to its customers and employees.
• By clearly defining the work expectations and communicating to everyone for ensuring success in the achievement of business goals and facilitating an overall performance improvement.
• By keeping the employees informed about their progress towards the achievement of goals and suggesting corrective actions for non-achievement of performance.
• By establishing a shared belief amongst the employees regarding the importance of continuous improvement in performance.

Managing your employees, helping to develop their skill sets and growing their productivity in a meaningful way is no easy task! Fortunately, there are some excellent tools available today to make it all a lot easier.

Orientation

It sounds pretty basic but we’ve seen time and again that Managers get the following wrong! Simply put, managers should provide each new employee with a copy of their specific job description.

Ideally, candidates get a copy of their job description during the recruitment and selection process. A manager’s primary role is to provide new employees, as well as seasoned employees with the tools necessary to perform their job functions. Identifying key KPIs sets the stage for ongoing performance evaluation and ensures accountability within the workforce.

Managers also are responsible for workforce planning as it relates to performance evaluation workforce planning matches the right job assignments and tasks with employee skills, qualifications, and interests.

Training

We believe that an enormously important part of the performance evaluation process includes employee training and development, which are within the purview of an HR and management role.

Although managers may use the talent of experienced, long-term employees to assist with skills training, the ultimate responsibility for training rests on the shoulders of the department manager. In addition to developing the skills and capabilities of their employees, managers identify employees who have high potential. Such employees are distinguishable from high performing employees. Managers use their own skills and talent to select employees who demonstrate aptitude and promise.

Feedback

Managers are responsible for providing employees with constructive feedback on a regular basis.

Throughout the evaluation period, managers give their employees ongoing support, feedback and counseling on performance issues and, when necessary, disciplinary and corrective action. When employee performance suffers, managers are the first ones to observe the decline. It’s their responsibility to address performance issues and determine whether an employee needs skills training or corrective action to return her to an acceptable performance level.

Appraisal

The culminating stage in the performance review is the actual performance appraisal. Managers complete leadership training that enables them to understand the importance of performance management and evaluation, as well as how to prepare for and conduct an annual performance appraisal. Preparing for an appraisal requires that managers know how to rate employees; their duty is to rate employees according to the company’s expectations and performance standards. Therefore, a manager’s role includes observation and assessment. It’s up to the manager to conduct an appraisal meeting that employees look forward to and one that encourages employees to achieve their goals year after year.

As a manager, you are expected to:

