The role of performance appraisals in motivating employees

Human Resource Management has been increasingly recognised by various companies and organisations as a significant element of strategic managment. When managed properly, human resource can enhance organisational effectiveness and can also be a source of competitive advantage.

In the last decade, performance appraisals have undergone so many changes (Redman & Wilkinson, 2001). During recent years performance appraisal systems have tended to move away from being primarily control and maintenance based and have moved towards an approach more concerned with motivational and developmental issues. As human resources management evaluative tools, performance appraisal measures are widely used by managers. They need to know and analyze their employees’ abilities and accomplishments during a given period. If adequately informed on their employees’ capacities and performances-whether the results are positive or negative- managers can implement actions which will help motivate the employees to improve their performance. The empirical-and variable-based nature of these measures provides a more balanced view of how well employees fare in accomplishing their specific tasks allotted for their positions. While all industries generally use performance appraisals in one way or the other, these measures are specifically important for service-oriented firms whose very survival rely on customer satisfaction on their employees’ service to them. Hence, performance appraisals for the service sector count on a.) The managerial view of their employees’ performance and b.) The extent of customer satisfaction with their handling of issues and wants.

A performance appraisal is the process of assessing workers performance in comparison to certain predetermined organizational standards. Appraisals not only help employees understand how they are doing but they also help the worker’s supervisor along with the organization as a whole.

Performance appraisal is an important part of performance management. In itself it is not performance management, but it is one of the range of tools that can be used to manage performance. Because it is most usually carried out by line managers rather than HR professionals, it is important that they understand their role in performance management and how performance appraisal contributes to the overall aims of performance management.( CIPD,2010)

Performance appraisal is one way of giving employees feedback about their performance at work. According to ACAS (1997) appraisals regularly record an assessment of an employee’s performance, potential and development needs. Performance appraisal is a formal system of measuring, evaluating, and influencing an employee’s job-related attributes, behaviours and outcomes.

In some organisation’s appraisal results may be used to determine relative rewards in the firm who should get merit pay increases, bonuses, or promotions. Similarly, appraisal results can be used to identify the poorer performers who may require some form of counselling, demotion, dismissal or decreases in pay. Interestingly, performance appraisal is a very controversial managerial issue. Some researchers have expressed doubts about the validity and reliability of the process. On the other hand, there are advocates of performance appraisal who claim that it may well be the most critical of all Performance Appraisal and Motivation.

Performance appraisals provide employees with recognition for their work efforts. The appraisal system provides the supervisor with an opportunity to indicate to employees that the organization is interested in their performance and development. This recognition can have a positive motivational influence on the individual’s sense of worth, commitment and belonging.

1.2 Statement of problem

In this 21st century, the business environment is becoming increasingly uncertain and dynamic. This trend, which began in the sixties, has accelerated due to environmental forces such as globalization, advances and innovation in technology and changes in the market conditions. In order to survive and sustain in such a competitive environment, a large number of firms has adopted competence-based management as an approach to human resource management (HRM). It provides interaction between human resource systems and a company‟s strategy (Meshoulam & Baird, 1987;Santos, 2000; Schuler & Jackson, 1995). The changes in the business environment require firms to show greater concern in developing human competence. It plays an important role to achieve success and have a competitive advantage over their competitors (Drejer & Riis, 1999). Thus, the performance management and appraisal system refers to a function within the HRM which allows firms to develop a competent workforce. The important role that Performance Appraisal plays in organizations, especially in HRM practices has long been recognized (Borman, 1979; Judge & Ferris, 1993; Landy & Farr, 1980). PA serves a variety of purposes such as providing the basis for making selection decisions, determining salary increases, and providing a vehicle for feedback between supervisors and employees. However, most research in this field was directed toward establishing methods for improving the properties of performance ratings (e.g.Kumar, 2005; Tziner, Joanis & Murphy, 2000 the foundation of these researches is that employees’ opinions regarding the Performance Appraisal process are highly critical to the long-term effectiveness and the success of the system as well.

1.3 Purpose of Study

Work Performance in most organizations is determined in most cases by performance appraisal. The Implementation of performance appraisal on employee work performance and subsequently the derived feedback from the process have recently derived attention from both researchers and the management of any organization. However the knowledge of gaining the trust of employees as well as getting the appropriate feedback is seriously lacking.

The purpose of this study is to examine the statement “To what extent do performance appraisals motivate individuals in the workplace. This research would like to focus on investigating role that performance appraisals play in motivating employees.

1.4 Research Objectives

1) To know how employees in an organization react to performance appraisals in relation to how they are motivated.

2) To know if performance appraisals plays a role in motivating employees to be more productive.

