Perception of Employees towards Performance Appraisal

This chapter presents the definition of performance appraisal, executive level employees, objectives of this study, statement of problem, importance of this study, as well as contributions and limitations of the study. This study will be conducted to investigate the perception towards performance appraisal among executive level employees in Malaysia.

1.1 Performance appraisal

Performance appraisal (PA) is an integral part of Human Resource Management activities; it is growing concern to all members of organizations including managers, employees, employees unions and even customers. Managers are interested in this subject because there are require making judgments and evaluating employees, while employees realized its importance as it will directly influence their pay and future career in the organization and employees unions believe that it will affect the welfare of their members. For customers, they are hoping to get maximum benefit from the appraisal of employees so that they get their money’s worth. So, the objective of human resource management is to improve the productive contribution to the organization in ways that are strategically, ethically and socially responsible.

Furthermore, performance appraisal also is an integral part of performance management systems. It consists of a series of continuous processes, which include performance planning, performance coaching, and performance appraisal and rewarding performance. Together, these processes strive to improve employee and organizational performance. While the philosophy is that performance improvement should take place on a continuous basis I, it should be shared by managers and the employees whom they are responsible for and understand what is to be done in the future.

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According to Sisson 1991(as cited in Yusof 2009), performance appraisal is ‘the process whereby current performance in a job is observed and discussed for the purpose of adding to the level of performance.’ His definition is in line with that of Huczynki and Buchanan 1991(as cited in Yusof 2009), who suggested that there is a need for managers to discuss the work of all their employees. Based on the words observed and discussed is prove that performance appraisal should be on an open flow of communication between the management and its employees. When employees performance are observed and discussed it shows that the management is prepared to amend if there a fault made by employees.

Beside this, performance appraisal not only provides opportunities for employee to learn from their mistake but it also an important source of information regarding employees’ performance. Thus, through discussion and observations there is no any excuse for employees to blame the organization for the poor performance. On the other hand, manager also cannot blame their employees if they do not achieve the required standard. However, Pearcee and Porter 1986, Erdogan, Kraimer and Liden 2001 (as cited in Narcisse and Harcourt 2008) defined employee performance rating serve as inputs to performance based feedback and administrative decision relating to promotion, training and salary increase.

Establish organizational performance standard

Organization should set a standard for performance measurement which in term of quality, time require to do a task, and output. The standard should be specific, measureable and achievable. To be effective, communication between both rater and rates are important which to raise aware, match and agree the standard.

Determine method of performance appraisal

The most suitable method to use to evaluate performance should be determined by organization because it is important factors that determine the success of the system. In the addition, the method used should be in line with organizational objectives and goals.

Compare performance level against a predetermined standard

Performance appraisal is the process aimed at comparing the performance of employees’ against a predetermined standard. The expected target should ability to achieve by employee. The standard for measuring performance should be easily to measurable and understandable. Besides that, management support is needed to make sure the standard set is in line with organizational objectives and the changes in business environment.

Evaluate individual performance

At the end, the evaluation of individual work performance should be free from bias and errors. Evaluation made should be based totally on work performance not on employees’ attributes and developmental programmes are needed to be implemented for poor performers.

The most important goal of the performance appraisal is to improve performance in future. The purpose of performance appraisal must be clearly communicated both to manager and subordinates, so they will have clear direction to their job. (Encyclopedia of Business and Finance,2010). Gregory D.Rankin and Brian H.Kkainer (2007) defined that; the lack of specifically defined performance goals will undoubtedly undermine the effectiveness of the entire performance appraisal process. His definition is in line with that of Encyclopedia of Business and Finance (2010) who suggest that the failure to inform about the purpose or misleading information about the purpose may result in inaccurate and biased appraisal reports.

