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Effects of Performance Appraisal System on Employees

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Chapter - 1


This chapter will discuss the critical importance and understanding of performance appraisal systems in the banking industry of Pakistan. Moreover, this chapter will highlight the need of the study, aims and objectives of the study and also introduction to the key terms that has significant importance throughout the research paper.

1.1. Understanding Performance Appraisal:

In the past few decades, organizations were very concerned about the development and orientation of their employees and also pondering on performance management (Murphy & Cleveland, 1991). Now, Organizations are following the new patterns of working and doing jobs to adhere the aims and mission of it. To fulfil this new modernized concept of fast and technological revolution, they are realizing the importance and implementation of new methods of performance management (Cardy & Dobbins, 1994).

Organizations have indentified the importance of performance appraisal and it has been found in the cases of all big multinational companies that they have implemented the performance appraisal systems to enhance the productivity of their employees. There are varieties of different perspectives that evident the importance of performance management and its measurement (Whitney, 1994). Organization should present true and fair views of performance appraisal to gain trust of the employees, their loyalty and job satisfaction are the main core of any organizational success (Robinson & Rousseau, 1994). Through rational performance measurement, Organization's management can get the maximum reliance of employees.

This research papers aims to explore the performance appraisal system within the banking sector of Pakistan and its comparative study with JS (Jahangir Siddqui) bank. This research study will also explore the effects of performance appraisal on the employees considering motivation, job satisfaction and employee loyalty as key factors in HR functions.

1.2. The Research Topic:

To explore the role of performance appraisal system in HR function within the banking sector of Pakistan.

1.2.1. Aim:

This research aims to investigate the role of performance appraisal system and its effect on employees considering motivation, job satisfaction and employee loyalty as the key factors in HR function within the banking sector of Pakistan and comparative study with JS Bank.

1.2.2. Objectives:

  • What is performance appraisal?
  • What are different performance appraisal systems?
  • How appraisal system interlinked with motivation and employee loyalty within banking sector of Pakistan?
  • What are different problems with performance appraisal system?
  • What are different strategies in HR department to enhance productivity?

1.3. Rational of Study:

The system that identifies the Performance evaluation and review is called Performance Appraisal system. Performance appraisal system highlights the individual and group performance over the period of time and reviews for the promotion and raise in monetary funds.

To get the real meaning of performance appraisal system can be elaborated to the concept of performance management. Performance Management can be defined as:

“An approach to create shared vision of the purpose and aims of the organization, helping each individual employee understand and recognise their in contribution to them, and in so doing manage and enhance the performance of both individuals and the organization.” (Fletcher, 1992)

Performance management is a process where it describes the performance of individuals that shapes a group and become the collective success of the organization with the set of objectives, time period, reviewing the performance and recognition of the performance with rewards (Connock, 1991). The main objective of performance management is to show the real picture of the employees performance over a period of time and this can be achieved through framed standards (Beaumont, 1993).

In the Performance management, the appraisal system is the most significant part where it defines a structural and formal system that helps the manager and subordinate to interact with each other to evaluate performance. This interaction usually comes into process annually of semi-annually in shape of some structured interview or questionnaire. In this process, supervisor examines the performance of subordinate where supervisor identifies strengths and weaknesses and also highlights the area of improvements (Connock, 1991).

In different sectors of economy including banking sector, results of appraisal of employees are used for the future employee planning, their rewards management and promotion. These rewards are directly or indirectly linked with the recognition of employee's milestones in the personal and professional skills. Thus this identifies the rise in pay, cash bonuses, promotions and job satisfaction majorly (Beaumont, 1993).

1.4. Importance of Performance Appraisal:

The managers are aware of the importance and criticality of performance appraisal, and its ultimate affect on the motivation, loyalty, job satisfaction plus its has a big affect on the growth and success of the organization, so while documenting, communicating, and describing the job particulars, they are more concerned. It has been noticed that in the current time, job performance systems have improved a lot, but still the outcome shows that it has a negative impact on the job satisfaction and motivation of the employees if it is not appraised systematically (Robert, 2002). So, it results in counter of an organization that employees are demoralized and also lose their loyalty, which affects the organizational aims and objectives. Human resource officials use performance appraisal for decision making such as planning payments and salary scale of the employees, they also determine what professional developments are needed to equip their employees with a proper feedback. Performance appraisal can also help the officers to decide what are the factors that can be employed to increase the productivity of employees (Natalie & Ann 2005).

As performance appraisal encourages the good performers, on the same hand performance appraisal also highlights the poor performers and tells about their weak areas and it helps the management to remove the leaning hurdles and makes them to achieve the set objectives and aims. This system also identifies the employee who needs guidance and counselling from management to improve their performance at work. Organization believes that performance appraisal is the best tool to see the level of employees and their performances and making the decision about their rise in salary, promotions, demotions and penalties (March, 1982).

1.4.1. Factors of Performance Appraisal:

There are many factors influencing performance appraisals systems at work. Internal and external factors always play an important role in appraising the employees. Internal factors could be labour unions, management's attitude, the employee's behaviour and their stance in the direction of work. External factors are legislations in relation to the employees. Labour union always get into the matters of employees well being at work and also in their personal lives so that they can give their full at work. But some time it has a negative impact on performance appraisal and the management to give promotion or rise in the salary on the bases of seniority (Isaac, 2001). Internal factors can also affect the performance appraisal in shape of bad corporate culture that can be a big hurdle in the performance management. The main objective is to set specific goals and make framework of getting those objectives. For all this, management should inform the employees that what is expected from their jobs and what should they do to make hundred percent out of it. At the end management sees and evaluates on the whole performance and also communicates these efforts to employees. This communication also develops relationship between employees and supervisors (Isaac, 2001).

