Introduction
Generally, performance appraisal may be used to serve various purposes including monitoring performance concerning the attainment of organisational goals, rewarding employees based on their productivity and identifying developmental gaps performance (Cleveland, Murphy and Williams, 1989). In many of the organisations, the appraisal results are used either directly or indirectly to decide on the rewards payable to the employees for their performance over a definite past period.
In other words, the appraisal systems are used to identify and differentiate the better-performing employees and reward them with promotions, pay raises, and bonuses to motivate them to perform and achieve more. In some cases, the appraisal system results are used to monitor the performance of the employees and to identify the reasons for deficiency in the performance level. Groeschl (2003) claims that performance appraisal serves the role of identifying performance gaps and need for improvement.
Yet another objective of performance appraisal is associated with organisational development, where it is suggested that the deficiency in employee performance can be improved by identifying such weaknesses and providing on the job training to improve the skill of the employees. Shelly (1999) claims that it is a developmental tool geared toward training and shaping the long-term career path of employees. However, there has been continued debate as to whether performance appraisal can be used exclusively for meeting any of these objectives or whether it can be used to meet all these objectives in a combined way.
Many researchers, management consultants, and psychometricians have disputed the applicability and reliability of the performance appraisal process for improvements in employee performance as well as for organisational development. Some of these people have even suggested that the performance appraisal process is flawed inherently that it may not be possible to correct it ever. (e.g., Derven, 1990).
On the contrary, there are many scholars and researchers, who have advocated the utility of performance appraisal. Some of them have even viewed as a crucially important phenomenon in the life of any organisation (e.g., Lawrie, 1990). In this context, this paper critically reviews the role of performance appraisal systems in meeting these organisational objectives. A real-life example of a performance appraisal system being followed in XYZ Hotel is used for arriving at the theoretical foundations discussed within this paper.
Founded in 1992 in Oxford, UK, the hotel boasts of having a competent and motivated workforce, much to the envy of other competing hotels. However, this was not the case five years ago, as the firm was performing poorly mainly due to presence of dissatisfied staff and archaic appraisal system. The hotel began as a simple family-owned café but grew over the years to become one of the leading hotel chains in the region, with a network of five branches.
Performance Appraisal as a Monitoring Tool
Monitoring the performance of the employee would be very hard if there were no goals, which had been set for the employee. “Performance appraisal is a vital component of a broader set of human resource practices; it is the mechanism for evaluating the extent to which each employee’s day-to-day performance is linked to the goals established by the organization” (Coutts and Schneider, 2004).
Even though subordinates dislike this process in the traditional command and control style of leadership, this method seemed to be a perfectly suitable model for measuring performance (Fandray, 2001). Ellickson and Logsdon (2001) proposed a positive relationship between performance appraisal outcome of employee motivation and the resultant job satisfaction; on the other hand, Reiner and Zhao (1999) looked at the feedback about the job performance of an employee to be the strongest factor for enhancing employee motivation.
Unless an efficient performance appraisal system in place, it would be difficult to pinpoint the weaknesses and shortcomings in employee performance. Based on the appraisal system the employees can be provided with the feedback on their shortcomings, which goes to guide the individual employees in their professional growth and development. Based on the assessment of the individual capabilities it is possible to identify the appropriate talents.
This helps the establishment of core competencies across various departments, which are very essential to enhance the competitive strength of the firms. By identifying the weaknesses, the firm can provide effective feedback to the senior executives so that remarkable changes in the performance can be expected from them. At senior levels, if the performance of the executives is not up to the mark it will seriously hamper the growth and development of the organisation.
Based on an analysis of the views expressed by the different scholars there are certain benefits identified to be resulting from the performance appraisal systems. These benefits normally enable the employees to get feedback on the assessment of their performance. The assessment is carried out usually over one year or on any other periodic basis. This is expected to result in increased productivity and enhanced employee motivation. The appraisal system also is expected to provide for establishing goals for the employees and making the individual goals correspond with the organisational goals while fixing the training required for the employees.
It is argued that any performance appraisal system is largely based on the perceptions of the supervisor and there is merit in this argument. The supervisors alone provide the input to the performance appraisal systems. Hence so that the appraisal systems provide the idealistic benefits the perceptions of the manager must be objective, accurate, comprehensive and free from any significant bias. Otherwise, the whole system would become flawed making it unworkable. There are also possibilities that the manager who is responsible for making the appraisal of an employee being influenced by the employee himself or any other person like the client or customer, co-workers or other managers on behalf of the employee.
Moreover, the managers always have pressure from other systemic and structural aspects while doing the appraisal. Thus in the case of an appraisal involving a five-point scale, it may not be possible for the manager to assess and put everyone on the highest scale. This leaves a tactful task of categorising the employees’ performance not only based on their performance but also based on the mangers’ perceptions. There are chances that this vitiates the performance appraisal results and cause design-motivation among certain of the employees. In this respect, Wilson, (2002) observed the problems of appraisal systems and even observed whether it is necessary to link employee promotion with an appraisal.