1.2 Executive Level Employee

Executive level employee is any employee whose duties and responsibilities involve the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision thereof. Executive level employee customarily recognized and regularly directs to work of two or more other employees therein and has the authority to fire or hire others employees. As an executive level employee, he or she must customarily and regularly exercise discretion and independent judgment. It means that he has to make comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The employee must have the authority or power to make an independent choice, free for immediate direction or supervision and with respect to matters of significance. According to employee law, an executive employee must also earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Full-time employment means 40 hours per week as defined in Labor Code Section 515(C). (Deskin law firm, 2009)

Research Objectives

The main variables or factors that will be discussed in details in this paper are the employee’s perception toward performance appraisal. Hence, the objective of this research is to examine the perception of executive level employees in Malaysia on performance appraisal currently implemented in their organizations. The research focuses on satisfaction of employees on performance appraisal currently used and evaluates the effectiveness of performance appraisal whether employees’ are receiving valid evaluations free from bias and assessment errors from their employer.

The study was conducted with the executive level employees in Malaysia to determine whether the perception toward performance appraisal among executive level employees. Hence, the main purpose of this paper is to investigate level of effectiveness and whether employees are receiving fairness evaluations by using performance appraisal.

There are the relevant research questions which are being focused. At the end of this study, these questions will be answered based on the findings. The two research questions are as follows:

• What are the factors that will influence job satisfaction?
• How job satisfaction will influence motivation, organizational commitment and turnover intention?

There are two objectives in this research:

• To determine factors that will influence job satisfaction.
• To determine the relationship of job satisfaction toward motivation, organizational commitment and turnover intention.

Problem Statement

Performance appraisal in Malaysia remains a widespread and common practice

by organizations in evaluating employees’ performance; subsequently, determine employees’ rewards, both monetary and non-monetary. Many organizations have implemented systems which are based on accepted practices and procedures only. However, lack of efficient ways to evaluate the effectiveness and fairness of performance appraisal within organization cause de-motivation of employees and might affect efficiency of manpower. Clearly, it is essential to have an effective performance appraisal than a technically sound rating format and well defined policies and procedures.

This research is conducted to evaluate the attitudes and perceptions of performance appraisal by executive level employees in organization. There are two main problem statements as below:

No commonly accepted method or efficient approach to evaluating the effectiveness or success of a performance appraisal. Identifying and organizing the most important variables in performance appraisal has proved to be a challenging task to an organization.

Perception on effectiveness and fairness of performance appraisal of employees has not been emphasized by organization. Fairness is one of the key components in the ultimate success of performance appraisal system. Perception of unfairness might pull down employees’ motivation and efficiency; it may affect the ultimate success of such organizational systems.

Research Hypothesis

H1: There is a positive relationship between the levels of effectiveness of performance appraisal and employee’s job satisfaction.

H2: There is a positive relationship between justice and fairness with employee’s satisfaction.

H3: There is relationship between employee’s satisfaction with performance appraisal and employee’s motivation.

H4: There is a relationship between employee’s satisfaction with performance appraisal and their commitment toward the organization.

H5: There is a relationship between employee’s satisfaction with performance appraisal and turnover intention.

Importance of study

Performance appraisal will continue to be an issue of great concern for large number of companies to evaluate employees’ performance. Thus, it is crucial for managers and researches to better understand this construct. So, purpose of this research is to help organizations in Malaysia to evaluate their existing performance appraisal and identifying the executive level employee’s perception toward the appraisal. This study can help the organizations to know the strengths and weakness on performance appraisal and continue to be promoted the strength and corrected the weaknesses.

Communication between manager and employee is necessary to make sure the performance appraisal is successful implemented. This study is intent to encourage manager by play an important role to communicate with their employees, and try to know the employees’ perception toward performance appraisal. Besides that, it also enables for the manager to develop a better performance appraisal in the future and reduce errors.

In addition, this research will help manager to indentify employees’ potential and needs. By understand the employees’ perception of performance appraisal will help manager get wide knowledge and skill to enable them to determine employees’ potential for increase job responsibilities and their advancement in the organization.

This study is important to indentify the level of job satisfaction which influences employees’ commitment to organization and help organization make planning efforts to increase employees’ job satisfaction and commitment.