3) To find out the benefits of performance appraisals to employees.

4) To explore the Top management expectations on the goals and usefulness of performance appraisal

1.5 Research Questions

a) Is there a significant relationship between Performance appraisal and employee motivation to work?

b) How do employees perceive performance appraisal in relation to work in an organization?

c) Does performance appraisal has more negative effects on employees than positive effects?

d) Does Performance appraisal change Employee attitude to work?

e) Is performance appraisal an effective management tool?

1.6 Limitation of Study

The sample of this study consists of the managers and employees of the Human resource department of a University within the Education Industry. Due to the nature of the study and the policies of these Universities, employees may not give the necessary response and managers may not be willing to participate in the study.

1.7 Definition of Terms

MOTIVATION

Motivation can be defined as that which makes people act or behave in the way they do. In a work environment, it is sometimes viewed as the difference between what people can do and what they will do. Motivation begins with the needs that exist within us. If these are unsatisfied we establish a goal, consciously or unconsciously, and take action to achieve that goal. People sometimes make the mistake of trying to motivate others on the basis of faulty assumptions about their future behaviour.

PERFOMANCE APPRASAL

Performance Appraisals as “a process designed to improve organisational, team and individual performance (Armstrongs, 1994). Performance appraisal also known as performance review, formally documents the achievements of an individual with regards to set targets

CHAPTER 2 LITERAURE REVIEW

2.1 INTRODUCTION

This Literature Review will examine the main issues surrounding performance appraisals and will also examine the attitudes of employees to their jobs as a result of the appraisal feedbacks they get in their organisation.

Human Resource Management has been increasingly recognised by different companies and organisations as a significant element of strategic management. Performance appraisals is one of the key elements of human resource management.

2.2 PERFORMANCE APPRAISAL

For over fifty years, performance appraisal has been steadily outlined as a personnel management activity intended at measuring employees performance. (Grote 1996).According to Rasch (2004), the process of performance appraisal is designed to tackle problem behaviour and there is an underling assumption that all employees in an organization must go through this appraisal to address the problem. Armstrong (1994) defines performance Appraisals as “a process designed to improve organisational, team and individual performance”. Rogers (1995) suggest that Performance management is a joint process that involves both the supervisor and the employee, who identify common goals, which correlate to the higher goals of the institution.

Performance appraisal also known as performance review, formally documents the achievements of an individual with regards to set targets. Unlike performance contract,performance appraisal is documented at the end of a formal evaluation period where thestrengths as well as the weaknesses of the individual are reviewed based on the results from Perfomance Managment (Aguinis and Pierce,2008). It is important to understand that performance appraisal is one of the subsets of performance management in any organisation. Futhermore, performance appraisals provide a formal review of performance where both the employee and the manager can provide feedback as a result of the evaluation. (Pulakos, 2007). Also performance appraisal is not the sole responsibilty of the management but it should be used by employees as a tool to discover self development needs( Kirkpatrick, 2006).

Performance management is about harnessing the abilities and creativity of each employee. In order to get the most out of performance management, organizations need to put in place systems and methods which translate the goals of strategic management into individual performance terms. (Storey and Sisson, 1993).Kitay and Lasbury (1997) suggest that there has been a growth in pay for performance schemes, flexible employment practices, training, performance appraisals and broader job structures. These developments imply an emphasis on improving employee performance while at the same time increasing the flexibility of labour. Capelli and Crocker-Hefter (1996) argue that there is no single best practice in performance management to which all organizations should aspire. Moreover, the literature shows that each firm has a distinctive performance management system that represents a core competencies required for the survival and sustainability for that particular organization and does not put emphasis on one single aspect.

2.2.1 Approaches to Performance Appraisal

The approaches of companies to performance appraisal differ. Winston and Creamer(1997) noted that performance appraisal in most organization is an ongoing event be it periodically and not a single event. Appraisal activity generally focuses on staff improvement and not salary adjustment which might be a form of reward or disciplinary action. Some of the approaches outlined by Creamer and Janosik (in press) include behaviour based approach; results focused approaches, and appraisals of team performance

A) Behavior-Based Approaches -: This is the type of performance appraisal that uses specific performance factors to evaluate employees. This approach is further divided into the following:

i)Conventional Rating Scale: This rating scale uses a specific word or phrase to describe the extent to which certain behaviors are displayed .The characteristics of such behaviors are displayed in the job description. In a situation where there are no behavior descriptions, the supervisors work with other employees to determine behaviors that would be useful to determine appraisal setting.

ii) Behaviourally Anchored Scale :This approach occurs as a result of collaboration between the supervisors and other employees where broad categories of practice are identified. The measure of employee behavior is rated on a scale in relation to specific behaviors.

iii) The weighted checklist: This is another way of approaching behavior-based appraisal. In this method, employees are judged on a scale indicating the extent to which the statement accurately describes their performance according to a list of performance related statements that are weighted.