The management of XYZ Hotel always monitors the service delivery by different employees in the company. During the beginning of the year, the employees are tasked with the job of identifying the clients’ needs and development of products, which satisfy the clients’ needs. This may be either through the development of new recipes and customised services or through improving the quality and features of certain existing services offered.
Performance Appraisal as a Mechanism for Rewarding Staff
Lee (2006) points out that managing performance is a difficult and complex task in any organisation. Nevertheless, it remains an important task to undertake, as the potential impact of the performance management process cannot be undermined in any progressive organisation. Kessler (2003) observes that the performance appraisals are one of the most important requirements for conducting any business successfully and for having an effective Human Resources (HR) policy.
Recognising and rewarding will promote effective performance in any organisation and it helps in identifying ineffective performers for organisational development. Identifying employees who are unable to perform effectively and taking the necessary steps to improve the effectiveness in their performance is a key aspect of improving the HR performance (Pulakos, 2003). The supervisor must be able to understand the nature of the functions of the subordinates. He/she should identify the sources from which he/she can collect the required information.
Such information has to be gathered in an orderly fashion, which is made available as feedback. It is also necessary to integrate the collected information into the performance appraisal systems, which later can be used in performing the complex tasks of employee “compensation, job placement, and training decisions and assignments” (London 2003).
Performance in the organisation is always enhanced by the motivational aspect of employees, such that those employees that are more satisfied with their relationship with the organisation tend to be more productive and loyal. In this case, Rudman (2003) noted that employees would be motivated with compensation that is directly linked to their performance. Literature concerning the appraisal feedback suggests a possible positive influence of feedback on employee performance (Bretz et al 1992; Dorfman et al. 1986).
Noting the importance of performance appraisal on the productivity of employees and the growth of the organisation, XYZ hotel established a performance appraisal system has become an integral part of its growth. The hotel undertakes performance four times a year, i.e. at the end of every quarter of a calendar year. In this appraisal, employees’ performance is evaluated both in terms of productivity and behaviour, organisational performance in the relation of goals achievement is also evaluated, and variance between the actual performance and targets identified. From these evaluations, the hotel has established a reward system where employees who performed better during the year are rewarded accordingly.
Performance Appraisal as a Developmental Tool
Bryson and Freeman (2007) also report a positive association between monitoring and performance pay. When applied as a development tool the performance appraisal requires a development plan and requires the performance appraisal to be involved more in the individual employee development rather than the organisational development. This approach aims to improve organisational performance by improving individual employee skills. The collection of information and data on the worker skills and career goals in a central information pool as the modern trend in performance appraisal approaches.
The objective of performance appraisal is to enable the employees to look at themselves as to what they are capable of. The employee whose performance is being assessed must appreciate the need to improve his/her job performance and should be prepared to commit himself to a developmental plan for improving job performance. The elements of the performance appraisal as a development tool must enable the employees and the supervisor to come to a mutual agreement on a development plan for the ensuing appraisal period.
It becomes the responsibility of the manager to assess the progress of the employees during the year to ensure that the development plan agreed upon is being carried out to provide the expected result. Thus, the performance appraisal when used as a development tool encompasses several elements, which enhance the utility of the systems. The first element of the appraisal process is to educate the employees to make a self-assessment of them. The second element is to make the employees appreciate the need for bringing improvement in their job performance. The third element is to make the employees involve themselves in the development of plans for performance improvement and effective career planning.
The involvement of the employees in the performance appraisal process from the beginning and informing them about their progress or any lacking thereof periodically would give them a stake in the development process. By this way, the employees would be prevented from directing their anger towards the supervisor or the organisation for any lack in their progress. The feedback enhances to positive reinforcing of the required behaviour of the employees, leading to both the development of the individual and the organisation (Mathis & Jackson, 2008).
There is also a continuous training program for all employees, which is also influenced by developmental gaps identified in goal achievement evaluation. However, one important aspect of the hotel’s appraisal system is the fact that employees are first allowed to appraise themselves against certain criteria and then a discussion with the appraisers follows. The XYZ Hotel has established a 360-degree feedback system that allows employees to get feedback from diverse raters including supervisors, co-workers, and customers. This feedback, according to Rudman (2003) is instrumental in allowing employees cognitively to reflect on their performance and competence, thus creating self-awareness that enhances them to seek developmental assistance from the organisation. The success of the system is evidenced by the fact that the hotel is said to control about 20% of the market share in the region.
Summary of Theories
The research in the field of performance appraisal systems and its effect on employee and organisational performance has given rise to different theories concerning appraisal systems. Theories suggest the possible utility of the systems in providing rewards and recognition for the employees. There are some research works, which look at performance appraisal as an effective monitoring tool and these theories advocate the use of feedback on employee performance for eliminating deficiencies in the performance. Most of the theoretical frameworks confirm the positive role of performance appraisal in the overall organisational development because of the alignment of individual performance with organisational performance.