Contribution of study

This study will examine the perception of executive level employee toward performance appraisal which is applied in their organization It also investigated the technique of evaluation of performance appraisal, the level of effectiveness, justice and fairness when appraisal and satisfaction of employees toward the performance appraisal evaluation. The result of the study provides a mirror to Malaysian organization to uses the most effective ways to evaluate performance appraisal and to create awareness of importance of performance appraisal toward job performance. Organization has to utilize performance appraisal as a tool by management in motivating employees, and subsequently increase better job performance and productivity.

1.8 Scope of study

In this research, the scope is focused on executive level employees in Malaysia. The study is based on 200 respondents which from different organization. These respondents are all Malaysian which their organization have implemented performance appraisal to appraisal their performance. In the study, employee’s perceptions of performance appraisal will be investigated.

Chapter 2

Literature Review

2.0 Introduction

This chapter essentially presents a more detailed variation of all variables involved in the study. First of all, it outlines the definition of performance appraisal and the effectiveness, justice and fairness, job satisfaction, employee’s commitment and motivation and their turnover intention. Besides that this chapter also discusses the relationship between independent variable and dependent variable, which lead to the development of the hypotheses.

2.1 performance appraisal

Latham and Wexley, 1994(as cited by Ab. Aziz Yusof, 2009, p6) refer to the performance appraisal as any personnel decision that affect the status of employees regarding their retention, termination, promotion, transfer, salary increase or decrease, or admission into training programs. This definition shows that performance appraisal is the key in controlling people within the organization. The definition by Latham and Wexley is in line with Fletcher and Williams, 1986 (as cited in Ab.Aziz Yusof, 2009, p6) as both of them claimed that performance appraisal is determined by the management and it is the central part of personnel management activity, linking it with almost every other aspect of human resource activity.

In addition, Leap and Crino, 1993 (as cited in Ab.Azizi Yusof 2009, p7) defined performance appraisal “as a process of assessing the quantitative and qualitative aspects of an employee’s job performance”. However, according to Sisson, 1991 (as cited in Ab.Azizi Yusof 2009, p7), performance appraisal is “the process whereby current performance in a job is observed and discussed for the purpose of adding to the level of performance”. On the other hand, Harvey and Bowin, 1996 (as cited in Ab.Azizi Yusof 2009, p8) defined performance appraisal as the accomplishment of employees’ assigned duties and the outcome produced in a specified job function or activity during a specified time period while performing their jobs. Milkovich & Boudreau, 1997 (Ab.Azizi Yusof 2009, p8) referred to performance assessment or performance appraisal as the process that measures employee performance and employee performance is the degree to which employees accomplish work requirements.

Armstrong, 1993 (Ab.Azizi Yusof 2009, p9) defined performance appraisal “as a means of getting better result from the organization, teams and individual by understanding and managing performance within an agreed framework of planned goals, objectives and standards”. However, according to Fletcher (2001) performance appraisal is a “general heading for a variety of activities through which organizations seek to assess employees and develop their competence, enhance performance and distribute reward”.

2.2 Effectiveness of performance appraisal

Performance appraisal effectiveness refers to the accuracy of performance observations and ratings as well as the ability of the performance appraisal process to improve the rate’s future performance (Cynthia lee, 1985). Lawler (1994) define that, reactions to appraisal and the appraisal process are believed to significantly influence the effectiveness and the overall viability of appraisal system.

Lawler, Mohrman, and Resnick 1984 (as cited in Clinton, Patrick, Kathlyn 1988) argued the need to better understand differences in managers and subordinates’ perceptions of the appraisal process. They postulated that performance appraisal systems will be effective (i.e accomplish the intended purpose) to extent that managers and subordinates have a shared perception of the purpose and function served by appraisal and the extent to which the process satisfies the needs of both parties.