There are different techniques and methods used for the performance appraisal and it gives an outline to measure the performances that are in use of different organizational and it also varies from industry to industry. There is no hard and fast rule to use specific performance appraisal system, but it is always suggested to use the same performance criteria within one organizational and it applies to all of the employees. These models and techniques include, Six Sigma, Balance Scorecard, 360 degree feedback, etc. These models and techniques to measure the performance is widely in use of many MNC's and local organizations, in the banking industry of Pakistan and in JS bank. While designing performance appraisal, management should keep in view the nature and type of the business to conduct these performance management techniques. In the performance management, 360 Degree is common and Six sigma is the operational management technique; both leads to performance appraisal measurement where the HR function is able to appraise and it involves the motivational factors, employee loyalty, and job satisfaction aspects. Extensive and appropriate use of these techniques will make the appraisal much unbiased (Natalie & Ann 2005). Employee's motivation and job satisfaction can never push aside, as these are elementary aspects of any Job. In the process of appraisal system, an employee always expect some feedback from other employees which gives him motivation and the satisfaction from the job done, so these are the complementary part of any job. When any employee is appraised, then he always get the communication and feedback of that appraisal and it actually indicates the level of satisfaction of job the employee has plus the loyalty he has for the organization (Robert, 2002). In the banking industry, as the recession hits and many of the employees being fired, so at the time of performance appraisal, employees are so dissatisfied as they don't know when they are going to be part of sacked list of employees, keeping in this view, the performance appraisal system plays role in the Hr department to indicate the key factors such as motivation, job satisfaction and loyalty (Caruth and John 2008).

Chapter 2 -

Literature Review

This chapter will look into the supporting literature of performance appraisal systems and its importance. As in the recent Times research, in the area of performance and its technical justice and fairness should be categorised as all the decisions and producers for employees in their working capacity and the management should highlight the importance of performance appraisal and its different tools. Furthermore, this part of research study will stick the significance of banking industry and usage of different performance appraisal systems and what are the linkage of motivation, job satisfaction and employee loyalty and strategic importance of performance appraisal systems.

2.1. Performance Appraisal:

The process in which human resource management department obtains, analysis and makes decisions on the performance of an employee over a period of time is called Performance Appraisal Process and the methods which are used to appraise the employees are called Performance Appraisal Systems (Yee 2009). The main objective of performance appraisal system is to focus on the performance, key attributes of the job, what is the improvement in the performance and the proportion of the performance that the employee will make in future in the productivity of the organization. It aims towards the employee and it's his performance over the period of time (Dobbins, 1994).

In the field of human resource management a prominent name of Flippo (1999) says that

"Performance appraisal is the systematic, periodic and an impartial rating of an employee's excellence in the matters pertaining to his present job and his potential for a better job." (Flippo, 1999)

This systematic process allows the management to look into employee's activities in last fiscal year or the performance time periods and analyse where it is falling, what improvement has he made and what is the future planning regarding job and activities.

Management should educate the employees about their individual goals and share the aims and objectives with the organization. Employees should have the knowledge and freedom to participate in the decision making process. Here, if the management has the full corporation of the employees and on the same hand if employees coordinate with management then this performance and participation can actually helps in the appraisal for the next period. In all this, the right of expressing of opinion will certainly adds to their performance (Beach, 1995).

Performance appraisal systems are the powerful tool to measure the performance of an employee and to issue or offer the rewards on that quality performed job. This process allows the management to evaluate the achievements and contribution to the success and productivity of the organization to get the overall organizational aims and objectives (Dobbins, 1994). Moreover these systems are standardising for all the employees.

Performance appraisal is a system in which HR managers measures the performance of the employee, either he is performing his job rightly, is he achieving what organization wants from his job, what is his behaviour and attitude towards his job, either he is showing positivity towards his job, is he the right employee for the right job, as all this comes under the HR function of an organization (Randhawa 2007). The main objective of performance appraisal is to make sure that employee‘s performance is up to the mark, to communicate this job performance measurement makes the employee enable to enhance his productivity and cover his loopholes where he is lagging behind. The main idea behind performance appraisal is to insure that organizational goals are being met, because meeting organizational objective is an individual as well collective effort. Strategic objectives on banking sector and any financial institution are to multiply their profits by gaining the top performance from its employees. By monitoring employee's performance, they actually see what the criticality of the importance is and the effect that job is making on the organizational objectives. An effective performance appraisal must have collaboration between the management and the subordinates. An employee should work according to the job description, which is decided by the immediate manager. By doing this, there will be no conflict between the management and the employees (Propper, & Wilson, 2003).

The objective of performance appraisal is to influence the employee's job performance with a systematic process appraisal, what are the major impacts on the employees to get the certain level of motivation to improve the productivity of the organization as well as the job satisfaction (Natalie & Ann 2005). In the past, the sole purpose of performance appraisal was just to calculate the financial position of the company, either it has made some progress in terms of monetary growth, what influence it has made on the department growth and what are the affects of performance on organizational objectives. But now, things have changed. Now researchers are seeing beyond the monetary terms, they are not discussing the financial aspect but they are measuring the job performance in terms of employee's job satisfaction and his level of motivation, because ultimately the manpower of an organization is its labour force. If this labour force is getting what they want, then they will perform according to the job description they have with them within their departments.

In the banking sector as credit crunch has been taken place all the investment and financing in Pakistan has stopped, it has very negative impact on the employees working in the banking industry, and the HR department of the banks are actually working on the moral and motivation of the employees.

