In the present day business environment which is highly competitive, the contribution by the employees of an organization is of vital importance for the success of the organization. The success or otherwise of any business entity depends largely on the performance of its employees. Hence it becomes crucially important the organization measures the performance of its employees and takes corrective action wherever inefficiencies are found to reduce the effectiveness of the contribution of the staff and workforce at all levels. This necessity of assessing the performance standards of the employees has given rise to a system of ‘performance appraisal’.
The general definition of performance appraisal covers a structural formal interaction between a subordinate and supervisor which has a definite periodicity and takes the form of an interview in which the performance of the subordinate is examined and discussed at length with the subordinate. The purpose of such discussion is to identify weaknesses and strengths as well as opportunities for improvement and skill development.
The performance appraisal may be carried out to improve the efficiency of any commercial ‘for profit’ and ‘not for profit’ organizations including public sector undertakings and banks. The object of this study is to examine the problems being faced by Specialized Technology Resources Limited (STR) a multinational testing organization, due to lack of an effective system performance appraisal in the company and also to suggest a suitable system to be followed by it.
Though the system of performance appraisal is of recent origin, the potential utility of the appraisal as a tool for employee motivation and development has greatly been recognized since the later part of the last century. The systems, models, and objectives of performance appraisal have been changed over the time and the performance appraisal system as it is known today has taken shape from the late 1950’s. A general discussion on the performance system is presented in the following section.
Employee Performance Appraisal Systems
In many of the organizations the appraisal results are used either directly or indirectly to decide on the rewards payable to the employees for their performance over a definite past period. In other words the appraisal systems are being used to identify and differentiate the better performing employees and reward them with promotions, pay rises, and bonuses to motivate them to perform and achieve more.
Conversely the appraisal system results are used to identify those employees whose performance is poor to find out the reasons for such deficiency in the performance level. The poor performers identified are provided with some form of advise, or counseling as a measure to improve their performance or in some extreme cases were demoted, dismissed or awarded with some pay reduction. These extreme actions like dismissal or downward pay revision are of course can be taken by the organization only subject to the employee regulatory measures prevalent in the country. However, whether the system of assigning rewards as well as the punishments on the basis of performance appraisal is appropriate or not is a matter of debate.
The applicability and reliability of the performance appraisal process have been disputed by many researchers, management consultants, and psychometricians. Some of these people have even suggested that the performance appraisal process is inherently flawed that it may not be possible to correct it ever. (e.g., Derven, 1990) On the contrary there are many scholars and researchers who have advocated the utility of performance appraisal. Some of them have even viewed as a crucially important phenomenon in the life of any organization (e.g., Lawrie, 1990)
In between these two extreme view points there exist various schools of thought. While many people endorse the view that performance appraisal can be used for organizational development, there are different view points on how and when the performance appraisal can be applied.
For instance some of the people, while advocating the use of performance appraisal systems for the organizational development, scorn the use of it for the purpose of rewarding the employees with pay rises and promotions on the basis of such appraisal systems. The people following this school of thought are of the view that the linkage of appraisal systems to the employee rewards reduces the developmental value of appraisals.
When the employee rewards are linked to appraisal systems such systems instead of becoming an opportunity for constructive review and encouragement is reduced merely as a means of judgment, punitive action having a harrowing effect. Considering a situation where employees know that their next pay rise or promotion is dependent on an appraisal result they may have the tendency to admit their work problems and they would naturally downplay their weaknesses. It is not the case only with the employees the performance appraisal results have an undesirable effect, even the appraisers in many cases feel awkward and uncomfortable when they are given the role of the judge as well as the executioner. This feeling of the appraisers is not too difficult to comprehend.
The appraisers in all the cases know their subordinates whose performance they are appraising and obviously they are under supervisor-subordinate relationship and work with them on a day to day basis. There may be occasions when they have to mix with each other socially. It makes a big difference when on the basis of a performance appraisal the subordinates are advised by these supervisors to brush up on certain work skills than where the appraisal result has the direct effect of negating a promotion or stopping a pay rise. The latter occasion embarrasses both the appraiser and appraise.
Despite the sentiments involved the performance appraisal system is being followed by organizations of different sizes and nature in different forms handing over different rewards and punishments to the employees on the basis of an appraisal of their performance.
Aims and Objectives of the Study
The main aims of this study are:
- To assess the effectiveness of the performance appraisal system in general and its contribution to the development of the organization and
- To assess, suggest a suitable performance appraisal system for Specialized Technology Resources Ltd, a testing organization present in multi-country locations.
Even though the study will present all the available information from the secondary sources with respect to the performance appraisal systems, as a case study the research is extended to a testing organization – Specialized Technology Resources Ltd. The study also has the object of studying the impact of the absence of a performance appraisal system in the company and the issues faced by the company on the employees’ attitudes and work culture due to the absence of a comprehensive performance appraisal system. Thus the objectives of the research have the following objectives among other things.
- To study the effectiveness of the performance appraisal systems in general in relation to the contribution to the organizational development
- To study the impact of the absence of performance appraisal systems in Specialized Technology Resources Ltd as a case study.