The functions effectively served by the appraisal process are a source of continuing debate, as academics seek to better understand the appraisal process and organizations seek way to increase its effectiveness. Further research suggests that having a technically sound appraisal system and procedure is not guarantee that an organization’s appraisal process will be effective. Manager and subordinates must have a shared perception of the purposes and functions of the process and the belief that the appraisal process is useful to them on an individual basic. Thus, an effective appraisal is one that satisfies the needs of the parties involved in the process. To be effective managers must have not only the skills necessary to conduct effective appraisals but also the willingness to do so (Clinton and Stephen 1992)

2.3 Justice and fairness

According to James Brown, 2007 (as cited in Abuduaini, 2009) defines, fairness as equal treatment, receiving the same services and benefits as other people. Fairness means different thing to different people, and our view of whether or not something is fair often depends on the circumstances (Klesh, J.1979 as cited in Abuduaini, 2009). Konovsky, 2000 (as cited in Sharon and Mark 2008) argues that the importance of fairness lies in its role as a primary organizational value and in understanding the consequences of employee fairness perception. Research has demonstrated that perceptions of fairness result in increased favorable employee attitudes and behavior, such as organizational citizenship behaviors (Skarlicki and Latham 1996,1997 as cited in Sharon and Mark 2008) and organizational commitment (Folger and Konoveky 1989 as cited in Sharon and Mark 2008).

2.4 Job Satisfaction

Keeping and Levy, 2000 (as cited in I.M Jawahar 2007) defined an important reaction of all the appraisal reactions; satisfaction has been the most frequently studies. According to Giles and Mossholder, 1990 (as cited in I.M Jawahar 2007) satisfaction with aspects of the appraisal process is regarded as one of the most consequential of the reactions to performance appraisal. For instance, Giles and Mossholder, 1990 (as cited in I.M Jawahar) have asserted that using satisfaction as a measure of employees’ reactions affords a broader indicator of reactions than more specific, cognitively oriented criteria. In fact, cognitively oriented measures, such as perceived utility and perceived accuracy are positively related to measures of satisfaction (Keeping and Levy 2000 as cited in I.M Jawahar 2007).

In addition, because appraisals from the basis of several important decisions, satisfaction with key aspects of the appraisal process signifies recognition, status, and future prospects within the organization. Thus, favorable attitudes about reward contingencies develop when satisfaction is high rather than when it is low ( I.M.Jawahar, 2007). Taylor (1984) defined these psychological implications of satisfaction make it a significant determinant of behavior and job and organizational attitudes. Indeed, in Jawahar, 2006 (as cited in I.M Jawahar 2007) study reported that satisfaction with appraisal feedback was positively related to job satisfaction and organizational commitment and negatively related to turnover intention. In summary, theoretical arguments and empirical evidence suggests satisfaction to be among the most important of reactions to the appraisal process.

Brezt 1992 (as cited in Sylvie and Denis,2009) defined dissatisfaction with performance management has been around for many years. According to Skarlicki and Folger,1997 (as cited in Paul & Laurel 2009) the appraisal process can also become a source of frustration and extreme dissatisfaction when employees perceive that the appraisal system is biased, political or irrelevant.

Job satisfaction is the most studied variable in organizations. Locke, 1976(as cited in Tobias and Neal, 2010) defined job satisfaction as a pleasurable emotional state the results from the appraisal of one’s job. In other words, job satisfaction describes an affective reaction to one’s job as well as attitudes toward the job. This in turn suggests that job satisfaction is formed from affect, cognition, and ultimately will result in satisfaction contingent job-related behaviors. Some of the most commonly studies outcomes of job satisfaction are organizational citizenship behaviors, absenteeism and turnover (Organ & Ryan,1995; Wegge, Schmidt, Parkes, &Van Dick,2007; Saari & Judge,2004 as cited in Tobias and Neal,2010).

According to Spector, 1997 (as cited in Abuduaini, 2009) refer to job satisfaction in terms of how people feel about their jobs and different aspects of their jobs. Ellickson and Logsdon, 2002 (as cited in Abuduaini, 2009) support this view by defining job satisfaction as the extent to which employees like their work. Schermerhorn, 1993 (as cited in Abuduaini, 2009 ) defines job satisfaction as an affective or emotional response toward various aspects of an employee’s work. Many researchers claim that job satisfaction can be formally defined “as the degree to which individuals feel positively and/ or negatively about their jobs” (Steyn & Van Wyk 1999 as cited in Abuduaini, 2009). This is so true, that if employees’ desired expectations are met, then he or she will experience a feeling of accomplishment that will therefore determine the degree of satisfaction (Abuduaini 2009).

