The company that has been selected for analysis is Infosys. Infosys Limited is a global leader in consulting, technology and outsourcing solutions. The company was founded by Narayana Murthy and six engineers in 1981 with a capital of $250 borrowed from Murthy’s wife (Baisya, 2010). The founders gave up their jobs and came up with an idea about establishing a globally respected software company. In the same year, Infosys was incorporated as Infosys Consultants Private Limited (Soltanifar, 2016). Today, Infosys is a listed global consulting and IT services company with over 198,000 employees. From $250, Infosys became a $10.4 billion company with a market capitalization of approximately $34.50 billion (Infosys, 2017).?
Infosys began to grow rapidly during the 1990s, went public in 1992, became Infosys Technologies Limited and issued initial public offering (Soltanifar, 2016). By 1999, the company ventured into other countries and opened sales offices and R;D centres (Infosys, 2017). Moreover, Infosys became the first India-registered IT company to be listed on NASDAQ (Saran, 2011). In India, the company is also the best employer and the biggest listed software company and software exporter while in the industry. In addition, Infosys employed several world-class practices which effectively creating value for its customers and stakeholders (Mastakar and Bowonder, 2005).
Since 1981, Infosys’ principle has been building and implementing ideas that drive progress for clients and enhance lives through enterprise solutions. From engineering to application development, knowledge management and business process management, Infosys help their clients to identify the problems and solve them effectively (Infosys, 2017). Infosys also specialised in helping companies to outperform their competitors, keep them ahead of the curve and at the same time allowing them to focus on their core business priorities. Infosys is always committed in delivering powerful innovations to its clients by providing solutions to manage their business and powering their transformation to a smarter organization (Soltanifar, 2016).
For the past 30 years, Infosys has introduced several major changes, as a result, India has become a global destination for software services talent (Gummadi, 2015). In terms of achievements, Infosys pioneered the Global Delivery Model (GDM) which lays the foundation for IT services outsourcing from India. The GDM enables Infosys to improve quality and innovation, reduce IT infrastructure costs and labour expenses and provide more scheduling flexibility (Murthy, 2009). Besides, Infosys is also well known for its innovative, employee friendly HR practices (Makwana and Dave, 2014). Through Infosys’ Employee Stock Options Programme, it created some of India’s first salaried millionaires.
Performance appraisal has become an essential instrument for companies to measure employee performance (Gogoi and Baruah, 2016). It was developed as part of formal management procedures to improve organisational profitability. Hence, formal systems were introduced to evaluate performance (Lyster and Arthur, 2006). Performance appraisal is an important management technique, which serves the purpose of increasing employees’ performance in order to boost productivity through goal setting and provide a rational basis for decision making pertaining to human resources. Thus, performance appraisal is a systematic and objective way of judging the employees’ ability in performing their jobs (Deb, 2008).
The performance appraisal can be described as a process of evaluating employees’ performance in relation to their job requirements (Xavier, 2015), job responsibilities (Mondy and Mondy, 2014), as well as organisational performance standards (Lawaj, 2014). It communicates actual performance, creates an opportunity to provide feedback based on the results to keep employees on track. It is also designed to guide promotions, demotions, transfers and layoffs (Alston and Marschke, 2008). At Infosys, the company came up with its own performance appraisal system which seeks to improve employees’ performance by assessing employees individually, provide feedback and reward them according to their contributions.
To evaluate employees’ performance, Infosys adopted a system known as iCount, the system follows the approach of “open-ranking” of employee’s performance. This has transformed the way performance management is done at Infosys, with more concentration on individual performance rather than relative performance. With iCount, employees will receive feedback and subjected to reviews throughout the year (Sen, 2016). Additionally, feedback is given from all quarters, including their peers, managers and stakeholders. While iCount evaluates their performance, the system will also look into each employee’s performance throughout the year rather than relative performance at the end of the year (Shrivastava and Rajesh, 2017).