- To suggest a detailed performance appraisal system to be followed by Specialized Technology Resources Ltd and to analyze its effectiveness on the employee development of the company
Scope of the Study
In order to achieve the objectives of the research outlined above the study will extend to an analytical study of the different performance appraisal models and systems being followed by different organizations. The study will also extend to the systems of rewards and punishments that the appraisal systems in various organizations follow. This study is aimed to analyse and report on the impact of the performance appraisal systems on the employee attitudes. The study will also cover the impact of the performance appraisal systems on the supervisors, while evaluating the subordinates as well as while handing over the results of the performance analysis.
The study will focus on the sentiments and feelings of the subordinates to discuss the impact the appraisal system has on their behaviour as well as their attitudes towards the subordinates whom they have to admonish or punish as a result of the performance appraisal. Finally the study will cover the issues that the company Specialized Technology Resources Ltd faces due to the lack of an efficient system of performance appraisal in the company taken as a case study for the purposes of this research and suggest a new system for implementation.
Rationale behind the Study
This research aimed at presenting a report on the effectiveness of the performance appraisal systems in general, as the employee performance appraisal is a significant social issue affecting the life style and mental frame of the workers who have been handed over punishments in the form of demotions from the current positions and downward pay revisions on the basis of the appraisal of their performance.
Although there have been several research studies conducted on the issue of performance appraisal, most of them have ignored the effective and behavioural variables. The object of this research is to explore and report on the significant differences that prevail in current managerial practices and behaviours in relation to the design and conduct of performance appraisal systems they follow. The central theme around which the research will be organized being the particular managerial behaviour in relation to performance appraisal, this study assumes greater importance as such behaviour will have a telling effect on the performance of the erring workers. Hence it makes sense that the attitudes of the supervisors who are in a position to make performance appraisal are assessed and reported.
Performance Appraisal Systems – An Overview
The objective of this chapter is to present an overview of the ‘performance appraisal’ including the purpose and benefits of performance appraisal systems. In order to present an effective system of performance appraisal in Specialized Technology Resources Ltd it becomes important that a complete review of the system of performance appraisal is made.
The appraisal of the employees’ performance in any organization is of absolute importance, as the organization need to know the contribution from each individual employee towards the achievement of the organizational objective, without an effective contribution from the employees at all levels the organization cannot proceed to achieve its goal of profit maximization. In order to make the employees and the executives committed to their work, it is necessary that they are made accountable for their performance. Ospina et al (2004) have identified the use of performance appraisal for the improvement of efficiency in the public sector organizations.
The fixing of the individual accountability of every employee is greatly facilitated by the performance appraisal system being followed by the organization. The performance appraisal system provides the necessary feedback to the employees the areas in which they have excelled as well as the areas in which their performance has not met the required standards. In the present day context of increased competition every move of the organization is being watched closely by the competitors and this puts additional pressure on the organizations to make their employees’ performance better every day. The performance appraisal and the feedback there on to the employees serve as an effective tool for increasing the competitive strength of the organizations.
Lee (2006) points out that managing performance is the difficult and complex task in any organization. Nevertheless it remains as the important task to undertake, as the potential impact of the performance management process can not be undermined in any progressive organization. It is always the case that the human potential in any organization is greatly enhanced by the right performance management system and the performance appraisal forms the very basis of an effective performance management. The productivity of any manufacturing or service organization is sure to get a beating in the absence of an adequate and effective performance appraisal system, as without an effective performance appraisal there can not exist an efficient performance management.
With this background this chapter presents an overview of the performance appraisal systems before discussing the implementation of an effective performance appraisal system in Specialized Technology Resources Ltd.
Definition of Performance Appraisal
The performance appraisal has been defined as any personnel decision that affects the status of employees regarding retention, termination, promotion, demotion, transfer, salary increases or decreases, or admission into a training program. The two simple terms ‘performance appraisal’ are capable of arousing many strong emotional reactions and feelings and opinions when brought within the context of a formal appraisal procedure of the employees in an organization. Irrespective of the size and irrespective of the fact that whether in the public or private sector whether they belong to manufacturing or service sector, most of the organizations in the world make use of the performance appraisal systems as a tool for achieving their HR objectives.
The degree of success of such systems of course is varying in these organizations. Normally organizations use different kinds of tools and have varied goals to be achieved by using performance appraisal which often results in a misconception towards the true purpose of the performance appraisal. However performance appraisal enables an organization to evaluate an individual employee’s progress and achievements on the jobs he performed over a period of time. “Performance appraisal is a vital component of a broader set of human resource practices; it is the mechanism for evaluating the extent to which each employee’s day-to-day performance is linked to the goals established by the organization”. (Coutts and Schneider, 2004)
Another definition of performance appraisal goes as “an evaluation and grading exercise undertaken by an organisation on all its employees either periodically or annually, on the outcomes of performance based on the job content, job requirement and personal behaviour in the position”.