B) Results-Focused Approaches -: This is the type of approach that focuses on the result to be derived from the appraisal. Creamer and Janosik (in press) noted both advantages and disadvantages to results-based performance appraisal approaches. The advantage been, they produce short and long term results in achieving the performance and organizational objectives, and are generally perceived as fair, and also tend to generate high levels of commitment among the employees to the organization, and they encourage a high level of participation and are thus defensible. And the disadvantage been that, they can be overly results oriented and they are mostly inflexible. Before an organization can adopt this approach, the management must be of the view that the advantages outweigh disadvantages, for the approach to be incorporated. There are two common techniques of enacting results-focused approaches: Management by Objectives (MBO) and Accountabilities and Measures (Grote, 1996). Manangment by objectives which was first outlined by Peter Drucker in his book( The Practice of Management) in 1954. It emphasises the principle of goal setting and feedback( Drucker, 1973). The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles and responsibilities in achieving those aims. At the beginning of the year, organisational objectives are reviewed, employees objectives are then set, their progress is monitored and their performance would be evaluated. The employees that could achieve their set objectives would then be rewarded

C) Accountabilities and Measures approaches: This approach involves the supervisor and the other employees agreeing on accountability, fairness and performance factors and including such factors in the job description. Performance is then estimate for each factor to enable quantifiable measures for each factor. An Accountabilities and Measures outline can be created, with performance factor groups.

Although the case study of our research does not use a specific one out of these set of performance appraisal type since their performance appraisal is carried out quarterly but from our research, we discovered that the company tend to use more of the Result Based Approach. This is because the judge and employees based on the result he/she achieved from a project.

2.3 MOTIVATION

Motivation is seen as a very important aspect of an organisation as it contributes to how well it performs. This ultimately has an effect on the organisations corporate objectives. This includes attainment of higher market share and profit maximisation as a result of an

individual’s performance. Processes that are used to motivate employees have an effect on their willingness to stay with the organisation. Appraisals are prevalent in many companies and are seen as a crucial ingredient in motivating employees; therefore it increases the importance of carrying out this study.

Motivation is at the centre of biological, cognitive and social regulation, and its importance lies in the consequences of the actions its promotes (Ryan and Deci, 2000). Motivation is of primary concern to anyone in a teaching or managerial position because it is what makes other people react. There are many different reasons that people are motivated to learn or perform requested tasks. These can be external rewards such as money or material rewards, or internal rewards such as inner satisfaction and gratification. They can also be to avoid negative consequences: people may obey orders which they do not necessarily agree with out of fear of retribution such as being excluded from certain opportunities or being shunned or physically harmed. Employee motivation is one of the strategies of managers to enhance effective job performance among workers in organizations. Motivation is a basic psychological process. Motivating is the management process of influencing behaviour based on the knowledge of what make people tick.(Luthans, 1998). Luthans (1998) asserts that motivation is the process that arouses, energizes, directs, and sustains behaviour and performance. That is, it is the process of stimulating people to action and toachieve a desired task. One way of stimulating people is to employ effective motivation, which makes workers more satisfied with and committed to their jobs. Money is not the only motivator. There are other incentives which can also serve as motivators.

The level of performance of employees relies not only on their actual skills but also on the level of motivation each person exhibits (Burney et al., 2007). Motivation is an inner drive or an external inducement to behave in some particular way, typically a way that will lead to rewards (Dessler,1978).

Over-achieving, talented employees are the driving force of all firms so it is essential that organization sstrive to motivate and hold on to the best employees (Harrington, 2003).

The quality of human resource management is a critical influence on the performance of the firm.Concern for strategic integration, commitment flexibility and quality, has called for attention for employees motivation and retention. Financial motivation has become the most concern in today’s organisation, and tying to Maslow’s basic needs, non-financial aspect only comes in when financial motivation has failed.

