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Literature Review of Current Knowledge concerning Performance Management and Performance Appraisals
What is performance management?
Today performance management is commonly used within organisations of any size and is a process in Human Resource Management. This statement is supported with an Armstrong and Baron report (1998) which showed 69% of the organisations surveyed in 1997 used a formal process in order to manage performance within their organisation.
Performance management became popular mainly in the 1980's but was not largely used until the 1990's. The term performance management indicates, "An ongoing communication process, undertaken in partnership, between an employee and his or her immediate supervisor that involves establishing clear expectations." Bacal (1999:3).
According to Neely (1999) performance management has three main purposes, which are to comply, check and to challenge. Performance management systems should ensure that any non-negotiable performance parameters are not being missed. They should also keep check of the health and viability of the organisation and continuously carry out improvements. Finally Neely (1999) states that performance management should question the organisations strategy to check whether or not it is still valid, this could lead to both debate and innovation.
There are many different methods associated with performance management most organisations will use either one or more in conjunction with one another, for example performance related pay and the appraisal system. The most commonly used and recognised is most likely to be the appraisal system. Many organisations operate this process in which an employee's manager regularly takes note of performance, future potential and training needs. Performance related pay is also commonly implemented within organisations, its main benefit being concerned with improving motivation and delivery through additional pay. Performance related pay involves staff that work to a higher standard who gain financially and move at a faster rate in the organisation in terms of promotion. Thirdly another common method used is 360 degree feedback. This method uses feedback from management, colleagues, the employee and the customers (if applicable).
Performance management is implemented through a number of stages. It is assumed that identifying the performance required of the whole organisation has to be undertaken first, before looking at the performance of any individual. This often involves the organisation creating a mission statement, allowing performance to be regarded in the context of a dominant theme. Research showes that companies which used performance management where much more likely to have a mission statement and to convey it to members of staff, Bevan &Thompson (1992).
Performance Management Advantages
Performance Management is widely used due to its many advantages. Performance management improves the understanding of what is actually expected of an employee and how their contribution impacts on the organisations goals and achievements. Putting goals and what is expected from staff in written form makes it seem far more achievable, as they know exactly what is required from them. It is also a more systematic approach. As feedback is given when managing performance, problem areas can be addressed and can lead to both training and development plans. This indicates that criticisms are looked upon constructively and fixed appropriately. Performance management if carried out correctly can lead to an improvement in employee and management relations. Performance management as explained earlier is an ongoing process, meaning it occurs constantly throughout the "life" of the organisation, allowing performance trends to be monitored.
Performance Management Issues & Concerns
Although performance management is seen as beneficial to most organisations many issues and concerns have been raised by academics. One problem which is mentioned time and time again is the actual framework used by organisations when undertaking performance management. Carlton and Sloman (1992) state that many performance management processes are poorly administered, they indicate that there is a problem when getting management not only to do the process well but to do it at all. Carlton and Sloman in "Performance Appraisal in Practise" carried out research in a Merchant bank involving their performance management process and found a number of issues.
Management within the bank seemed reluctant to implement the organisations performance management as it involved a large volume of paperwork, thus requiring significant time to complete. The academics also found a degree of bias; this was mainly due to performance related pay being used. Their finding showed that many managers over rated staff as they felt if they marked them down it would cause a loss of motivation. One manager said, "I knew his performance did not justify the rating but I thought it would de-motivate him if I marked him down" (Carlton & Sloman, 1992). The academics findings is of only one organisation, but still finds important issues with the performance management, this underpins the necessity of the process having to be carried out correctly and efficiently, if this is not done the whole process becomes pointless.
The effect of competitiveness on performance management
Nowadays organisations are often taking part in activities to aid productivity, cost effectiveness and quality. Organisations strive to achieve improvements in these areas in order to gain competitive advantage, which is becoming increasingly important, Longenecker (1997). Obtaining competitive advantage against the competition is vital to stay in the lead and to protect against poor economic conditions. If an organisation does not offer innovation, world class quality and safety, and competitive pricing they will struggle to succeed. Many organisations have had to adapt to these new trading environments and have come to realise that "it is no longer business as usual", Longenecker 1997:1.
In conclusion organisations use performance management as a tool to keep a constant check on operations, the staff and their performance. Many organisations see it as a necessity and it is regarded as having high importance to the everyday running of the business. Performance Management if completed to a high standard is highly advantageous, as areas which are in need of improvement will be highlighted and appropriate action taken promptly. This is vital, especially in the current economic environment as there is little room for error. Therefore Performance management when used correctly makes it possible for organisations to improve the moral of staff, and overall productivity and can enable organisation to outperform their competition.