The objectives of performance appraisal can be as administrative, informative, and motivational which classification encompasses a complete definition for performance appraisal. This classification is of relevance since depending on the level of motivation the employee’s performance standards vary and those who excel can be considered for elevation to the higher levels of hierarchy. However there are differences between intrinsic and extrinsic motivation which makes this theory blurred. (De Voe and Iyengar, 2004; Hernandez and Iyengar, 2001)
Rationale behind Performance Appraisal
Kessler (2003) observes that the performance appraisals are one of the most important requirements for conducting any business successfully and also to have an effective Human Resources (HR) policy. Recognizing and rewarding will promote effective performance in any organization and it also helps in identifying ineffective performers for organizational development. Identifying such ineffective performers and taking personnel actions is an essential aspect of effective HR development. (Pulakos, 2003) The ability to undertake effective performance appraisal depends on the ability to make an assessment of the performance of the employees in a fair and accurate manner.
It should be understood that evaluating the employee performance is a complex task. Once the supervisor is able to understand the nature of the functions of the subordinates and the sources from which he can collect information, he has to collect such information in a systematic way which is provided as feedback. Such information collected should be integrated into the process of organization’s performance management process which later can be used in performing the complex tasks of employee compensation, job placements, promotions and training and assignment decisions. (London 2003)
Performance Appraisal Systems
While the traditional systems emphasized the appraisal of elements like traits, deficiencies and abilities of the employees, the modern day appraisal systems focus on the current performance of the employees as well as their future growth objectives. Adoption of a rational administrative policies and decisions at the individual employee level is largely facilitated by the measurement of the employee’s performance. It also provides for the raw data for the evaluation of the effectiveness of such personnel- system components and processes as recruiting policies, training programs, selection rules, promotional strategies, and reward allocations.
Behaviourally based employee counseling is also made possible by employing performance appraisal methods. The employee counseling results in the achievement of the broader HR objectives of increased employee satisfaction, commitment from the employees’ side and improved motivation. A well designed performance appraisal system enables the organization to inform the employees about their growth rates, competency levels, and also their potential for future growth.
There is little disagreement that if well done, performance measurements and feedback can play a valuable role in effecting the grand compromise between the needs of the individual and the needs of the organization. The performance appraisal can be regarded as an effective means of administrative control of the management by setting of the future goals and a subsequent review of the success or failure of the employees in achieving these. Performance appraisal is one of the most important and often one of the most mishandled aspects of management.
A performance appraisal system can not be installed and practiced in isolation, as it is a process encompassing the elements of assessment, feedback, accountability, and documentation for the outcomes of the performance. The performance appraisal system enables the employees to channelize their talents as well as efforts towards achieving the organizational goals. The organization and the employees both can expect considerable returns from an appropriate investment of time, efforts, and resources in administering an efficient appraisal system.
Purposes of the Performance Appraisal System
The focus of performance appraisal is centered round three basic objectives. The relevancy of the appraisal systems can be seen only in assessing the performance of the employees, instead of their personalities since in achieving the organizational growth the performance of the employees alone matter.
Moreover, it is also important that the appraisal system deal with issues that are valid, concrete, and relevant rather than those which are purely emotional, subjective and employees’ feelings based, because any appraisal systems based on the emotions may not bring out the true performance level of the employees. The other objective is to reach an agreement on the expectations from the employees in terms of their performance and the reciprocation of the organization in return for the performance levels achieved. This is so because the improvement in the employee performance largely depends on providing the employees a reward system commensurate with the levels of performance.
It is relevant that both the supervisor and the employees recognize that the training and performance evaluation has a very strong relationship among them.
There are a number of purposes for which an organization may attempt to install an effective performance appraisal system. The most important objective is to improve the existing productivity of the organization. The other purposes which an efficient performance appraisal system can achieve in any organization are:
The performance appraisal system should help the supervisors and the senior management to manage their subordinates effectively and coordinate their efforts towards the achievement of the organizational objectives. Unless an efficient performance appraisal system in place it would be difficult to pinpoint the weaknesses and shortcomings in the employee performance. Based on the appraisal system the employees can be provided the feedback on their shortcomings which goes to guide the individual employees in their professional growth and development. On the basis of assessment of the individual capabilities it is possible to identify the appropriate talents.
This helps the establishment of core competencies across various departments which are very essential to enhance the competitive strength of the firms. The performance appraisal system also identifies the potential in individual employees for elevation to senior positions. This enables the organization to formulate a framework for planning the future organization structure in terms of utilizing the talents available within the organization. In this way the firm is able to embark upon a well defined succession planning in the future.
The normal functions of HR like deciding on the increments and promotions of the employees are greatly facilitated by the performance appraisal. However before designing and implementing a complex performance appraisal system the HR managers should clearly identify the objectives that the organization expects to achieve by employing the performance appraisal system. This is important from the point of view of the top management, as they would like to identify the weaknesses in key areas and the performance gap in the case of senior executives who are in key positions. By identifying the weaknesses the firm is able to provide an effective feedback to the senior executives so that remarkable changes in the performance can be expected from them. At senior levels if the performance of the executives is not up to the mark it will seriously hamper the growth and development of the organization.