According to Greenberg and Baron (2003, 2000) definition of motivation could be divided into three main parts. The first part looks at arousal that deals with the drive, or energy behind individual (s)action. People turn to be guided by their interest in making a good impression on others, doing interesting work and being successful in what they do. The second part referring to the choice people make and the direction their behaviour takes. The last part deals with maintaining behaviour clearly defining how long people have to persist at attempting to meet their goals. Motivation can be intrinsic and extrinsic. Extrinsic motivation concerns behaviour influenced by obtaining external rewards (Hitt, Esser, & Marriott, 1992). Praise or positive feedback, money, and the absence of punishment are examples of extrinsic or external rewards (Deci, 1980).Intrinsic motivation is the motivation to do something simply for the pleasure of performing that particular activity (Hagedoorn and Van Yperen, 2003). Examples of intrinsic factors are interesting work, recognition, growth, and achievement. Several studies have found there to be a positive relationship between

intrinsic motivation and job performance as well as intrinsic motivation and job satisfaction (Linz,2003). This is significant to firms in today’s highly competitive business environment in that intrinsically motivated employees will perform better and, therefore, be more productive, and also because satisfied employees will remain loyal to their organization and feel no pressure or need to move to a different firm. Deci and Ryan (2000) conducted and replicated an experiment that showed the negative impact of monetary rewards on intrinsic motivation and performance.

2.3.1 Approaches to Motivation

Traditional Approach

Taylor developed a method for structuring jobs that he called Scientific Management, he assumed that employees are economically motivated and work to earn as much money as they can and so he advocated for pay incentives. However, he believed that manager knew more about the works being performed than the workers themselves and presumed that the gain involve was what motivated everyone. Hence he believed that people could be expected to perform any kind of job as long as they were been payed enough.( Griffin).

Furthermore, though the role of money as a motivating factor cannot be ignored but the proponents of this view have failed to take into consideration other factors of motivation.

The Human Relations Approach

This approach assumed that employees want to feel useful and important, that they have strong social needs that are more important in motivating employees. This approach advises managers to make workers feel important and allow them a degree of self control in carrying out their duties. This involvement will result to an higher motivation to perform

There are numerous theories of motivation that have been developed to explain the processes by means of which individuals become actively engaged in pursing and achieving goals and objectives related to their personal, professional and social lives (Ramlall, 2004). Some of the theories that have been considered for the purpose of this research are:

2.3.2Hertzberg theory

Hertzberg identified the following true motivators as contributing to high morale and job satisfaction:

Achievement

Recognition

Responsibility

Promotion prospects

He also noted these ‘hygiene’ factors whose absence or inadequacy in a job produces poor performance and dissatisfaction:

Higher authority policy

Pay

Working conditions

Relationship with colleagues

Hertzberg’s research led him to the conclusion that the ‘hygiene’ factors were rarely high motivators. People tend to take fringe benefits and good working conditions for granted, but when they are removed they had a highly demotivating effect. A salary increase had a short-term motivating effect when it was felt to be deserved, but rarely did the effect last for long

Very long, while what was felt to be an unfair salary was a long-lasting demotivator

(Mullin, 2007).

2.3.3 Victor Vroom’s Expectancy Theory

This theory helps explain why a lot of workers aren’t motivated on their jobs and merely do the minimum necessary to get by.It states that an employee is motivated to exert a high level ofeffort when he or she believes effort will lead to a good performance appraisal. A good appraisal will lead to organisational rewards like a bonus, a salary increase or promotion; and the rewards will satisfy the individual’s personal goals. One possible source of low motivation is the belief by the employee that no matter how hard he or she works, the likelihood of getting a good performance appraisal is low. Many employees see the performance-reward relationship in their job as weak, because organisations reward a lot of things besides just performance. So, if salary is allocated on the basis of seniority, length of service, being co-operative or ‘sweet talking’ the boss, employees are likely to see the performance reward relationship as being weak and demotivating.

The rewards also need to be tailored to individual employee needs. Unfortunately, many managers are limited to the rewards they can distribute, which make it difficult to personalise rewards. Also, some managers assume that all employees want the same thing, thus overlooking the motivational effects of differentiating rewards.( Griffin, 2007)

Therefore, the key to Expectancy Theory is an understanding of an individual’s goals and the linkage between effort and performance, between performance and rewards, and between the rewards and individual goal satisfaction.

2.4 Performance and Leadership

In most cases for and performance appraisal to be considered as fair the leadership conducting the process must be perceived in a positive light. This helps to determine that there is appositive relationship between Performance and leadership. Eventually it is the individual employee who either performs, or fails to perform; a task but motivation on the part of the leader can ensure performance of any task. In order for an organization to perform an individual must set aside his personal goals, to strive for the collective goals of the organization (Cummings and Schwab, 1973). In an organizational context, the very nature of performance is defined by the organization itself (Cummings and Schwab, 1973). Employees and their attitude to work are of paramount importance to the achievement of any organizational goals. Thus, effective leadership enables greater participation of the entire workforce, and can also influence both individual and organizational performance (Bass, 1997; Mullins, 1999).