What are performance appraisals?
Performance appraisals are an important aspect in the arena of Performance Management and are one of the common exercises used to manage performance. Performance appraisals are usually carried out by supervisors or by members of the management team. Performance appraisals provide "a formalised process to review the performance of employees" Torrington, Taylor, Hall , 2006:453. In general terms performance appraisals are aimed at giving feedback on the performance of employees, to inform and aid managerial decisions (for example salary increases, promotions, disciplinary actions) and to show where training is needed within the organisation
Research studies show that employees tend to feel more satisfied with their appraisal results if they have had the chance to discuss their performance with management. This research by Greenberg (1986) also showed it was also more likely that such employees would find it easier to meet future performance goals. Staff were also more likely to feel that the appraisal process was fair if they are given a chance to talk about their performance, especially if they wanted to appeal against their appraisal.
It has been shown in numerous studies that goal-setting is an important aspect in keeping staff motivated. Goals can stimulate and encourage employees to find better ways to work, Research also shows that goals which are "specific, difficult and accepted by employees will lead to higher levels of performance than easy and vague goals (such as do your best) or no goals at all ", Harris and DiSimone (1994).
The History of Performance Appraisals
The performance appraisal is not an entirely new concept; it can be dated back to as far as the 1800's, performance feedback had evolved greatly over time. Historically speaking, performance appraisals have been used for mainly administrative purposes, for example discharge, retention and promotion. An early example would be Robert Owens factory located in New Lanark, where individual work performance was formally observed. Robert Owen created a system where coloured wood would be placed over the factory machines, each different colour indicating how well each employee was working, the colours raged from, white, yellow, blue and black (white being excellent and black being poor) P. & J. Prowse (2009). This method of performance rating in Owens's cotton mills became known as "silent monitoring" and staff's performance was evaluated at the end of each day. The wood used to symbolize how well each member of staff was made deliberately visible to the whole shop floor, and according to studies carried out at the time it had a great impact on the behaviour of the staff, Wiese & Buckley (1998).
In the United States of America in 1813 the army used a rating system known as global rating; this is looked upon as the beginning of the performance appraisal in the United States. The rating system used in the Army would describe the behaviour and perception of the men, for example if they were a "good natured man" or "a knave despised by all", Wiese & Buckley (1998:235). Then in the late 1800's the Federal Civil Service started to implement merit ratings. In the late 19th and early 20th century the performance appraisal system was predominantly used by government organisations and the Armed Forces, this was largely to do with their size, Wiese & Buckley (1998).
Although the concept of critiquing employee's performance has been used for many years, the appraisal as we know it today is widely accepted as beginning in the 20th century. This was the era of F.W. Taylor's measured performance and scientific management movement. This approach developed in the 1930's and used the identification of personality and performance (this was measured using rating scales). This method would help indicate management potential in the workplace, P. & J. Prowse (2009).
In the 1940's behavioural anchored rating scales (BARS), behavioural observation scales (BOS) and behavioural evaluation scales (BES) were introduced. The scales objective was to determine the potential need for training.
In the 1960's performance appraisals developed further, as it became common practise to follow the formal documented appraisal with a discussion. This gave the appraisee the chance to develop their performance appraisal further and ask any questions they wanted answered P. & J. Prowse (2009). The ability to discuss the results gave the appraisal gave a higher notion of individuality. The final developments of the performance appraisal became apparent in the 1990's, here 360° degree appraisal and performance pay were created. 360° degree feedback was an entirely new concept as it included groups evaluating the performance of line managers as well as fellow peers and performance related pay gave employees the incentive to improve their performance in the workplace P. & J. Prowse (2009).
Why do organisations use the Performance Appraisal system?
Performance appraisals are "one of the most important supervisory procedures" and when completed correctly they provide management with an "assessment of the competency of their workforce"(Torrington, Taylor, Hall, 2006:453). As the appraisal system has been around for some number of years it is obviously advantageous to many organisations, Harrington (1997) suggests the only people who feel the appraisal system should be abolished have never worked in a managerial position.
A properly implemented and managed performance appraisal system can hold beneficial results for employees, management/supervisors and the organisation.
When performance appraisals are carried out correctly it gives a rare chance for the management and employees to discuss current issues and raise awareness in the workplace. These issues perhaps would not be brought to attention if there wasn't such a performance procedure.