Benefits of Performance Appraisal
The benefits arising out of employee performance appraisal can be enumerated as below:
- The employees are able to identify not only their weaknesses but are also able to assess their strengths in various areas so that there is marked improvement in their skill level.
- There are ample opportunities for developing and agreeing upon new organizational goals.
- The employees are made as important participants of the organizational evaluation process and this improves the commitment of the employees.
- There is considerable improvement in the relationship between the employees and the supervisor and the relationship is treated at adult-to-adult level.
- The performance appraisal enables the formation as well as restructuring of work teams within the organization to achieve the maximum possible productivity.
- There is enhancement in the interest of the employees in being the part of the organization currently and also in the future. This is a definite advantage from the point of the view of the organizational growth.
- The organization is able to identify and provide for the training needs of the employees.
- In the sessions of performance appraisal enough time is being spent on discussing the quality issues connected with the performance of work without mixing the monetary issues.
- It offers flexibility and comfort to the supervisors in reviewing the work of the subordinates and asses their performance levels.
- The performance appraisal gives the employees a feeling that they are regarded as individuals and there is a genuine concern from the supervisor about their needs and development.
Common Issues arising in Performance Appraisal
The common issues that may arise in framing any performance appraisal system and conducting sessions of such appraisals are:
- It is highly likely that the performance appraisal involves some bias or prejudice on the basis of various factors like race, religion, education family background, age, and/or sex which fact must be recognized in formulating any framework for performance appraisal.
- There is a possibility that there is too much of a trait assessment by paying too much attention to features that have no relevance to the work and are highly subjective and difficult to measure.
- There tends to be over emphasis on certain favorable or unfavorable performance of some selected tasks which may result in an unbalanced assessment of the whole contribution.
- It is also possible that there is excessive reliance on the personal impressions rather than on the factual position.
- The supervisors may sometimes hold the employees responsible for the impact of factors which are beyond the control of the employees.
- There may be occasions when the appraisal sessions are conducted without sufficient time for the employees for advance preparation.
Employee Rewards and Performance Appraisal
Establishing effective reward system is at the root of an efficient performance appraisal. However decisions as to the time the rewards need to be offered, the relation between the performance and rewards and the ways in which the group efforts can be rewarded are some of the ticklish issues that needs careful consideration of the HR department and the top management. Most of the times simple rewards like more autonomy in the job, words of praise in achieving a good progress, chances for professional development and training and vacation at optimal intervals may prove to result in more than expected performance.
The most important aspect of the reward systems is that there should be consistency in approaches to ensure an effective performance. When the results of employee performance evaluation of two identical employees are the same then they must be provided equal reward opportunities to reflect the evaluation outcomes. In case if there is a difference in the rewards it may affect the performance of the individual employees. Emery and Giauque (2001) also found that non-monetary forms of remuneration, such as the organization of working hours, improvements in equipment and work resources and the development of skills, are appreciated by employees.
Performance Appraisal as a Developmental Tool
Bryson and Freeman (2007) also report a positive association between monitoring and performance pay. When applied as development tool the performance appraisal requires a development plan and requires the performance appraisal to be involved more in the individual employee development rather than the organizational development. This approach aims to improve the organizational performance by improving the individual employee skills. The collection of information and data on the worker skills and career goals in a central information pool as the modern trend in performance appraisal approaches.
The objective of performance appraisal is to enable the employees to look at themselves as to what they really are capable of. It is important that the employee whose performance is being assessed must appreciate the need to improve his/her job performance and should be prepared to commit himself to developmental plan for improving the job performance. The elements of the performance appraisal as a development tool must enable the employees and the supervisor to come to a mutual agreement on a development plan for the ensuing appraisal period. It becomes the responsibility of the manager to assess the progress of the employees during the year to ensure that the development plan agreed upon is being carried out to provide the expected result.
Thus the performance appraisal when used as a development tool encompasses several elements which enhance the utility of the systems. The first element of the appraisal process is to educate the employees to make a self assessment of themselves. The second element is to make the employees appreciate the need for bringing improvement in their job performance. The third element is to make the employees involves themselves in the development of plans for performance improvement and effective career planning.
The involvement of the employees in the performance appraisal process from the beginning and informing them about their progress or any lacking thereof periodically would give them a stake in the development process. By this way the employees would be prevented from directing their anger towards the supervisor or the organization for any lack in their progress.
Views on Performance Appraisal
Based on an analysis of the views expressed by the different scholars there are certain benefits identified to be resulting from the performance appraisal systems. These benefits normally include the opportunity for the employees to receive a feedback regarding their performance, usually over a period of one year or on any other periodic basis. This is expected to result in increased productivity and enhanced employee motivation. The appraisal system also is expected to provide for setting the objectives for the employees and aligning the individual goals with the organizational goals, while identifying training needs of the employees.
The performance appraisal systems also provide a well defined basis for the reward and recognition of the employees. In some employee related cases the appraisal reports can be used as evidence in defending the organization. However some scholars are of the view that the benefits as listed can be viewed as emanating only under ideal organizational situations.