This system focuses on individual contribution and continuous feedback. The process of appraisal begins when a task is assigned to an employee, then the employee will discuss the expected result of the task with the manager and reach a mutual agreement. As soon as the task is completed, feedback and task rating is given and a new task will be assigned. Every task assigned is recorded in iCount and the process of feedback and rating is carried out until year-end. During the annual appraisal, employees will be rated based on their performance throughout the year. Also, Infosys may turn the iCount appraisal system into a mobile application whereby feedback can be gathered on a real-time basis (Chandran, 2016).
Moreover, Infosys carries out performance appraisal by evaluating employees based on their personal skills for the tasks assigned during the period of appraisal. Different criteria including timelines, quality of work, customer satisfaction, peer satisfaction and business potential are considered when evaluating their performance. Besides, their personal skills are also evaluated based on learning and analytical ability, communication skills, decision making, change management as well as planning and organising skills. Using a 5-point Likert scale, each criterion is measured with 1 signifying above the expected performance level and 5 below the expected performance level (Deb, 2008).
Infosys’ Rewards System
After the performance appraisal process, companies will reward employees on the basis of their results for the purpose of motivating them to ensure they continue to perform well in the future. Organisational rewards are known to increase employees’ motivation which leads to increase satisfaction. Thus, reward system is essential to encourage employees to work harder, maintain the performance and contribute to organisational objectives (Munap, Badrillah and Rahman, 2013). In a study by Ali and Ahmed (2009) found a correlation between reward and employees’ motivation and satisfaction. Moreover, rewards system serves as the most contingent factor in maintaining employees’ passion and self-esteem (Danish and Usman, 2010).
At Infosys, the implementation of iCount measure performance accurately and seeks to reward individual performance on the basis of specific tasks (Singh, 2016). The complexity of tasks assigned is depending on the role of the employee, it can range from bagging an important customer account to managing a certain customer event. With iCount, the system helps Infosys to identify and reward individuals who contributed more to the company (Sen, 2016). During the annual appraisal, employees will receive a final rating according to their performance throughout the year and the rating is used for rewarding employees such as allocation of bonuses, salary increment and promotions.
Moreover, Infosys also rewarded its employees with a variable pay to raise their morale and help stem attrition. To differentiate high-performers and non-performers, employees with the top ratings will receive 50-90% of their variable salary while low rating employees will only receive up to 30%. As for executives, a 10-25% is given depending on seniority. Besides, the founder, Narayana Murthy decided to further reward top performers by introducing iRace, a modified talent management platform. It consists of large and complicated exercises in which 25 career streams were created. This formed the basis for promotions by defining roles and linking them to employee strengths (Srivastava and Singh, 2016).
Apart from monetary rewards, Infosys also offered shares to its employees through the Employee Stock Options Programme (ESOP). This programme enables employees to invest in their own company and their compensation is depended on the performance of individual, the team and the company (Deb, 2008). The intention of ESOP is to provide employees with appropriate incentives, to create shareholder value and to share a part of the value created with the employees (Khanna and Palepu, 2004). The programme will benefit Infosys since ESOP is an effective tool to for compensation and can potentially attract and retain talent. On the other hand, it aligns employees with the long-term vision of the management (Sen, 2016).
Figure 3: Infosys’ talent management platform, iRace
Evaluation of Infosys’ Performance Appraisal System
With iCount’s key characteristics, the system can improve the performance culture in Infosys via continuous evaluation and feedback throughout the year (Shrivastava and Rajesh, 2017). Organisations usually conduct performance reviews annually to effectively reward high performers with annual pay raise and bonuses. Feedback, however, is less effective since much time is allowed to elapse between performance and feedback (Javad and Sumod, 2015). With iCount, each employee is evaluated more frequently than the erstwhile system. After a task is completed, employees will be evaluated immediately by comparing actual results to expected results. Then, feedback is given in a scheduled and continuous manner along with another task.
Continuous performance evaluation and feedback is an important process because it not only bridges the gap between the expected and the real performance, but also involves setting employees’ expectations, communicating and aligning them towards it as well as reviewing on regular intervals to ensure effectiveness. Lee (2005) stated that feedback should be given regularly as part of an effective performance appraisal system. Nevertheless, asking managers to provide written feedback could be difficult and burdensome, hence, Lee suggested that feedback can be formal (written annual evaluation) and informal (frequent feedback or comments). This is achievable with iCount, as evaluation and feedback occurs regularly.