Performance appraisal can have a beneficial effect on levels of employee motivation and satisfaction. The performance appraisal provides employees with recognition for their work efforts. When an employee receives good feedback from an appraisal they will also gain a level of social recognition. The existence of an appraisal program also indicates to an employee that the organization is genuinely interested in their individual performance and development. This alone can have a positive influence on the individual's sense of worth, commitment and belonging as they feel they are seen as an individual in the workplace instead of a name and number.
Performance appraisal offers an excellent opportunity for a supervisor and employee to recognise and agree upon individual training and development needs. During the discussion of an employees' work performance, the presence or absence of work skills can become obvious. This can also again lead to motivation as the employee feels they are improving their skills and moving their career forward. Performance appraisal therefore links performance and future career aspirations. From the point of view of the organisation as a whole, consolidated appraisal data can form a picture of the overall demand for training. This can help the organisation to target skills advancement improving overall performance which is vital in the current economic climate.
Most common methods of performance appraisal
Early studies form the basis of much of the current day research and provide consistent and relevant data pool. One of the landmark studies was Locher, A.H. & Teel, K.S. (1977) who researched the most common appraisal methods being used at the time and which are still commonly used today. Locher & Tell found that 56% of employers used rating scales, 25% essay methods and finally 13% used results orientated methods.
- Rating scales- This method rates each member of staff's characteristics on a scale ranging from excellent to poor, e.g. communication, punctuality etc.
- Essay Methods- The essay method is most likely the most personal method of them all as the appraiser writes a statement concerning the employee being appraised.
- Result Orientated- This method first introduced by Peter Drucker in the 1950's and performance is measured in terms of objectives being met.
Critique of the performance appraisal
Perceptions of performance management and the appraisal play a large part in the research as differences in opinions will largely affect different people's results in the questionnaires which will be used in the study. Whether performance appraisals are actually effective or not still remains a current and controversial topic, and after research it became apparent there are great divides in the opinions concerning performance management and the appraisal in the academic world.
There are a number of academics who regard the performance appraisal as having a number of serious issues. One issue which appears article after article is equality. Many regard the appraisal system as being judgmental and unfair. Biases are factors that should not affect performance appraisals but occasionally do; they are factors such as, age, ethnicity, gender, physical appearance, popularity and personal like/dislike, Cook (1995). Cook (1995) pulled together the results of 40 separate research campaigns that implied that employers favoured younger staff compared to older members. Some surveys also indicated that there were cases of own race biases, although there were very few findings of such a phenomenon. The research also found that gender can hold an impact on the performance review system, studies show that women with more masculine characteristics are more likely to be considered more promotable compared to those who are more feminine. Also interestingly it was common for female management to give female members of staff a lower rating, Cook (1995).
Gabris and Mitchell also help the opinion that performance appraisals were often biased, their research showed that performance appraisals often caused a negative effect, which is known as the Matthew Effect. The Matthew effect concerns members of staff who constantly get the same appraisal results, Mitchell and Gabris believed this was due to past appraisal record prejudicing ones in the future. The Matthew effect would therefore hold some members of staff back from progressing any further in the workplace.
Banner and Graber (2007) suggest performance appraisals have a number of pitfall areas, in their paper they underline four main concerns, these include; employee effectiveness, the measurement strategy, the appropriate use of the performance appraisal, then finally motivation and implementation.
Banner and Graber (2007) hold the opinion that the definition of employee effectiveness has raised concerns for many years and is not an entirely new concept. They argue the point that there is no one definition of the term, so who decides what is effective and what is not? They also ask what the right method to measure employee effectiveness is. The literature then states the fact that it is often difficult to obtain quantitative measures for many careers, and when done so the measurement process can become vulnerable to problems concerning bias and reliability, Banner and Graber (2007).
Another issue concerns whether the manner in which the performance appraisals are used is appropriate. Banner and Graber (2007) state that many past, highly respected researchers have doubted the usefulness of this managerial tool. Banner and Graber (2007) suggest that the performance appraisal tool is often used as a building block for aspects other than performance improvement, examples include, training and promotion. It is then further claimed that performance appraisals are quite often the only formal system used in order to state what the employee's job consists of. Banner and Graber argued the fact that the appraisals system can be unrealistic and in some cases conflicting. This was also a view shared by Demming (1982) who held the opinion that performance rating acted as a barrier and had a negative impact on peoples pride at work advocating that the performance rating system should be banished. Demming was against the way in which many organisations undertook their performance appraisals systems as he felt they were conducted in a manner that was ineffective, Harrington (1998).