2.2. History of Performance Appraisal:

Performance appraisal has a brief history starting from earth 20th century where the need of performance appraisal was felt and some measures developed. This history shows that Taylor (1964) who is the revolutionary person in times and motion studies brought the real sense of performance appraisal and performance measurement. But in the modern human resource management it can be seen that the thread of performance measurement is linked with the Second World War. This tells the history that it is not more than sixty years ago. Yet the guru of human recourses says that the art and procedures of performance measurement and appraisal is very ancient art and people of old times had some tools to appraise their employees on the basis of activities and job they performed. On these historical felt notes it can be said that performance appraisal management is the world's second oldest profession too. Here Dulewicz (1989) says that “It is a basic human tendency to make judgements about those one is working with, as well as about oneself."

If the management has a concept that performance and its appraisal is inevitable then it will be wrong that performance of an employee cannot be judge in advance. In the absence of a structured appraisal system then it will ultimately affects the performance of employees, the productivity of the organization and moreover the reputation of the organization in the industry. It will de-motivate the employees, they will lose satisfaction from their jobs and loyalty with the organization will be most likely finished and labour turn over will increase. One serious offence can be seen in the absence of appraisal system that organization can go unlawful, harassing the employee and unfair judgement on their performance. Consequently, it helps the management and employees to go lawful, fair and accurate with the performance over the period of time (Murphy, 1989).

2.3. Benefits of Performance Appraisal:

Where performance appraisal allows the employees to get the monetary and non monetary rewards from the management, here it also give the most significant benefit for employees that it gives the chance to get reasonable time for one to one discussion on the performance over the period of time. This discussion between employee and supervisor allows discussing the main issues that are hurdle in the performance and work concerns addressed. It can observe from all over the world organizations, the feedback of performance appraisal says that it creates a strong bond between subordinate and supervisor only if the appraisal is conducted properly and fairly. This process also gives the opportunity to employees to review their performances and discuss the issues and difficulties they are facing in the work and also it gives the path to gain the aims and objectives in the future time. This interaction of subordinates and supervisors give the opportunity to help the future goals. Therefore it enhances the productivity. So, this process gives the best time to employees to have chat with the supervisors without any hindrance and instruction (Orpen, 1997). The importance of this process should not be underestimated as this is the integral part of performance appraisal system. Moreover this process allows the supervisors and employees to discuss the future targets and, training and rotation need orientation and development, if needed. In this discussion, the supervisors and the subordinates discuss the various problems about the present as well as the absent working skills, career development and what is to be done in the future (DYCK, 1997). Here, supervisor highlights the key skills of the subordinate and makes or arranges for the future career inspirations. This discussion can be useful to measure the productivity of the organization, for the recruitment and orientation process. For example, the feedback can indentify how employees are performing those who hired in the past two years and so. Appraisal data can also tell how well the recruiting strategies are working, what developmental process are good enough and what the effectiveness of employees is. Performance appraisal process could be a data sheet highlighting the overall performance of all employees; telling has productivity improved, remains same or fall. Evaluation is the ongoing process and its run throughout the year but some clash can be noted in the evaluations and developmental process but in a nutshell it's a process of evaluating, analysing and giving feedback of that process (THOMPSON & DALTON, 1970).

2.4. Basic purpose of Performance Appraisal:

Performance appraisal systems have the two main elements in it; one is evolution of the performance and the feedback of the evaluated performance. The main objective of performance evaluation is to define the gaps in the actual job and job performed. This gap creates when the employee is not working on the standard level and doesn't meet the expectation of the organization (ANTHONY, 1986). The main objective of feedback is to inform the employee about his performance and the quality work he is producing but this feedback doesn't flow in a one direction and the supervisor of the appraiser also gets the feedback from the employee to resolve the job issues, if have. To get the real sense of performance appraisal system is to look at the whole process on different angles so that it can create a meaningful difference in the organization. These different angles could be: from employees point of view and organization's point of view (ANTHONY, 1986).

From employee's point of view it can be unfold as:

  1. What does the organization want me to do?
  2. What are my loopholes? And what I have done remarkably well?
  3. What help will be given by the organization for my own improvements?
  4. What is the reward of my good performance?

In the organization's point of view, it is mandatory to have an accountability and justice within organization so that all the employees get a fair compensation out of their performance and also to establish the repute of the organization. The research shows that organization fails when "non-alignment of responsibility and accountability occurs." These failures occur when the employees are given tasks but there is no check on the responsibilities and duties and how they are performing their jobs. Sometimes it happens when the employees are working in shape of group and teams so they pass on the work to each other but ultimately no one held accountable of any task so the rule of accountability fails (TOWNLEY, 1997).

Performance appraisal system has always an integral part of HRM and this research will highlight the main issues within the systems and the rating of employees. Rating the performance appraisal and giving the feedback is not an easy task for the HR department, as the criteria of apprising is a complex job. There are certain strategies underlying to make the traditional methods accurate than it had been in the past and therefore the likelihood of correct and affective appraisal will be increased (TOWNLEY, 1997). These strategies can be considered as a practical training to the HR officials. New learning techniques and methods should be true n fair for all set of employees, transparent and should be computerized so there are no chances on intermingled results which will remove the chances of favouritism. The main tactics and objective of the performance appraisal is that it should be conducted for the motivation of the employees with no negative aspect associated with it, as it will decrease the morale of the employees. There should be some reward or bonus announced so that this will be stimulation for other employees and they will try to excel their performance too. Proper communication and feedback session should be introduced so that the employees come to know their loopholes (Natalie & Ann 2005).

2.5. Objective of Performance Appraisal:

Followings are the main objectives of performance appraisal.