According to Rue and Byers (1994), job satisfaction is made up of five (5) components:

• Attitude toward colleagues
• General working conditions
• Financial benefits
• Attitude towards supervision

Job satisfaction occurs when a job meets the expectations, values and standards of an individual and will influence their commitment and performance (Gordon 1999 as cited in Abuduaini 2009). The greater the degree of the expectations being met the higher will the level of job satisfaction be. According to Bateman and Snell, 1999 (as cited in Abuduaini 2009), staff will be satisfied if they are justifiably treated by the outcomes they receive or the processes that are implemented. However, they also warn that a satisfied worker may not necessarily be a productive worker. Job satisfaction can also be portrayed as a feeling of pleasure that stems from an employee’s impression of his or her job.

2,5 Commitment toward organization

Employee commitment to an organization, according to theory, is a fairly reliable predictor of certain behavior, with particular reference to turnover. Persons who are committed to an organization should be more likely to remain with an organization and to work toward its goals. Organizational commitment has been identified as a critical factor in understanding and explaining the work related behavior of employees in organizations. There are two underlying themes if organizational commitment to the literature: 1) attitudinal and behavioral. 2) single dimension or multiple commitments. Attitudinal perspective defines organizational commitment in terms of cognitive and effective responses and attachment to an organization. On the other hand, a behavioral perspective focuses on the behaviors that bind an individual to an organization. While for another theme explained that whether the construct consists of a single dimension as in a commitment to an organization, or if there exist multiple commitments for an individual; such as commitment to one’s job or career as well as commitment to the organization (Bashaw & Grant,1994 as cited in Noor Asyikin, 2004)

The research of Mowday, Porter and Steers and their collegues (cf.Mowday, Steers, and Porter, 1979; et al,1982 as cited in Lim Soo Giap,1996) define organizational commitment as the “relative strength of an individual’s identification with and involvement in a particular organization,” and argue that it is “characterized by at least three factors: 1)a strong desire to maintain membership in the organization” (1979).

Most definitions of organizational commitment describe the construct in term of the extent to which an employee indentifies with and is involved with an organization. For instance, the OCQ, develop by porter and smith (1970) defines organizational commitment as the relative strength of an individual’s identification with the involvement in a particular organization (Porter, Steers, Mowday & Boulian,1974 as cited in Noor Asyikin 2004). This identification with;1) the organization’s goals and value,2) a willingness to exert effort for the organization and3) desire to maintain membership in the organization. Attitudes assessed in this conceptualization were motivation, intent to remain with the organization and the identification with the values of the organization.

2.6 Motivation

Merriam- Webster, 2007 (as cited in Georgina and Tugrul 2010) defined motivate is ‘something (as a need or desire) that causes a person to act’. Motivation is one of the main factors that determine the work performance of employees. A person, man or woman, is motivated when he or she wants to do something (Lefter, Manolescu, Marinas and puia, n.d). The motivation of a person covers all the reasons for which he choses to act in a certain manner (Adair, 2006 as cited in Lefter, Manolescu, Marinas and puia, n.d).

In 1943, A.H. Maslow came out with “A theory of Human Motivation,” in which he discussed how humans have basic needs that need to be met, and once these basic needs have been met a higher level of need arises. According to Maslow, individuals have a hierarchy by which their needs are ordered, and since everyone is different their needs order will vary. The five basic needs that are indentified in Maslow’s theory are: physiological, belonging, self-actualization, safety, and esteem (Maslow, 1943; Hughes, 1999 as cited in Georgina and Tugrul 2010). Employee’s needs are continuously changing and, therefore, what satisfies and motivates an employee today may not be’ what motivates them a year or six months from now (Georgina and Tugrul 2010).