It is argued that any performance appraisal system is largely based on the perceptions of the supervisor and there is merit in this argument. Technically speaking the input to the performance appraisal systems is being provided by only the supervisors. Hence in order that the appraisal systems provides the idealistic benefits it is necessary that the perceptions of the manager should be objective, accurate, comprehensive and free from any significant bias.
Otherwise the whole system would become flawed making it unworkable. There are also possibilities that the manager who is responsible for making the appraisal of an employee being influenced by the employee himself or any other person like the client or customer, co-workers or other managers on behalf of the employee. Moreover the managers always have the pressure from other systemic and structural aspects while doing the appraisal.
Thus in the case of an appraisal involving a five point scale it may not be possible for the manager to assess and put everyone in the highest scale. This leaves a tactful task of categorizing the employees’ performance not only on the basis of their performance but also on the basis of the mangers’ personal perceptions. There are chances that this vitiates the performance appraisal results and cause design-motivation among certain of the employees. In this respect Wilson, (2002) observed the problems of appraisal systems and even observed whether it is necessary to link employee promotion with appraisal.
Considering the performance appraisal from an employee’s angle, it may be observed that immediately after the appraisal there tends to be a temporary reduction in performance at least for a period of 2 weeks to 3 months. In some cases it may extend to more time also. Even if it is for a very short period of 10 days the loss to the organization on account of such temporary reduction in employee performance would be tremendous.
Such appraisal would obviously lead to erosion of employee performance over a period and is also capable of creating emotional stress, worries, depression, and anguish. The feeling of anguish can be expected to be present on both the person assessing and the employee being assessed. A complete damage to morale and motivation of the employees cannot also be ruled out. Different results and consequences can be expected when the individual performance is assessed when the job represents teamwork. Most of the appraisal systems are of short term in their approach rather than taking a long term promotion of the employee capabilities.
The undesirable effect of fear among the employees and lack of their trust on the organization also can result from some of the appraisals. Hence it calls for a thorough analysis of the existing appraisal systems and redesigning them taking into account all these shortcomings that may crept in the system. According to Addison, (2005) given the uncertainty in the literature one set of practice in the field of performance appraisal may be deemed suitable and important in one jurisdiction or organizational setup while the same may be found inconsequential in another setting, which fact also needs to be taken into account.
Specialized Technology Resources Limited
A Case Study
This chapter presents a comprehensive report on the suggestion and implementation of a comprehensive performance appraisal system in Specialized Technology Resources Limited, a multinational testing organization. This chapter also discusses the HR issues being faced the company without a proper performance appraisal system in place.
Specialized Technology Resources Limited (STR) – A Background
Specialized Technology Resources Limited (hereinafter shortly known as STR) is a multinational testing organization opened in Hong Kong as Specialized Technology Resources (HK) Limited in the year 1984. The services offered by the company include quality assurance services like testing, inspection, auditing and consulting services. The customers of the company include major manufacturers, importers, and retailers.
With more than 23 years of experience in the field the company has been recognized for its excellence in the quality control services and has been considered as one of the testing organization that can ensure conformance to international standards. The company has a global network of testing facilities and professional consultancy services which can provide the customers a unique competitive advantage.
The company has a strong professional team of about 400 scientists, technicians, and engineers and inspectors who have the expertise and professional training who can guide the corporate and other customers through the stages of development, design, production, and shipment. In addition to the Hong Kong office the company has offices in about 30 countries. The organization has been in existence for around 60 years.
Issues faced by STR Hong Kong in the Absence of a Proper Performance Appraisal System
The employee performance and productivity are at the root of the success of an organization. The absence of a proper system of performance appraisal system in STR Hong Kong has given to the following issues:
Unequal Distribution of Work
The foremost problem faced by the organization was an unequal work distribution among the employees at various levels. Without a proper assessment of the capabilities of individual employees the jobs were distributed on the basis of the urgency of the jobs. This has resulted in a smaller number of employees who had better capabilities continue to work and another group of employees without a proper workload managed to spend time without giving any valuable output. Since the customers’ requirements were always kept in the front the workload was somehow managed without a proper distribution. This had led to frustration among the best employees and the good technicians and engineers started looking for alternative employment opportunities.
No Effective Feedback on Performance
There was absolutely no way that the employees could find what went wrong and where the concerned employee had erred in cases of customer complaints or delays in the completion of specific assignments. This was due to the fact that there were no effective performance appraisal systems which can provide positive and constructive feedback to the employees on their performance during any particular period.
In fact appraisals can help the poor performers to improve their performance by assessing and giving specific feedbacks about needs for development. Similarly the appraisals will also enable the employees who excel to continue to excel continue to better their performance by providing positive reinforcement. This type of feedback is vitally important to improve the performance of the employees functioning at all levels of the organization and also to make an overall assessment of the organizational performance.