Apart from that, implementing iCount allows Infosys to move from the bell curve system of forced ranking to an “open ranking” system (Sen, 2016). Thus, it leads to a fairer performance appraisal process which will also reduce any unwarranted competition among employees and help foster a cordial work environment (Shrivastava and Rajesh, 2017). In contrast, the bell curve or the forced ranking system categorise employees on a bell curve. The best, average and poor performers are all divided into the top 10 %, average 80% and bottom 10% (Parshuram and Hegde, 2016). In the process, it inadequately rewards top performers, demotivates average performers and penalise employees who perform poorly (Javad and Sumod, 2015).
Forced ranking also has adverse effects on teamwork and organisational culture because it encourages internal competition among employees (Shrivastava and Rajesh, 2017). Using the iCount system enables fairer and more objective appraisal process, since it seeks to reward employees according to their contribution and offer growth opportunities in return for their hard work. Hence, managers are no longer required to categorise employees on the bell curve and they are given more empowerment in evaluation, feedback and in giving credit for their performance. With a fair system in place, employees will perceive organisational practices positively which can further increase their morale, satisfaction, productivity and commitment.
Moreover, as employees from the older generations are retiring, many Millennials are taking over the workforce (Kaifi et al., 2012) and they are expected to outnumber previous generations by 2028 (Kavanagh, 2016). The Millennials possess drastically different attributes than older generations, they appreciate supervision, prefers regular feedback (Tolbize, 2008) and expects praise, guidance as well as a focus on their career development (Thompson and Gregory, 2012). Therefore, employing iCount is a strategic move for Infosys because it suits the requirements and needs of Millennials. They seek ample feedback from managers because it assures that they are continuing to move along a linear, progressive path (Hershatter and Epstein, 2010).
On the downside, iCount may lead to some challenges such as lack of validity and reliability. Although continuous feedback openly discusses employees’ strengths and weaknesses on a regular basis, but iCount’s continuous feedback includes feedback from colleagues, managers and stakeholders (Shrivastava and Rajesh, 2017) which is similar to the 360-degree performance appraisal. It measures aspects of performance effectively, however, receiving feedback from multiple sources don’t usually give a full picture of performance because multi-raters have different opinions and perceptions which result in failure to produce valid and reliable results (Singh and Gupta, 2013; Ullah Khan, 2013).
Evaluation of Infosys’ Rewards Strategy
To reward its employees, Infosys offered monetary rewards to motivate them. At the end of the year, iCount will give a final rating based on individual performance and bonuses as well as pay raise is given according to their contribution. Monetary rewards can serve as a powerful motivator because it satisfies basic needs (Armstrong, 2007), and the effect it has on motivation often leads to employee performance (Osa, 2014), attraction and retention (Schlechter, Hung and Bussin, 2014). On the contrary, excessive monetary rewards may erode motivation and sometimes cause pay dissatisfaction and turnover intention when actual pay-outs are less than expected (Zhou, Zhang and Montoro?Sánchez, 2011; Schaubroeck et al., 2008).
Besides, Infosys provides career advancement opportunities to reward its top performers. In a recent study revealed that career development, such as promotions and employee motivation are positively correlated (Dialoke and Nkechi, 2017). Hence, career advancement can be useful and effective in rewarding employee performance due to its highly significant effect on motivation. Moreover, what the millennial generation wants in a career is not always about money but more career development. The Millennials tend to climb the corporate ladder faster (Twenge, 2010), and seeks to find companies that provide career development paths and training opportunities for its employees (Ismail and Lu, 2014).
Also, Infosys launched iRace, an initiative that seeks to enhance employees’ technical competencies and reward high performers. This initiative determines who will be promoted by mapping the positions with the skill level of employees. However, iRace proved to be ineffective, inappropriate and difficult to understand due to weak employee participation when designing and implementing it (Chaudhari, 2011). An effective reward system should be perceived as equitable, fair and reward employees according to what they feel is important for them.
