Performance appraisals are the most anticipated time of the year for employees. While performance management is crucial for employee development, it can also be time-consuming and demanding on resources. Managers, who need to balance performance assessments with their other regular duties, often find it challenging to provide impactful feedback and direction.
AI is not only transforming job roles and service delivery but could soon influence how employee performance is measured and rewarded, starting with the junior-most levels of the workforce. AI’s invisible but growing role in reshaping appraisal frameworks and productivity expectations now counts as a value-added skill in an organisation.
Shantanu Rooj, founder and CEO of TeamLease Edtech, believes we are still in the early stages of exploring AI’s impact on appraisals. AI maintains a novelty factor in many organisations and is primarily being experimented with. “Companies are still determining which LLM to adopt—OpenAI, Gemini, or a DeepMind model. There is still significant uncertainty about the best path forward.”
AI’s impact on appraisals will become apparent once established processes and effective use cases have been identified. Rooj said we can evaluate individuals based on their AI literacy and proficiency. Only then can we fairly assess differences in pay, as the gap between those skilled in AI and those not will become more pronounced.
However, as it stands now, we have not yet reached that stage.
“As of now, AI is not impacting appraisals. It’s impacting new hires. A year from now, in the next appraisals, we’d be talking about its real impact. By then, appraisal systems would also mature to create a balance of digital literacy, including AI and the ability to handle cognitive and soft skills, curiosity, teamwork, and collaboration, because this differentiates a human from a robot. And if you don’t have these, your ability to use these tools efficiently will lag,” he said.
The CEO added that it’s crucial for us to become AI literate and explore new tools to improve productivity. For instance, a generative AI tool allows a UI/UX designer to create complete interfaces rapidly, enabling one designer to do the work of many. “We should view AI as a productivity enhancer, as organisations will increasingly value efficiency.”
Rooj believes that the expectations from freshers entering the job market today are significantly higher than those of experienced professionals. Freshers, mainly Gen Z, are digitally native, having grown up with laptops, smartphones, and platforms like YouTube. As a result, their proficiency with digital tools and AI is expected to be strong.
As per the trend, digital literacy is now a critical component for job seekers, and soft skills are increasingly prioritised over hard skills.
While human resource teams have numerous advantages to using AI to measure performance metrics, there are also concerns regarding data privacy and bias. Additionally, some AI platforms may overlook important metrics, whether cultural or technical, resulting in inequalities.
The resources teams handle sensitive information, making it crucial to safeguard employee data. A study conducted by Traliant in 2024, which surveyed 500 individuals in HR positions, revealed that 63% prioritised data privacy and security as their primary concern with AI. Compliance with data protection laws and regulations was followed at 52%.
Bias in AI systems presents another significant issue. If algorithms are trained using historical data, they may reproduce or even heighten existing inequities. This challenges HR in aspects such as recruitment, promotions, and performance assessments, where equity is essential.
Rise of AI in the BFSI Sector
Rooj highlighted that the BFSI sector is set to be one of the fastest and earliest adopters of AI due to its heavy reliance on data. With data often being disorganised, concepts like big data, blockchain, machine learning, and AI for predictions are particularly relevant.
Soon, a foundational level of AI literacy will be expected from employees in this field. Just as becoming a chartered accountant is a basic requirement in some professions involving financial management, auditing, and tax planning, understanding AI will become essential in BFSI to maintain relevance.
Effective use of AI tools will also be crucial. While two individuals may be trained on the same software, their creativity and productivity can differ significantly. Post-COVID, organisations recognise that both productivity and resilience are vital, and AI will enhance these qualities, influencing future performance appraisals.
Both education and skills will be increasingly vital in the future. The National Digital Communications Policy (NDCP) effectively integrates skill-building with formal education through initiatives like the work-linked degree program. In this program, students learn part of their degree on campus, some online, and gain practical experience at their employer’s site, earning a stipend to “earn while they learn”.
The future of education is likely to be hybrid and outcome-driven, moving away from traditional models. Many experiments are underway, and some are sure to succeed.
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