  • To review the performance of employees over the period of time.
  • This review of performance, evaluator judges the actual performance with the targeted performance standards and benchmarks.
  • It also helps the management to control the organization targets depending upon the performance of employees.
  • It also creates healthy environment between employees and supervisors.
  • It indentifies the strengths and weaknesses of employees and also suggests the various improvement plans by the management after performance appraisal process.
  • This process also allows the employees to get the proper training and orientation of skills where they are lacking.
  • To communicate the feedback with the employees.
  • Give all information regarding the tasks and job responsibilities and also clarifies all the tasks which are required from the employees.
  • One of the objectives of performance appraisal is to judge the HR function within the organization for smooth running of business.
  • It also tries to removes the complaints of employees about the function of organization, if have any.

2.6. Performance Appraisal &Employee Motivation and loyalty:

In the growing age of business and markets, human resource is the big asset of the organization; if the organization is not keeping well with its labour work force then it might get into trouble. As the employees are the main features of the progress of the organization. In order to have productivity, employee should be motivated and should be satisfied with their job and have loyalty with the organization (EPstein,1992). HR professionals are making it possible to motivate the employees with the performance appraisal systems by giving them fair appraisals as per their performance over a period of time. It has been noticed that there is a strong relationship between performance appraisal and motivation, job satisfaction and loyalty (bonnie, 2002). Keeping aside the main objectives of performance appraisal, it can be use as a mechanism to create a completion between employees to get the job done with all the linked targets and benchmarks (Robert, 1984).

It is also mandatory that employees gets the accurate performance appraisal results to get motivate, if the feedback of appraisal is according to their performance over the period of time that will be a great source of motivation to them. Inaccurate performance can create dissatisfaction from job and ultimately can affect the loyalty with organization. One employee always expects that evaluator recognise his efforts and achievement in the professional life and also support him to overcome on his failure and allows the opportunity to make improvements in his performance in future (bonnie, 2002).

If the performance appraisal has some shortcoming in it and is actually creating some discrepancy in the process, then it will affect the motivational level of the employees and ultimately it will affect their efforts and the risk taking ideas for the betterment of the organization. Also they will lose interest in the affairs of the organization (Robert & Kim, 2007). Plus this de-motivation leads the employees to the lack of loyalty and they will look other options of good job and hikes in the rewards (bonnie, 2002).

Accurate performance appraisal is always preferable but if there is any inaccuracy then employees always prefers to have accurate performance appraisal with no hikes in rewards but not an inaccurate system that never encourages or recognises their efforts. Employees who tend to receive accurate performance appraisal over the period of time and also have all the rewards associated with that appraisal is most motivated employee among all of them and similarly he tends to be more satisfied with job and more loyal to the organization. Therefore, the process should be fair as this is the ultimate system to motivate, satisfied with job and creates the loyalty (Storey & Sisson, 1993).

2.7. Different performance appraisal systems:

There are different systems and methods for measuring performance and appraising the employees. These methods and systems are categorised as the traditional methods and the modern methods.

2.7.1. Traditional Methods:

In the traditional methods there are various systems to measure the performance employees. In the traditional method of measurement Behaviourally Anchored Rating Scale is widely used by many organizations across the globe. In this system it focuses on specific behaviours, either affective or ineffective performance is given by the employee. It involves critical incident technique (CIT) and different combinations of rating scale. However, in Graphic Rating Scale supervisor or evaluator simples checks the different blocks in the appraisal form to measure the performance. Though this a old technique to appraise the employees but broadly used method. Unlike scaling system, in Essay Evaluation Method asks the managers, supervisor and evaluators to write an essay or a descriptive narration about the strength and weakness of the employees and also the overall behaviour towards the job. This is a qualitative measure to appraise the employees. Another ranking system is Performance ranking Method in which evaluator or supervisor rank the performance of employee from best to worst. This method differs from other methods as it compares the employee to employee but not with the standards and benchmarks for performance measurement. In Critical Incident Method (CIT), evaluators appraise the performance depending upon the critical incident and the positives and negatives behaviours occur in the period of time to measure the performance (Dessler, 2000). Like other ranking and scaling methods in Weighted Checklist Method evaluator makes a checklist of all the job responsibilities and all the narrative statements about the effective and ineffective attitude or behaviour of job. As weighted method weights the narrative statements, in Paired Comparison Analysis, it weights the relative importance of the different options available and listed. Every option is compared with all the option listed (Mondy, 2008). After comparison of all option, the one with most weight is preferred option for the performance measurement. In the traditional methods qualitative methods and systems have more frequency of usage, here another method of Behavioural Observation Scale evaluates the performance with negatives and positives happens on workplace and also the critical incidence the employee has performed. In the tradition method there is a quantitative method called Forced Distribution or Forced Ranking, unlike other method it involves the percentages. In the top category it ranked from 10 to 20 percent, middle category ranges from 70 to 80 percent and it ranked employees with worst performance 10 percent in the bottom line (Mondy, 2008).

2.7.2. Modern Methods:

There are different methods of performance measurement in the modern times, 360 Feedback System and Management By Objectives (MBO). 360 degree feedback:

360 Feedback is a systematic technique which also known as the multi-rater feedback system. In this method evaluator or the appraiser takes feedback from all the people who are inter-linked with the person to be appraised. The 360 Feedback can be defined as:

“The systematic collection and feedback of performance data on an individual or group derived from a number of the shareholders on their performance.” (Ward , 1997)

This method of performance appraisal is detailed and comprehensive where evaluator asks from all sources about the performance of the employee. In this method all the sources are involved as: customers, suppliers/ vendors, team member and colleagues, superiors, juniors, subordinates and all the other parties who has link with the particular employee. These sources provide all the information that is significant in the performance appraisal process (Anderson, 1987).

