Hays : Three considerations for companies transitioning to merit-based appraisal systems

More companies in Japan are moving to merit-based appraisal systems, with Hitachi being the latest major name to join the likes of Fujitsu Inc and Nomura Holdings in moving away from seniority-based pay. This new system is seen as a way to not only boost wages but also improve employment practices and wage-setting systems in an effort to attract more talent and stimulate the labour market.

With this trend likely to be accelerated by the impact of COVID-19, the global economic downturn and Japan's ongoing talent crunch, Richard Eardley, Managing Director for Hays in Japan, outlines three considerations for companies looking to make the transition into merit-based appraisal systems.

1. Create job descriptions that include both skills and competencies

'One of the biggest hindrances to merit-based appraisal systems is the lack of defined job descriptions,' says Richard. 'Not only do job descriptions help find the right talent to match the role, but they also provide employees with necessary structure and ease compliance with various HR regulations. Most importantly, these descriptions will form the criteria for performance assessments that will eventually link to pay.'

Richard goes on to explain that most job descriptions can be broadly considered to be either skills-based or competency-based. 'They differ in that skills-based job descriptions typically consist of the job title, responsibilities and skills required, whereas competency-based job descriptions tend to take a more holistic approach by also considering the behaviours that will lead to success in the job. A skills-based job description, for example, might state a preference for a candidate to have a BA in accounting or finance, at least three years of accounting experience and strong proficiency in Xero or Excel. In contrast, a competency-based job description might also include the need for analytical thinking, teamwork and a client focus. Such job descriptions emphasise the qualities of the worker as well as the skills they require and tasks they'll take on.'

While skill-based descriptions may be seen as a more 'traditional' approach, they specifically focus on a candidate's qualifications and experience, without considering their merits as a whole person. 'But competency-based descriptions make a connection between the skills, knowledge and behaviour of the candidate - in other words, how they apply their skills and knowledge, instead of merely what skills and knowledge they possess. This type of job description therefore provides more context than a skills-based one and is a more inclusive way of communicating what the candidate requires to do the job well,' says Richard.

2. Refocus your team, set goals, and assess training needs

Moving to merit-based appraisal is a great way to motivate employees, says Richard. 'The most productive employees are those that feel driven to pursue individual goals. Setting achievable targets during the appraisal helps to motivate employees and empowers them to feel more confident when they hit them.'

The appraisal is also a useful occasion to realign business objectives and use this new focus to bring teams together. 'Formal appraisals are a good opportunity to step away from the hustle and bustle of everyday work and reflect upon the overarching direction your team is heading in,' says Richard. 'They are your chance to clarify and articulate your vision, ensuring that everyone is on the same page. It's also an opportunity to manage employees' promotion expectations. Those with an inflated idea of their own abilities and role within the business will benefit from a realistic assessment of their current worth.'

Richard also believes that appraisals are a chance for companies to take a closer look at the training needs of their employees. 'Different people within your team will have different strengths. Use the appraisal to assess your employees' weaknesses, identifying areas which may require additional training and support. Letting your team know that you are thinking about their development will also spark their ambition, which will in turn drive productivity and results for your business.'

3. Reward employees with not just pay, but recognition

While the move to merit-based appraisal is primarily focused on wages, Richard recommends an approach that takes into consideration other types of rewards and recognition to boost morale. 'To feel competent and satisfied, employees need to feel that they are valued and are producing good work. Employees really value frequent praise and recognition, so letting them know you are aware of the good work that they're doing will help you to retain hard-working staff. This is particularly the case for employees who may be affected by the change from seniority-based appraisals.'

While many would relate rewards and recognition to monetary bonuses or extravagant awarding events, employee appreciation does not have to be connected to anything financial, says Richard. 'The level of reward you give an employee should correspond to the performance you wish to recognise and continue to encourage. A free coffee can acknowledge a quick win gained by handling a customer enquiry in a particular way, but an afternoon off is more appropriate for a team who worked overtime to meet a set deadline. For a team or individual that has consistently performed well, a publicly announced award accompanied by a small monetary benefit like a travel getaway or similar would motivate others to strive for the same.'

However Richard advises companies to be clear about what they are recognising someone for before they do. 'While you can acknowledge their results, also recognise how they went about achieving it. That way, you reinforce the behaviours that led to the successful outcome and allow others to understand how to achieve a similar result.'

As merit-based appraisal systems become more commonplace in Japan, Richard believes the next step will be increasing the frequency of such appraisals. 'Research shows that once a year is not often enough to really grasp how well your employees are performing. When conducted correctly and frequently, merit-based appraisals can be both stimulating and performance enhancing - not only for your team but your business as a whole,' he concludes.