Another concern of the appraisal system is motivation and implementation. A common complaint which was shared with Banner and Graber (2007) was the opinion that the appraisal system simply did not work; this was due to the lack of motivation associated with the performance tool. Davis & Landa (1999) state that the aim of performance management is to review members of staff rather than to punish them. Davis & Landa (1999) found that very few come out of the review feeling motivated; many find it a deflating experience which lowers their sense of worth.
Past research studies have also indicated flaws in the performance appraisal system, a study carried out by Longenecker (1997) underpinned ten main reasons why the system often failed. In the study a qualitive research method was used, with 120 members of management being contacted from five large American organisations. All the managers asked to take part had an average of 8 years experience, plus all 5 of the organisations already used performance appraisal. The management were asked the question, "based on your experience, what factors cause managerial performance appraisals to be ineffective?"Longenecker (1997:213). A total of 10 caused were revealed, these included; unclear performance criteria, poor working relationship with the boss, the superior lacks information on actual performance, a lack of on-going performance feedback, overly negative reviews, perceived political reviews, a lack of focus on management development, an ineffective link to reward systems, the superior lacks rating skills/motivation, and finally, the review system lacks structure/consistency, Longenecker (1997).
Looking into the top 5 more closely, managers involved in the research made it very clear that even if the performance appraisal system is established properly the exercise will fail with 83% agreeing with this statement. The conclusion is that if there is doubt concerning job description, goals and behaviours that the appraisal will be based around, the process is "doomed from the start", Longenecker (1997:213). The research found that in order to achieve an effective performance appraisal system two-way communication between the appraiser and the appraise is required. This enables a higher level of understanding of what is expected and going to be assessed. Organising a discussion before the appraisal takes place makes it more likely the outcome will have a more accurate focus.
Another factor which appeared to be an overwhelming issue in the appraisal system was a poor working relationship with the boss (whom is appraising the employee), around 79% of the managers which took part in the study found this to be a problem. Many of the employees in the study held the opinion that having trust and confidence in the management conducting the appraisal was key to the system being effective. Longenecker stated if a good professional working relationship is not formed it can place a "cloud of credibility" over the appraisal system as it can lead to the employee having doubts and suspicions, Longenecker (1997:213). This can lead to the appraisal being regarded as having no relevant value, therefore making it a waste of time. This was also a view shared by Heneman, R.L., Greenberger, D.B. & Anonyou C., (1989). In their studies they shared the opinion that often appraisals were affected by the relationship between the appraiser and the appraisee. They split employees into two groups, in-groupers and out-groupers. In the study they concluded that in-groupers are members of staff who were favoured by their management team so they were often able to enjoy "a high degree of trust, interaction, support and rewards." On the other end of the spectrum so called "out-groupers" did not do as well. They tended to have to deal with supervisory distrust and criticism, therefore often receiving less complimentary performance appraisals than the in-groupers.
An issue in which 75% of the staff agreed on was often superiors lack information on actual performance. Those who took part in the survey argued the fact that as managers they are being required to do more than ever, and are having to multitask in a number of areas, something which they have not had to do before, Longenecker (1997). They also stated that often supervisors are not given the information required to complete the performance appraisal in an effective manner, often the supervisors purely rely upon their impressions of the members of staff in question. Longenecker then stated that although managers do not want to be followed and supervised constantly they would like their supervisors to know what they are doing and have a higher degree of awareness. Without awareness again the performance appraisal can become meaningless.
The management which took part in the survey also raised awareness to the lack of ongoing performance feedback; around 67% felt it was an issue. Many said they saw the review as a "surprise", Longenecker (1997). They also believed that the performance appraisal would gain higher respect if it was gradually done over the year instead of all at once. The research found ongoing feedback is required instead of the once a year approach.
The last of the top 5 issues was, some management (63%) feel the performance appraisal process is overly critical. Although many admit they have room for improvement they feel there are perceived worse off in many of their appraisals and bad points are only picked up on instead of an equal refection on both the good and bad. The large load of negative feedback is also due to the issue raised earlier; often appraisals are only completed once a year, and can also lead to low staff moral and motivation. Overly negative comments can also lead to employee and management relationships falling apart, which is not beneficial to any organisation, Longenecker (1997).
The literature used above shows there are a number of concerns when using the performance appraisal, much of the literature shows how to improve current appraisal systems instead of simply implying that it does not work and is a waste of time. Although if an organisation does not bother to ensure their review system is carried out in an effective manner they will not gain anything at all, Demming (1982).