Critical Analysis of Theories Discussed
Theoretically, performance appraisal systems can be used as a monitoring tool for employee performance. Considering a situation that when the employees know that their next pay rise or promotion is dependent on an appraisal result, they may not have the tendency to admit their work problems and they would naturally downplay their weaknesses. It is not the case only with the employees the performance appraisal results have an undesirable effect, even the appraisers in many cases feel awkward when they are given the task of acting as both the judge and person executing the decisions. This feeling of the appraisers is not too difficult to comprehend.
The appraisers in all the cases know their subordinates whose performance they are appraising and obviously, they are under supervisor-subordinate relationship and work with them on a day-to-day basis. There may be occasions when they have to mix socially. It makes a big difference when based on a performance appraisal the subordinates are advised by these supervisors to improve some of their skills than where the findings from the appraisal directly create a situation of withholding a promotion or stopping a pay rise. The latter occasion embarrasses both the appraiser and appraise. Despite the sentiments involved, the performance appraisal system is being followed by organisations of different sizes and nature in different forms handing over different rewards and punishments to the employees based on an appraisal of their performance.
Despite the positive influence of performance appraisal systems in improving individual performance, some authors claim that the system tends to have shortcomings, especially when the ratings are faulty. According to Arnold and Pulich (2003), errors in rating employees may create hallo effect, horn effect (where negative aspects of employees are generalised in their rating), stereotyping effect (where the characteristics of one are based upon those of others), errors of central tendency, status effect (where seniors are rated more favourably than juniors), and biasness in terms of gender, age or ethnicity.
Also, politics are viewed as playing a big role in appraisals, for instance, Longenecker et al (1987) claim that majority of employee ratings will always have an element of opinionated aspects, with appraisers acting discretionary through the use of the bureaucratic process to undermine subordinates. Moreover, some appraisers tend to abuse the appraisal process as a control tool by using it as a disciplinary tool such that, when the firm wants to restructure, those employees with low ratings are laid off first. Nevertheless, one aspect that has been noted is that performance appraisal is used as a control tool to enhance employees’ commitment to the roles that the organisation has earmarked for them.
Secondly, according to theories evolved in the field, performance appraisals have the objective of ensuring rewards and recognitions to the employees based on their performance. However, does the pay contribute significantly to performance? Generally, the theory of motivation provides that various factors come into play in influencing performance. Primarily, to be motivated, employees must first be able to satisfy their needs, and in this case, Maslow’s hierarchy of needs comes into play. Emery and Giauque (2001) also found that employees have an appreciation for non-monetary forms of remuneration such as working hours, improvements in equipment and work resources and the development of skills.
Further, the managers can work on effective performance appraisal systems only when they are capable of assessing the performance of the employees fairly and accurately. It should be understood that evaluating employee performance is a complex task. Some of the scholars while advocating the use of performance appraisal systems for monitoring the performance scorn the use of it for rewarding the employees with pay raises and promotions based on such appraisal systems. The people following this school of thought are of the view that the linkage of appraisal systems to the employee rewards reduces the developmental value of appraisals. When the employee rewards are related to appraisal systems, such systems instead of becoming an opportunity for constructive review and encouragement are reduced merely as a means of judgment, extending corrective action having a negative effect.
The third objective of performance according to theoretical perspectives is that such systems would contribute to organisational development. While the arguments against performance appraisal systems to function as a monitoring tool and a mechanism for rewarding the employees have some merit, it cannot be disputed that identifying the weaknesses of employees leads to the identifying the training needs of them so that organisational development can be achieved by improving the individual employee performance. However, many authors have not favoured using the performance appraisal for multiple purposes, as it may not produce the desired improvements in organisational development.
Conclusion
The focus of performance appraisal is centred around all the three basic objectives of monitoring, rewarding and organisational development. The relevancy of the appraisal systems can be seen in assessing the performance of the employees since in achieving the organisational development the performance of the employee’s alone matter. Moreover, it is also important that the appraisal system deals with valid issues, concrete, and relevant rather than those, which are purely emotional, subjective and employees’ feelings-based, because any appraisal systems based on the emotions may not bring out the true performance level of the employees.
The other objective is to reach an agreement on the expectations of the employees in terms of their performance and the reciprocation of the organisation in return for the performance levels achieved. This is possible by closely monitoring the performance and providing feedback to them. The improvement in the employee performance largely depends on providing the employees with a reward system commensurate with the levels of performance as well as on providing effective feedback to them on their deficiencies for attempting to eliminate the deficiencies.
Once there is an improvement in individual performance, it automatically leads to organisational development. Therefore, it can be concluded that performance appraisal can be used as a monitoring device, as a mechanism for rewarding staff, and as a developmental tool for improvement in the overall organisational performance and it can contribute greatly in the achievement of all the three objectives.
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