• Use the performance management process as a valuable tool for supporting employee development and improvement.
• If your employees sense a lack of interest on your part, they’ll lose interest too.
• When talking with your team about the process, be sure to emphasize its benefits, and encourage employees to take ownership of their own performance and development.
• Determine an appropriate schedule for regular performance conversations with those you manage directly.
• Conduct short, regular meetings to discuss and record milestones, accomplishments, successes and challenges as they occur, when details are fresh in both your minds. This will allow you to better monitor progress on goals, and provide coaching as required. Plus, these short meetings reduce the effort it takes to prepare for and conduct your annual performance reviews because you’ve tracked progress and performance and provided the needed feedback when it was most valuable.
• Use the annual performance review meeting to review the achievements, setbacks, development and training that have already been discussed throughout the year — and then use this information to establish goals and a development plan for the coming year.
• Deliver regular positive and constructive feedback.
• Give employees feedback during one-on-one meetings and informally as regularly as possible.
• Commend your employee in front of their peers.
• Make performance notes about each employee in the period between conversations, so that come conversation time, you have concrete examples to share.
• Remember that the goal of feedback is to describe desired behaviors and expectations, not to dwell on undesirable behaviors.
• Check-in on goal progress
• Regularly check in with employees on their progress on goals; offer coaching or assistance, or revise goals as necessary.
• Communicate and revisit performance expectations.
• Communicate your organizations’ performance standards and expectations to your employees. This will help your employees differentiate between acceptable and unacceptable behaviors and results and reduce any misunderstandings.
• Gather feedback on employee performance from multiple sources. Use a 360-degree feedback or survey tool to complete and validate your own observations and perceptions.
• Improve your management and leadership skills.
• Take the time to learn how to be a better manager and coach. Invest in your own development!
• Acquaint yourself with the different management needs of the different generations.
• Employees from the Millennial generation may have different needs and different expectations of managers. Research tells us they require constant feedback and recognition, and expect quick career advancement. Workers from other generations have different needs. Learn what motivates each employee, and adjust your management approach accordingly.
• Coach your employees in a way that strengthens two-way communication and reinforces desired behaviors.
• Coach when you want to focus attention on a specific aspect of the employee’s performance.
• Advise the employee ahead of time of issues you want to discuss.
• Focus on describing your expectations and the desired behaviors rather than describing the gaps.
• Take the time to understand why their performance is what it is, and get them to take ownership for performance improvements.
• Support your employees’ professional and career development while making them accountable for it.
• Regularly ask employees about their career aspirations and help them identify areas they may wish to improve or develop, as well as resources available.
• Ensure each employee has a well-defined job description and understands the skills and competencies they must develop in order to progress up the career ladder.
• Give your employees the time and flexibility they need to complete learning and development activities.
• Ensure development is having an impact on performance.
• Submit your completed employee reviews by the designated deadline.
• Failing to complete your formal performance review documentation on time sends your employees the message that recognition of their success and support for their development is not your top priority. It may also delay any pay for performance/ merit increases or bonuses your organization allocates to employees based on their performance ratings.
• Understand and correctly use your organization’s rating scale.
• Be objective and have quantitative/qualitative facts ready to substantiate the ratings you give.
• Provide details on how the employee demonstrated the core and job specific competencies you are rating them on.
• Provide details on how they accomplished their goals, the milestones they met and work products they delivered.
• Assign each employee a development plan to help them improve their performance and support the organization’s success.

Employees’ responsibilities

• Work towards achieving your individual goals, which help the organization reach its objectives.
• You and your manager should have set these goals collaboratively as part of your performance management activities.
• Keep track of your progress on your goals and regularly communicate their status to your manager, especially if you’re facing challenges that could prevent you from achieving your goals.
• Take responsibility for your own professional and career development.
• Be clear about how you would like to grow professionally.
• Know what knowledge, skills and experience you want and need to develop.
• Actively seek opportunities for professional and career development, both in the organization or through external learning resources.
• Be open to feedback
• Accept constructive feedback and take the initiative to improve.
• Complete any development plans assigned to you and apply the learning to improve your performance.
• Seek support as required
• Work to establish and maintain a healthy relationship with your manager.
• Ask your manager for feedback and guidance, especially when you encounter challenges.
• Solicit feedback and guidance on your performance from others you work with.
• Keep a record of your performance achievements, successes and challenges.
• Keep a performance journal and share things like your successes, and the feedback and recognition you receive from others with your manager.
• Give others feedback.
• Just as you need feedback and recognition to improve your performance, your co-workers need it too. Give feedback verbally, as well as using online communication and social collaboration tools available to you. And don’t be afraid to copy managers on your written feedback so they can gain more insight into their employees’ performance.
• Complete your self-appraisal by the specified deadline.
• Reacquaint yourself with your job description, critical competencies for the role and performance expectations as defined by the organization.
• Understand and correctly use the organization’s rating scale.
• Be honest about your performance but don’t underestimate your abilities.
• Be objective and have quantitative/qualitative facts ready to substantiate the ratings you give yourself.
• Provide details on how you demonstrated the core and job specific competencies you are being rated on.
• Provide details on how you accomplished your goals, the milestones you met and work products you delivered.
• Consider your current knowledge, skills and abilities as well as your career aspirations and identify learning activities that could benefit you and your organization.
• Draft your goals for the coming period, making sure they in some way contribute to the organization’s goals, and are appropriate for your role.