Suboptimal Promotion and Pay Revision Decisions
In the absence of an effective and efficient performance appraisal system the managers tend to take the risk of making suboptimal decisions about the promotion and pay revisions of the employees. As a result it so happened that one employee got promoted and increase his/her pay where another employee’s performance may be found to be superior and can provide a higher return on the investment in salaries being paid. This have led to a situation where the better performing employees in the absence of encouragement in the form of promotions or pay revisions got frustrated and tried to leave STR.
The lack of performance appraisal systems resulted in an enhanced cost to the company in so many ways. The difference between the expected performance and the actual performance resulting in a significant performance gap had escalated the administrative and other costs to STR. Moreover since the company lacked performance appraisal system they are unable to defend their decision to terminate or lay off certain employees in the litigation brought about by the departing employees. This had also increased the cost to the company. In addition the increased employee turnover also causes additional cost to the company for selection and recruitment of employees in replacement for the departing employees.
Enhanced Investment in Additional Technologies
Another drawback the company faced due to lack of performance appraisal systems was that it has to invest heavily on different technologically improved tools and instruments to fill up the performance gap in the different skill levels of technicians and engineers, which had increased the cash outflow of the company. The company had also invested in redesigning the workplace to enhance the efficiency of the employees instead of improving the human performance by evaluating and suggesting measures for improvement there of. This way a completely low productivity of the employees, and this ultimately affected the profitability of the company.
Inefficient Training Programs
Since there was no proper performance appraisal systems in practice the company could not develop the required skills in specialized areas by organizing internal and external training programs to the needy employees. Apart from the fact that there was no proper training for the required employees, there were cases that training were provided to wrong people in areas where they did not have any exposure. Such chaos was mainly the result of not properly assessing the performance of the employees and arriving at the training needs.
Since jobs were allotted to inefficient people without proper assessment of the capabilities there was a drastic increase in the number of customer complaints which mainly related to quality of service and delay in the provision of service. A proper appraisal system would have easily eliminated these inefficiencies from the organization.
Implementation of Performance Appraisal System in STR
The performance appraisal system in STR Hong Kong was considered to be of vital necessity in view of the issues described in the previous section. The objective of the program was to motivate and reward better performers and to ensure that the personnel decisions are taken in a fair and equitable way. The system had the other objectives of providing inputs to the top managers and middle level managers to develop and monitor implementation of the organizational goals of STR and also to align the employee performance to the accomplishment of the organizational goals. The system suggested was expected to enhance the performance measurement and the communication processes for the employees and the supervisors. The establishment of proper communication channel was the one of the important objectives of the implementation of the performance appraisal system in STR which is crucially important for the improvement of the performance of the organization.
The implementation of the system involved an analysis of the existing systems. This analysis is carried out focusing on the work plans of STR and the performance appraisal based on the work plans which are the essential components of a performance management system. In this system the employees and managers are given set targets for achievement at the beginning of the year and they had to prepare the plans for achievement of the set targets. The system defines key responsibilities and results for the employees at various levels, dimensions of the target performance and the behavioural expectations and the criteria and standards of the employee performance measurement are established with utmost clarity and prescribed for follow up. Although different standards were set for different functional areas and for different levels of employees the basic elements of measurement for all the jobs are:
- Quality of the employee performance
- Quantity of the employee performance in terms of number of jobs completed or any other suitable method
- Cost involved in carrying out the set responsibilities and
- Timeliness of the completion of the jobs assigned.
In order to ensure that all the employees received feedback for maintaining or improving productivity it was planned to have two semi-annual feedback sessions which were fully documented. It is for the supervisor to have as many number of informal feedback sessions based on the performance needs of the individual employees.
Needs for Implementing the Performance Appraisal Systems
The case study at STR Hong Kong aimed to explore some of the strengths and weaknesses of the existing performance standards at STR Hong Kong and the needs for implementing a proper and efficient performance appraisal system in the organization to remove the issues faced by the company in the absence of the performance appraisal system. For assessing the strengths and weaknesses of the existing performances and also the needs for implementing an improved performance appraisal system the study took into account the views of some of the employees and managers of STR. Although a case study with a limited number of respondents may not produce results which can be applied to any organization in general, the results should provide some base for the managers who have a critical thinking ability and who can adopt ways to improve upon the basic performance appraisal system in the organization.
Some of the questions the study raised took the following form:
- Is there a serious deficiency in the organizational performance?
- Are there any employee ratings in vogue at present? If so are there variations in the ratings which result in a disproportionate number of employees getting high ratings?
- Do the employee ratings take the base of their sex and race?
- Is there a proper understanding of the employees about the overall organizational mission of STR Hong Kong?
- Are the managers who are entrusted with the responsibility of assessing the employees credible?
- Is there a performance management system in practice? If so do the employees and managers follow the policies and procedures of the system perfectly?
- Do the employees consider the existing rating system fair and represent their real performance?
- Is the existing performance appraisal system efficient in the sense that it brings out the employees’ strengths and weaknesses properly and rewards the meritorious employees?
- Are the results of the performance appraisal system considered accurate and objective rather than subjective and biased?
- What are the monetary and non-monetary factors that may have the effect of motivating the employees, whose performance have been evaluated under the system?