There are four main parts of 360 feedback appraisal system:

  1. Self appraisal
  2. Superior's appraisal
  3. Subordinate's appraisal
  4. Colleagues' appraisal

The 360 Feedback systems can be an ongoing process throughout the year to keep an eye on the performance and other's perception about the employees and also it can be measured that how well employee is keeping with its required tasks and responsibilities (Natalie & Ann, 2005). 360 Feedback is also helpful for the managers and leaders to insight of their leadership and managerial styles. 360 feedback systems are widely used across the globe for the effective appraisal of employees (Anderson, 1997). Management by Objectives' (MBO):

Performance appraisal's history can be trace from the guru of organizational management, Peter Drucker on 1954. He has given the different theories of management and introduced the main theme of Management by Objectives (MBO). A process whereby the superior and subordinate managers of an organization jointly indentify their common goals, define each individual's major areas of responsibility in terms of the result expected of him and use the measures as guide for operating the unit and assessing the contribution of each of its members.

This is a participative technique where the supervisor and subordinate set the goals, different methods to do the job and most importantly the decision making at the end. Here, the most important element of MBO is to evaluate the performance and comparison of actual performance with the benchmarks. Subsequently, this process or method allows the employees to set up their goals and objectives, their path of tasks in addition to their job responsibilities (Natalie & Ann 2005).

2.7.3. Process of Performance Appraisal:

Performance appraisal follows the systematic method to appraise the employee so that it becomes a rationalize and fair process for employee (Caruth & John 2008).

It has six main areas to look on, which are:

  • Performance standard
  • Communicating the standards and expectations
  • Measuring the actual performance
  • Comparing the actual performance with benchmarks
  • Discussion on results
  • Decision making. Performance Standard:

This is the first step in performance evaluation process. It is mandatory to make or set some standards and targets for the employees so that performance can be measured and compared with the standards. This step allows the supervisor and performance evaluator to make the criteria's to judge the employees and keep an eye on the qualifying factors for those set standards. Setting up performance standards is also mandatory to look on the organization goals and objectives for the productivity of business (Caruth & John 2008). Communicating the standards and expectations:

After setting the performance standards and expected outcomes, the next integral part of the Performance Appraisal process is to communicate those standards to employees and educate them as to how to achieve the bench marks. It is mandatory that employees should know the standards clearly and have the idea on how to meet those. These standards will educate the employee about their main responsibilities and job roles and what is expected out of them. These standards should be communicated at the start of the year so that employees should know what to do in future. Management can modify or edit some of standards from the time to enhance the productivity but employees consent will be taken by the management to do so (Caruth & John 2008). Measuring the actual performance:

After communicating the bench marks and required performance standards to the employee, the most important step is to measure the performance according to the set standards over the period of time. However, this is a difficult task for the evaluator but it has to be done. Measuring performance is a ongoing process throughout the year and the supervisors evaluates the performance and also keep an eye on the tasks and job responsibility. By defining performance in terms of desired results is how managers and supervisors make their work assignments operational. Here, it is mandatory that choice of measuring performance method or technique should be appropriate that personal grudge does not affect the outcome of the process and help the employees rather than creating problems for them (Caruth & John 2008). Comparing the actual performance with benchmarks:

Here, the next step is comparison of actual measured performance with the standards and benchmarks. This step is sensitive as it is dealing with the yardsticks to compare each task with the set targets, here the employee and supervisors should agree with the process. Comparison shows how employees have achieved the set targets and what divergence has been made to the benchmarks. This comparison tells either the performance is according to standards, above standards or below the standards. Measuring performance, evaluation, comparison and analysis are integral part of this step (Caruth & John 2008). Discussion on results:

As in process, management sets up standards and communicates those benchmarks to employees similarly after getting the performance appraisal, results should be communicated to the employees and they should be briefed about the standards and the actual performance they have give. There should be a One to One discussion on the results. The purpose of this feedback or discussion is to make the employees aware of his performance, achievements and short falls over a period of time but with a positive attitude. This step also contains the notion of motivation and encouragement to employees so that are loyal to organization and satisfied with the job as well (Caruth & John 2008). Making:

The last step of performance appraisal process is making the decision on the bases of results taken from the evaluation step. This decision is about the improvement of employees, training on different tasks which are lagging behind, corrective actions, promotions and rise in salary, rewards, transfers and demotions (Caruth & John 2008).

Selection of Performance Appraisal systems is the main part of the performance management and measurement. The literature shows that motivation, job satisfaction and employee loyalty with organization is directly linked with the Performance Appraisal systems. In the chapter, research has thrown light on performance appraisal and its different methods widely used across the globe, performance appraisal process and linked strategies. By the side it has also heighted the different performance appraisal problems that often occur in the process or performance measurement.

Chapter 3 -


In this chapter researcher will develop all the methodology for the research study. This part of paper will discuss the research plan, how to conduct research, what will be the research design, what methods will be used by the researcher and what different sources will be used for the data collection for the research. For any research study methodology chapter is very importance and have it significant value. Hart (2001) describes the importance of methodology as systems of all methods and rules that supports the study with the analysis and data collection. Any research study never put down the importance of research design and methodology, as it plays a integral part throughout the process and also the success of the study depends upon the research plan. Trauth (2001) says that research design and research philosophy should be according to the needs and purpose of the research study.

3.1. Research Question:

To explore the role of performance appraisal system in HR function within the banking sector of Pakistan.

3.2. Objectives:

  • What is performance appraisal?
  • What are different performance appraisal systems?
  • How appraisal system interlinked with motivation and employee loyalty within banking sector of Pakistan?
  • What are different problems with performance appraisal system?
  • What are different strategies in HR department to enhance productivity?