It is generally believed that the success of an organization is largely dependent the leader’s ability to optimize human resources (i.e. its employees). A good leader understands the importance of employee’s performance in achieving the goals of the organization, thus performance appraisal and that motivating these employees is of absolute importance in achieving these set goals and objectives. In other for any organization to have an effective and efficient work system, the people within the organization need to be inspired to invest themselves in the organization’s mission (this inspiration can be achieved through effective performance and reward system): the employees need to be stimulated so that they can be effective; hence an effective organizations requires an effective leadership (Wall, Solum and Sobol, 1992; Maritz, 1995). To have an effective organization, there must be effective and stimulating relations between the people involved in the organization (Paulus, Seta and Baron, 1996).

It has been widely accepted that effective organizations require effective leadership and that organizational performance will suffer in direct proportion to the neglect of this (Fiedler and House, 1988). Furthermore, it is generally accepted that the effectiveness and efficiency of any set of people is largely and mostly dependent on the quality of its leadership an effective leader’s behavior facilitates the accomplishment of the follower’s desires, which then results in effective performance (Fiedler and House, 1988; Maritz, 1995; Ristow, et al., 1999

Leadership, according to(Cummings and Schwab, 1973). is perhaps the most thoroughly investigated organizational variable and that this fact has a potential impact on employee performance. An efficient leader understands that employees’ motivation as well as strength and weaknesses has a major influence on their decision making, actions and relationship.

2.5 FEEDBACK IN PERFORMANCE APPRAISAL SYSTEM

In performance appraisal one of the most important aspects of the program is when the employers communicate their performance ratings to the employees. Although some researchers like (Ammons 1956) claim that the feedback process in performance appraisal has little or no effect if the person is already performing on a high level or if the job is complex. The feedback delivery helps the organization in decision making, enhancing of productivity and effectiveness within the organization. It has been pointed out that the communication of feedback regarding the performance of employees and groups in an organization is an important part of any organization’s human resource system (Harackiewicz,Larson1986: Larson 1984).

The aim of any organization when conducting performance appraisal is to receive feedback and this feedback helps to maintain and direct employee behaviour to accomplishing the organizations goal and objective and also mating a high level of work to accomplish these goals.

On the part of the employees performance appraisal feedback serves as a means of satisfying the need for information on how employees are meeting up with their personal goals and as serves as a form of social measurement among their peers. Feedback serves as a basis for identifying discrepancies self and others’ performance and work goals (Carver, Scheier 1981) From both the organizations and employees point of view a performance appraisal feedback process can serve as a means of identifying the employee’s weakness and unidentified goals. Identification of these shortcomings can help the employees to increase their level of performance, redirect their efforts toward achieving both the organizational and personal goals, and also improve their relative standing to internal and external standards. This achievement is of great important to the organization however, performance appraisal feedback has not only leaded directly to the improvement of performance. Research has shown that the success of the feedback depends on a number of factors related to the acceptance of the feedback process which can include: the valence of the message(positive or negative) characteristic of the source(e.g. knowledge, credibility, familiarity of the job), and the recipient of the feedback and also the perceived relevance and accuracy of the feedback to employees performance and behaviour(Fisher , Taylor1979,Zuber ,Behson 1998).The level of acceptance of feedback is then expected to neither influence employees positively or negatively on the willingness to improve their work levels.

For any feedback within the organization to yield any positive result, the source of the feedback must be perceived by the recipient as being trustworthy, credible, reliable ,objective and properly motivated in other for feedback to be accepted.(Wyer, Budeshiem, Lambert, Swan 1994).On the other hand the degree of the feedback’s acceptance is greatly reduced when the source of the feedback is perceived as unreliable, untrustworthy or has having ulterior motives. When the feedback received from employee indicate that an employee has performed above the organizations standard, it is generally perceived that individual goals on subsequent work will be stable i.e. there is high motivation on the part of the employee to work. On the other hand when there are negative discrepancies between the employees’ goals and organizational goals, organizations attempt to reduce these discrepancies by increasing efforts of the employees. Invariably, individuals that receive negative feedback are more likely to put more effort to improve their performance than individuals than individuals that received a positive feedback. (Carver &Scheier1981, Pod

2.6 FEEDBACK TYPES

Based on the performance appraisal dimension, different types of feedback are delivered. Classifying types of feedback based on the nature of performance helps to understanding the reactions employees have to performance appraisal feedback. (Cuselle 1987).According to Ilegen

et al.’s feedback process model, (1979), the features of each feedback source combined with the form of feedback that best corresponds to each source’s characteristic should yield the greatest

degree of acceptance of the feedback received.

According to (Parker 1996), Feedback was dichotomized into

team process and

Task outcome per