- What is the scope for personality and skill development and career growth out of the performance evaluation?
- Are the ratings and the performance appraisal system capable of providing training needs for the employees in different areas for personal development of the employees?
The detailed analysis of the views expressed by the interviewees had led to the conclusion that the performance appraisal system being followed by the STR is not that effective to provide for the future development of the individual employees, except that the appraisal system is being used mainly as the basis for reviewing the past performance of the employees to determine the pay rises and bonuses that are payable to the employees. Although a rating system was in vogue this system was proved inefficient as it does not take into account the real efficiencies of the employees and hence had resulted in disproportionate rewards to the employees causing frustration among the employees who excel in their work. The answers to the questions the study raised with respect to the performance appraisal system in STR Hong Kong are:
- There is a serious deficiency in the organizational performance due to improper assessment of the performance of employees at different levels.
- Though there are some rating system presently being practiced by STR this does not take into account a realistic view of the employees’ performance in different jobs
- No rating is being done on the basis of sex or race
- The employees have not been provided with a clearer perception of the organizational goals so that they can work towards the achievement of the same
- Although there is no question about the credibility of the managers who are entrusted with the assessment of the performance of the employees in the absence of a proper system of assessment more often they had to use their personal opinion about the performance of the subordinates. Another serious issue the manager’s face in assessing the performance is the absence of set targets for the subordinates against which their performance can be assessed.
- There is no proper performance management system in practice with set policies and procedures that can be followed by the managers and supervisors.
- The employees are not very happy about the existing system of performance evaluation as it had resulted in disproportionate rewards
- The existing rating system does not bring out the strengths and weaknesses of the performance of the employees and provides for proper rewards for the meritorious employees.
- The existing rating system is biased and subjective and is unable to provide any positive feedback to the employees on their lacking in the case of poor performers.
- Several monetary factors like incentives, bonuses, and cash awards were suggested to have positive impact on the performance of the employees. Similarly non-monetary factors like promotion to the next cadre, change of designations were also suggested.
- The existing system does not provide for any scope for the development and career growth of the employees as they lack in objective
- The existing rating system in the company does not in any way fulfilling the needs of the personal development of employees.
Implementation of an Improved Performance Appraisal System in STR
In view of the seriousness of the issues raised by the answers to the questions raised by the study of performance appraisal system in STR it was decided to introduce an improved performance appraisal system which meets the objective of achieving the organizational goals.
Performance Appraisal Form
The improved implementation plan proposes to adopt a new performance appraisal form which is presented as a part of the study. The form consists of 4 pages:
Page 1 consists of the following General Information
- General Information and details of personal Characteristics – consisting of details like employee number, Grade, Job Title, Division, and other details like date joined, Date of Birth, Date of Joining, Joined as, Date of Last Promotion, Basic Pay, Previous Experience and Leave availed during the year.
- Academic, Professional and Technical qualifications – which enables the appraiser to find the suitability of the employee for the position which the employee is presently handling
- Description of the Last Three Employment – including the present position with the tenure of employment in each case
- Courses Attended and Skills Acquired – the courses, in-house and exchange-house trainings attended by the employees during the year under review with the details of the name, duration and skills developed
- Complaints and disciplinary actions – brief details of any adverse report having a bearing on the career of the employee
- Job Description of the present position – this is an important column that should provide a complete description of the present job handled by the employee which enables the appraiser to make his judgment about the potential of the employee to handle this job and any additional responsibilities.
Page 2 provides the Assessment Criteria
The assessment criteria consist of 14 elements which are considered important for the basic general assessment of the suitability of the employee to the organization. These criteria are
- Attendance & Punctuality
- Commercial / Business Awareness
- Decision Making
- General intelligence level
- Technical Job Knowledge & Application
- Time Management & Organization Skills
- Communication Skills
- Quality Service
- Customers Service
- Initiative – Fertility of Ideas
- Behavior with Superior and colleagues
- Sense of commitment to the Organization
- General Reputation
- Moral / Performance Integrity / Confidentiality
Each of these criteria is given a point which ranges from 1 to 5 with 5 on the high side and 1 on the lower side. In the general assessment an employee’s maximum points is restricted to 50.
Professional and Supervisory Skills
This part of the Performance Assessment Form comprises of a total of 8 criteria which need to be assessed and graded by the appraiser for judging the ability of the employee to be molded to a supervisory/managerial position.
- Ability to dispose the work speedily
- Competence level
- Organizational ability
- Accuracy and efficiency
- Willingness/Readiness to accept responsibility
- Stress management
- Ability to delegate
- Ability to work in teams and team building capabilities
Each of these criteria is given a point which ranges from 1 to 5 with 5 on the high side and 1 on the lower side. In the general assessment an employee’s maximum points is restricted to 30.
Assessment against Targets Set
This is an important par of the performance assessment of the individual employees which needs a careful approach and should have some previous targets set for the individual employees.