3.3. Research Paradigm:

A paradigm is a structure that helps the researcher to construct a frame work of study. This frame work tells how to see the world and create a link within the perspective and shape the different elements together to conduct a research (Guba & Lincoln, 1994). Research paradigm has three types into it.

  1. Ontological question (form and nature of reality)
  2. Epistemological question (basic belief about knowledge and relationship)
  3. Methodological question (how to go about finding the beliefs)

Ontology describes the reality that researcher wants to investigate in the study and also it takes some assumption based on the reality and develops research study. Epistemology describes the linkage and a strong relationship in between the reality and the research study moreover epistemology has some set of assumptions where it tells the different techniques and methods to enquire about the reality in the real world (Guba & Lincoln, 1994).

Here researcher has defined the ontology of the conducted research as:

“In reality, performance Appraisal systems and it feedback and results has effect on the job satisfaction, employee loyalty and motivation towards the job.”

In contrast to the epistemology, this variable will be “analysis key factors (job satisfaction, employee loyalty and motivation) and the different performance appraisal systems are linked together and have strong relationship”.

Here researcher is going to describe the whole methodology for the research study through the help of research onion. This research onion tells the research philosophy (phenomenology, systems thinking and positivism) Research approach (Deductive and Inductive) Research strategy (Experiment, survey, ground theory, case study, ethnography, action research and exploratory research) Time horizon (longitudinal and cross sectional) date collection method (literature review, interview, questionnaire, survey, focus group and reflective diary).

Research Framework (Saunders, Lewis, Thomhill, 2003)

3.4 Research Philosophy:

In the research philosophy, there are different types of philosophies: phenomenology, systems thinking and positivism. Research philosophy can be describe as “All research is interpretive; guided by set of beliefs and feelings” (Denzin and Lincoln, 2000). It tells the different sets of assumptions and believes that are linked to the world, i.e. how the researcher understands the different aspects of the study and what the perspective of the research conducted is. This approach philosophy helps the researcher to study the different small elements in to details and filter the information into a different angle. Research philosophy also helps the researcher to understand the real meanings of the research study (Klein and Myers, 1999).

Positivistic philosophy refers to the quantitative and some kinds of scientific experimental tools and methods, and talks about the quantitative research, by keeping in view the research objectives positivistic approach is appropriate to follow as it is talking about the behaviours and then measurement of feedback of the employees and its effects on the employee's job satisfaction. The other PhenomenologicalIn this approach talks about the qualitative research basis, and it interprets the research results in a qualitative way. Again, here research felt the sensitivity of research objective so it has been suggested to take the Phenomenological approach to carry the research. This research is middle of the two approaches so both philosophies are been used in the methodology design.

In the research method researcher refers to method of reasoning as there are two types of research approaches, Deductive and Inductive Methods. Deductive Method: This method takes the research from very general or broad topic to a very narrow and specific title. This approach usually refers as top to down method, and concludes this research based on the rational facts. Inductive MethodThis approach enables the research to get his research program from very specific to a generalized aspect, in the beginning researcher focus on the very primary and elementary facts but as the research goes on then researcher starts focusing on the broader aspects for the analysis and his expected outcomes. This approach usually refers as bottom up method, but these methods holds the degree of uncertainly. In the underlying research it has been felt that inductive method will be more appropriate to use, as the its main objective is to see, what effects performance appraisal system has on the employee's job satisfaction, loyalty and his motivation level. In the banking industry as the recession hits this has been observed that performance of the employees was affected as the employee's morale was low. The researcher aims to investigate the role of performance appraisal system and its effect on employees considering Motivation, Job Satisfaction and employee loyalty as the key factors in HR function within the banking sector of Pakistan and comparative study with JS Bank.

In the research plan another research is being followed Grounded theory approachthis research approach used to when; there is no literature available for the research objectives. This approach helps the researcher to get information from the participants. Another approach in which researcher involves in the research process itself, in the Action Research Approach, research tries to be a part of the research program. In the research program, when the organization is developing some change into the particular process, then it leads to a research plan where he becomes the part of the organization and been a observer to all the process and comes with the new research idea, this Approach calls Ethnography Approach. Getting into research program it is always recommended to process your research in such a way that answers the question asked by the researcher. Research approaches included the, case study approach.

3.5Case Study Approach:

A number of approaches are undertaken by a researcher to make the research work more accurate and practical. One could use various research approaches available like the: Action Research, Case study, Ethnography and Grounded theory Project approach.

The researcher feels that case study approach is most applicable as connection between texts and information collected can be easily obtained. It would focus on understanding in depth the research question and at the same end it conceptualises the various links present inside a particular frame work. Case study approach also takes up use of entrenched designs such that various studies can be used within a single research (Strauss and Corbin, 1990).

The approach would highly correlate with the research carried as it would allow predicting the approach performance appraisal systems in JS Bank and at the same time allow the researcher to understand the job satisfaction of employees in the bank. Specific information related to the bank could be gathered using the said approach as compared to the overall working of the bank. A single case study was deemed suitable for research as the research question surrounds the single notion of performance appraisal system in JS Bank. Even the time frame associated with the research would work well with a single case study in hand, thereby making the researcher to understand in depth the research topic at the same time provide a more efficient and well build framework (Strauss and Corbin, 1990).