Douglas McGregor developed one of the best known motivational theories, Theory X and Theory Y. In the process of work, McGregor separate employees in two categories. Employees that align to the X theory are predisposed to negligence, by avoiding work as much as possible, by lacking ambition and avoiding responsibilities. Considered a medium level person, the X employee is indifferent to the needs of the company that he belongs to, and has certain inertia toward change, by resisting it. In consequence, at the workplace, the X employee must be forced, threatened with punishments, permanently controlled and penalized in order to be determined to make the efforts necessary to attain the company objectives. According to the Y theory, the employees consider it normal to make physical and intellectual efforts at work, by voluntarily taking upon themselves different assignments and responsibilities and by being motivated by the associated rewards. The Y employee must not be forced by different means to obtain performance, because he is motivated by the content of his work. McGregor’s view can, of course, be considered simplistic, because external and internal factors can often decisively influence his work performance (Lefter, Manolescu, Marinas and puia, n.d).

Herzberg developed the Motivation-Hygiene Theory which discusses management’s inability to motivate workers and how motivation does not come from just raising salaries, fringe benefits, or duties of the worker (Herzberg, 1987 as cited in Georgina and Tugrul 2010).

2.7 Turnover intentions

Tett & Meyer, 1993 (as cited in Christina, Mei Huei and Lilian 2010) defined turnover intention as a conscious psychological willingness to leave an organization. It also represents thoughts of quitting a job or searching for new employment opportunities. Price and Mueller 1981 (as cited in Christina, Mei Huei and Lilian 2010) described how there are diverse factors that affect turnover, which can make it difficult to predict turnover behavior accurately.

Turnover has been used as an organizational performance indicator since the early work of March and Simon 1958 (as cited in Ikhlas Altarawneh and Mohammad H.Al-Kilani 2010). These social scientists defined employee turnover intention as a reflection of an employee’s decision to participate and work in the organization. Denvir and McMahon 1992 (as cited in Ikhlas Altarawneh and Mohammad H.Al-Kilani 2010) define labour turnover as “the movement of people into and out of employment within an organization”. These definitions suggest the turnover intention can be voluntary or involuntary. Involuntary turnover is when a person is removed from his or her job by the employer (Eric & Nancy, 2008, p98). Voluntary turnover refers to an employee voluntarily leaving and organization. Early approaches such as March and Simon’s 1958 (as cited in Tobias and Neal, 2010) contributions and inducements model have identified that job satisfaction determines the perceived desirability of movement, which ultimately determines whether an individual quits the job or not. In March and Simon’s model job satisfaction is driven by match between the job and the self image, the match between the job and other roles, as well as the predictability of future relationship inside the organization.

Three categories of factors affect turnover intention: 1) environment or economy; 2) employees; and 3) organization level (Moynihan & Pandey, 2007 as cited in bang cheng, jian xin and jin hu, 2010). Another important aspect of the operation of a business is job satisfaction. In the past several decades, both researchers and managers have become aware that job satisfaction is positively related to job performance (Bono & Judge, 2003; Saari & Judge, 2004 as cited in Bang cheng, jian xin and jin hu, 2010 ).

2.8 Effectiveness of performance appraisal and job satisfaction

Hammond 1980, 1981(as cited in Cynthia 1985) has suggested that different types of tasks require different cognitive processes for effective performance. According to Feldman (in press) (as cited in Cynthia 1985), the cognitive processes engendered by different tasks affect raters’ perception and categorization of persons during performance appraisal, which influences recall and judgment. The rater must be trained to observe, gather, process, and integrate behavior-relevant information in order to improve performance appraisal effectiveness (Cynthia 1985).

Scullen (as cited in Robert E, 2008) is reported that among the many outcomes of the appraisal process, accuracy of ratings and perceived effectiveness of the interview is critical. However, according to Ilgen (1992) the use of appraisal ratings as inputs to a range of administrative decisions, such as training and development, compensation and promotion contributed to the focus on appraisal accuracy as the primary criterion of appraisal effectiveness. Consistent with this emphasis, performance appraisal researchers Forgas and George (2001) in the past paid more attention to errors in information processing and judgments than to und