This part consists of the following criteria
- Quality of Service – in the respective area of operation – testing, inspection, or other technical areas
- Quantity of Output – which compares the quantity of output in terms of the number of jobs pre-assigned to the employee with allowances for extraneous reasons that had affected the performance of the employee to reduce the productivity
- Cost involved – the assessment should carry out the cost of each job handled by the employee in terms of the number of hours spent multiplied by the hourly cost of the organization including all administrative costs – this needs a personal job log for each of the employee and the use of a computer software will aid the assessment much better
- Timeliness – the assessment should compare as to the number of occasions on which the customer commitment could not be met due to the fault of the employee.
It is necessary to have predetermined standards in respect of the above criteria. Each of the above criteria carries 5 points in the scale of measurement and the total points for this part is 20 making the total points for assessment 100.
Provides the Performance Category
On the basis of performance evaluation, points are allocated and these points are converted into Category Rating as under:
|Category||Marks / points obtained|
|A||91 to 100 Marks|
|B||76 to 90 Marks|
|C||51 to 75 Marks|
|D||Less than 50 Marks|
This page also identifies the strong and weak points of the employees and the training needs of the employees. There will be provision for marking the date and time of feedback meetings with the employees and notes on the discussion transpired during these meetings. The form also contains the signature of the appraiser as well as the employee whose performance is assigned.
The grading enables the company to decide on the rewards and recognition of the individual employees on the basis of assessment.
Conclusion and Recommendations
In this chapter a short summary of the discussion on the performance of the appraisal systems in general and also few recommendations for STR to implement to make the performance appraisal system successful are presented.
Since it is the normal tendency for the human beings to make judgments, this inclination may lead to serious issues concerning the motivation, ethics, and legal status of the other workers in the other place. If there is no well defined system of appraisal it may so happen that the judgments would be passed which are not fair, lawful, and defensible. Bannister & Balkin, 1990 report that the workers seem to show greater satisfaction towards the process of appraisal systems so long as the process is related to the rewards directly. However such findings may appear to be a serious challenge to those who consider that the appraisal results and reward should be separate from each other.
There is another group that holds the argument that the evaluation of the employee performance for rewarding the employees and communicating the results of the appraisal to the employees are part of the responsibilities of the management. The idea not to discuss the reward issues on the plea that not discussing will improve the motivation is being subject to criticism of the scholars. In many organizations the wage and salary reviews are considered separately. The merits and bonus issues are also decided arbitrarily and secretly by the supervisors and managers.
This study made an attempt to bring out the salient features of an effective performance appraisal system. Out of the research conducted it is found that the performance appraisal or review is essentially an opportunity for the individual worker and those who are in a position to assess and report on their performance to get together to have a joint review about the performance of the individual, development of the ability of the individual worker and the support that the managers can provide for the improvement in the performance. It is also observed out of the study that the performance appraisal or review can not be a top down process in which one of the parties ask questions to be answered by the other. This must be a process in which there is a free flowing conversation between the appraisers and appraise which facilitates the exchange of views.
The recommendations for improvement of the performance appraisal system in STR Hong Kong cover the following areas.
Future Oriented Appraisal Systems
The present system focuses mostly on the past performance mainly with the object of considering pay revisions and bonuses. There is nothing in the system which identifies the training and development needs of the individual employees. It is recommended that the performance appraisal system takes into account the future development of skills and knowledge of the employees based on the new performance appraisal form presented in this study.
Periodicity of Appraisals
At present the appraisals are being done once in a year. This may give rise to bias in rating and it may also happen that several other factors may also influence the rater at the time of approval. It may also so happen that the line managers may forget some issues relating to the performance of the subordinates which he would have kept in his memory might have been forgotten over the period. Hence it is recommended to change the periodicity of the appraisal from annual to bi-annual one. The bi-annual appraisal and reporting on the performance of the employees may result in facilitating the employee to show consistency of performance in his work. But in the case of annual performance appraisals the individual employees will try to work hard during the periods around the appraisal times and may not follow the same vigor and attention once the appraisal is completed.
Conduct of Review Meetings
Presently it appears that no review meetings are being conducted. The procedure for review meetings may be evolved once the senior managers hand over the appraisal results to the individual employees. The conduct of the meeting can be arranged in the following way.
- Line Managers should be given the responsibility to conduct performance review meetings of all their subordinate staff
- They should be given the additional responsibility of finding and reporting on the training needs of their subordinates on the basis of the discussions being done in the review meetings.
- Any positive improvement in the employee attitude, behavior, and working standards must be identified and highlighted in an appropriate way to motivate the employee concerned.
- The meetings should be used as a possible ground for providing the necessary guidelines to the individual employees for enabling them to achieve the individual goals which may ultimately be useful in achieving the organizational goals.
Assignment of Individual Goals/Targets
As per the new appraisal form (page 4) there is the necessity to set individual goals for all the employees. Wherever possible the company should set definite targets for achievement by the employees. Thus the appraisal system can not be considered effective unless the individual goals/targets are assigned to measure the performance of the employees. This can be done through the periodic review meetings being conducted after the appraisals are announced to be pursued for the next appraisal due in the next 6 months
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