Three major reasons could be further identified to stress on the importance of case study approach i.e. “to study the phenomena in its natural settings, asking how and why questions and where very few studies have been previously been made” (Benbasat et al., 1987). The researcher understands that all the suggested points have been incorporated in the research and at the same end applied over the bank under consideration such that relevant data can be obtained. Specific information related to JS Bank in relation to performance appraisal system could be well obtained by keeping these points in mind. Yin (1994) further suggests analyzing in depth the “research question, current position, methods of analysis, linking of data to theories, and principles on which result are observed” as being fundamental to research being carried on JS Bank (Yin, 1994). Further to this explanatory case study approach has been used by the researcher owing to the fact that detailed information regarding performance appraisal of JS Bank is needed. Further to this it would allow the researcher to conceptualize well all the data collection methods applied i.e. both qualitative and quantitative frameworks in a more prudent manner.

3.5.1 Case study of banking industry of Pakistan:

Every country has a main financial regulatory body to cycle all financial institutions; like the State Bank of Pakistan (SBP) is the regulatory body and integral part of financial services. Vision Statement:

“Our vision is to develop the SBP BSC (Bank) into a strong and dynamic institution, equipped with an efficient and professional human resource base, having the requisite technology and fully capable of providing quality service to stakeholders, while complementing the State Bank of Pakistan in achieving its objective”. (SBP, 2011) Mission Statement:

“To provide reliable banking services to the Government, financial institutions, public and to act as an operational arm of the State Bank of Pakistan”. (SBP, 2011)

The State Bank of Pakistan is taking effective supervision of all financial institutions. This sector comprises of different categories like; commercial banks, non commercial banks, scheduled and non scheduled banks, micro and macro finance banks, development financial institutions, leasing and investment banks, agro-finance institutions, brokers and discount houses, venture capital companies, mudaraba and musharaka companies (Islamic banking), stock exchange and insurance companies. Thus, SBP is carrying all the financial services within its umbrella (SBP, 2011).

As a central financial body of a developing country, it has many economic, traditional and developmental functions to gain the macroeconomic goals. Traditional functions are categorized as: issuance of currency, regulating the interest rates (IRR), balance of payments, keep an eye on inflation and deflation, supervision of all other sub-financial institutions, lender and last resort, regulating the monetary policy, banker's bank, government banks and other functions are: management of foreign exchange, public debts, government debts and also to understand negotiations with international financial bodies i.e. International monetary fund (IMF). SBP is also making frame work for saving and investment patterns. All interest rates (six month KIBOR, nine Month KIBOR) will also be monitored by SBP. The main developmental function that SBP is performing in current time is the Islamization of all banking infrastructure (SBP, 2011).

Being an integral part of Pakistan's economy, SBP is trying to regulate all its departments in most effective and professional way. Insight to SBP's Human Resource Department:

The State Bank of Pakistan always give confidence to fresh banking graduates to be a part of its operations to get wide knowledge of banking sector. It also offers its employees the chance of endorsement and rotation within the bank by posting internal jobs. This opportunity enables the employees to meet their personal aims and objectives in their banking career (SBP, 2011). Quite few units are working under the HR department of SBP.

The Performance Management Unit (PMU) is the main authority for carrying performance measurement and appraisal process and suggests the employees to increase their annual goals that will definitely smoothen their progress to get promotional objectives and also rise in their salaries (SBP, 2011).

The Reward & Recognition Unit (RRU) is the main unit that gives the notion of recognition of personal and professional milestones of the employees and also acknowledge the services within the bank by giving ground-breaking business practices. This unit encourages the employees to take part in the decision making process to increase their trust on organization and they are held responsible for enhancing the corporate name in the public. To bring about this recognition and admiration, letters are being issued by RRU and also some monetary rewards (SBP, 2011).

The Succession Planning Unit (SPU) weighs up and measures the employees performance and their skills through different tools and also tries for the development, orientation and training needs of new employees and the potential successors (SBP, 2011).

There is a separate unit called Employee Motivation & Retention Unit (EMRU) that is responsible for conducting different surveys to check the level of employee's motivation, their job satisfaction level and also the loyalty of employees with SBP. This unit also works on the frame work of different strategies to get the maximum efforts from employee by polishing their skills (SBP, 2011).

The Job Evaluation Unit (JEU) measures the job posts and also the position and its structure to ensure that the job is done by a capable person and it is performed well with certain grade points (SBP, 2011).

The amalgamation of all units working under HR department makes it a well functioned department. Following part will throw light on JSBL bank and its operations:

3.6. JahangirSiddiqui Bank Limited (JSBL):

Jahangir Siddiqui is the merger of two giant banks of Pakistani banking industry; Jahangir Siddiqui Investment Bank Limited and American Express Bank Limited of Pakistan (JSBL, 2011).

3.6.1. Vision Statement:

“To provide quality and innovative range of banking services and products to our customers by a highly motivated team of professionals whilst maintaining high ethical and regulatory standards thereby, generating sustainable returns to our shareholders.” (JSBL, 2011)

3.6.2. Mission Statement

“To be a preferred partner of our customers by providing complete financial solutions exceeding service expectations, though a single relationship via conventional and non - conventional, conveniently accessible distribution channels.” (JSBL, 2011)

JSBL is a big wing of Jahangir Siddiqui investment and securities and an association of two banks. It had started its operation as a scheduled bank with SBP on December 2006 with an innovated investment practices. The JS bank is one of the premiers in the brokering and discounting license from the State Bank of Pakistan. Besides the banking services, the primary objective of JS bank is to provide quality financial solutions to all common customers of the bank. They are issuing new and innovative products for the customers to give them maximum ease in modernised banking (JSBL, 2011). The JS bank is performing multiple services and activities which can be categorized as follows:

  • Retail and Consumer Banking
  • Treasury - Securities
  • Corporate & Commercial Banking
  • Investment Banking (JSBL, 2011)

These departments are providing innovative solutions with technological ease to final customer. JSBL is also opening its branches all over the country and will be international in the next few years (JSBL, 2011).