When employees are not involved in the process of developing a rewards system, it is difficult for them to comprehend the reason behind this initiative. Further, iRace lacks fairness in evaluation, which caused demotions among many capable employees, leading to increased attrition rate (Chengappa, 2014). The implementation of iRace tends to promote employees before they are ready and increased the working experience required for experienced employees to get a promotion. When iRace failed to deliver desirable results, Infosys began to gather feedback from employees to rectify the situation (Prayag, 2015).
Instead of providing monetary rewards and career advancement opportunities, Infosys allows its employees to purchase the company’s share or ESOP so that they can become shareholders. ESOP has the capacity to influence employee attitudes and behaviour which can impact the company’s performance (Kaarsemaker, Pendleton and Poutsma, 2009). This creates a win-win situation for Infosys and its employees because employees’ wealth and wages is increased along with job satisfaction, commitment and employment stability (Freeman, 2007). With ESOP, Infosys can attract, motivate, retain and to inspire its employees by letting them know that their professional excellence can directly impact Infosys’ bottom line.?
Infosys can improve its performance appraisal and rewards system to measure performance as well as to reward its employees more effectively. Infosys’ iCount appraisal system is apparently similar to performance evaluation at GE and Nokia which includes 360-degree continuous feedback. However, receiving feedback from multi-raters can be costly, time consuming and intimidating (Aswathappa, 2013). Therefore, continuous feedback can be conducted starting with employees giving a self-review, which in turn is reviewed by their manager and another line manager (Javad and Sumod, 2015). The purpose of this is to ensure the fairness, accuracy and consistency in evaluation (Caruth and Humphreys, 2008).
Besides, Infosys can also encourage the employees to participate in deciding which area should be included as part of the evaluation process. In the process of developing the appraisal system, employee participation is also required to ensure that it fulfil employees’ needs. When IBM decided to develop a new system, the company involved its employees in the process of designing a new system. The employees’ input enabled IBM to create the Checkpoint system which evaluates employees based on business results, impact on client success, innovation, personal responsibility to others and skills. This helped the managers to assess employees across the five dimensions and provide them with feedback (Zillman, 2016).
For rewards system, Infosys should revise its rewards system to focus on other dimensions such as work-life balance, flexible working hours, recognition and appreciation so that employees’ motivation and performance can be improved. Adil and Fatima (2013) assessed five dimensions of rewards system and concluded that except salary, dimensions such as recognition, working contents, promotions, and working conditions significantly influence motivation and performance. Different types of rewards are able to strengthen employee responsibilities, contributions as well as self-esteem, passion, motivation and satisfaction (Kerr and Rifkin, 2008; Danish and Usman, 2010). Thus, rewards are often used as a tool to boost employees’ motivation and satisfaction (Munap, Badrillah and Abdul Rahman, 2013).
The purpose of this assignment is to review the performance appraisal and rewards system at Infosys Limited, the method used to evaluate the employees’ performance, the types of rewards Infosys provides and how Infosys distribute the rewards to its high performers. It was found that Infosys implemented the iCount appraisal system which looks at individual performance rather than relative performance. Then, rewards such as pay raise, bonuses, promotions and stock option are given based on employees’ contributions to the company.
Organisations are required to implement effective and appropriate appraisal and rewards systems to keep their workforce motivated and engaged. An effective appraisal system should involve the employees to decide the areas to be evaluated and have continuous feedback. Besides, the evaluation process should be fair to eliminate bias, discrimination and favouritism. Moreover, feedback from employees is required when determining the rewards because the right type of reward will influence employee motivation in the future.
Also, this assignment enabled me to gain a more in-depth understanding of the performance appraisal and rewards system, the role of both system in managing organisational performance and what attributes an effective appraisal and rewards system should possess in order to motivate and encourage employees to contribute more. Furthermore, the performance appraisal and rewards system must be revamped occasionally to ensure its suitability for today’s workforce.