3.6.3. Insight to JSBL's Human Resource Department:

JSBL is one of the renowned banks within the banking industry of Pakistan. It is famous for the modern technologies, customarily services and retaining of employees. HR department is very efficient and working according to the need of the organization and also fulfilling needs of employees. Below part will discuss the HR department, its processes, developments and also the performance appraisal systems of the bank(JSBL, 2011).

3.6.4. Human Resource Planning:

For the purpose of decision making about the human resource JSBL has categories its planning into three main steps:

Step 1. On the first place it indentifies its main organizational needs and then tries to make activities about it, what are the different possibilities to achieve those targets and solution to all problems about work force.

Step 2. In the step two JSBL tries to remove all the huddles in the processes and motivates the employees to achieve those targets and gives them maximum reward in return of their efforts. Here, it makes the targets according to their job responsibilities and requirements.

Step 3. It makes reasonable linkages between the employee goals and targets and organizational aims and objectives (JSBL, 2011).

3.6.5Job Description

A Job description document refers to a form where all of the job requirement and responsibilities are stated. This document also contains the future perspective job activities also. Here the sequence of job description form is mentioned below:

  • Job identification and job details
  • Job summary
  • Duties to be performed
  • Immediate manager and supervision & received (JSBL, 2011)

3.6.6.Recruitment and Selection

JSBL is recruiting main five categories of employees for the services:

  1. Higher management
  2. Middle management
  3. Trainee and internees
  4. MTO's
  5. Clerical staff

3.6.7. Training and Development

Training and development & orientation to all process and activities are always an important part of any HR department and JSBL is investing huge capital amount on work force. This training and development consist of different steps as follows:

3.6.8. Training:

In the first step of training, it has different activities in it:

  1. After the performance appraisal, the evaluation chart shows the different areas of employee's performance and it also indicates the areas where employees need training and development. This step makes improvements in the employees performance in the future time period (JSBL, 2011).
  2. Each time management reviews the performance of employees and suggests the training n development HRD department for the training of employees. It also tries to make their employees capable enough to pursue the activities in the future time and enhances their abilities. These reviews are normally on quarterly basis.
  3. Operation support division always make it assure that what type of training and orientation is needed for the employees and also whether this training will be given by the internal staff or that have to hire external bodies for developmental activists(JSBL, 2011).

3.6.9. Development:

  1. Management training orientation
  2. special training for new projects and improvement plans

3.7. Performance Appraisal:

Performance appraisal is structural framework allows the management to measure the performance off the employees and suggest the improvement plans for next time period. It's a relationship between the evaluator and employee. It's a opportunity for the employee to shows it's all abilities in this process and if the management and supervisor is recognising the effort then he will tend to receive the monetary and non monetary rewards from the organization. This rewards and recognition increases the moral and job satisfaction and good relation with organization (JSBL, 2011). Here JSBL management makes job targets and aims and employees try and make efforts to achieve those targets. In the performance appraisal process JSBL have different approaches as follows:

3.7.1. Traditional Approach:

The traditional approach concerned with the past performance and overall organizational development. In the main head office all the performance at local and regional branches is being reviewed. Every branch has its own targets and object set by the main branch and liable to perform on those notes (JSBL, 2011).

3.7.2.Expansion Approach:

Under the expansion and developmental approach, every employee is asked to make a Performa of his tasks and objective during the performance appraisal time. This approach viewed the goal setting. Every employee is liable to work on those targets and all the performance targets are reviewed on annual bases in December (JSBL, 2011).

3.7.3. Performance Appraisal Process:

Performance appraisal process of JSBL consists of four main parts.

Step 1. Create mutual understanding of organizational goals and individual aims & objectives between employees and the evaluator. What are the targets for the following periods, how to accomplish them and how the work will be evaluated?

Step 2. Ongoing employee performance assessment throughout the year.

Step 3. In this step evaluators measures the actual performance.

Step 4. After measuring the actual performance, evaluator compares this performance with the bench marks.

Step 5. After comparison, management allows employees to discuss this performance appraisal with the evaluators to removes the doubts, if any. Here final decision is made by the evaluators about the appraisal and also sets the reward systems based upon performance made throughout the year (JSBL, 2011).

3.7.4. Methods for Data Collection:

The researcher inclined the research to make use of both primary and secondary form of data. Primary data such as structured and unstructured interviews would be used clubbed with questionnaires, focus groups, surveys etc. Use of both structured and unstructured interviews would be obvious, however unstructured interviews would be taken up primarily as they would further pave way for structured interviews to take place (Miles & Huberman, 1994). However the criticality of primary data would make it mandatory on the researcher to focus heavily on it. On the other hand Hakim (1994) describes secondary data as an “reanalysis of data collected by another researcher including the analysis of data sets from varied sources to create area based data sets”. Thus such an data would refer to data or information generally gathered from previously available information such as published works, books, journal articles, organizational related document's, web based documents etc. The researcher would strongly focus on such kind of data, collected from documents or information published by the organization in consideration, journals, web based information, books etc which would eventually aid in forming a strong base for the overall research (Hakim, 1994).

The initial focus would however be on primary data which would depend on both qualitative and quantitative form of data collection which could imply that mixed method of data collection would be used which is generally also referred to as mixed form of data collection method. The quantitative research method would suggest analyzing the natural phenomena through experiments, questionnaires, surveys etc. however qualitative would enable the researcher to examine the social and cultural attributes of the organization undertaken by observing and interacting with the management and work force in the organization. Structured and unstructured interviews are generally prevalent in such a form of data collection and are highly inclined to case study approach undertaken. It is important to state here that amalgamation of both qualitative and quantitative method would provide a real

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