An Evaluation on the Effectiveness of Performance Appraisal Systems within Manufacturing Firms in Malta

Table of contents

Acknowledgements

Executive summary

List of tables

List of figures

List of abbreviations

Chapter 1 – Introduction
1.1 Study background
1.2 Defining Performance Appraisal effectiveness within manufacturing firms...
1.3 Performance Appraisal with manufacturing firms operating in Malta.
1.4 Research objectives
1.5 Dissertation scope
1.6 Dissertation Structure

Chapter 2 – Literature Review
2.1 Chapter Introduction
2.2 Studies on Performance Appraisals
2.3 Defining Performance Appraisals
2.4 The purpose to undertake Performance Appraisals
2.5 The extent of Performance Appraisals’ effectiveness
2.5.1 Conflicting perspectives
2.5.2 A holistic definition of ‘effectiveness’
2.5.3 The implications of organisational culture on the effectiveness of Performance Appraisals
2.5.4 Performance Appraisal’s effectiveness in assessing employees’ performance.
2.5.5 Appraiser and appraiseer’s perception on Performance Appraisals’ effectiveness
2.5.6 Fairness of Performance Appraisals
2.6 Claimed flaws within Performance Appraisal systems
2.7 Claimed benefits when conducting Performance Appraisals
2.8 Improvements in Performance Appraisals’ effectiveness
2.8.1 The importance of improving Performance Appraisals
2.8.2 The significance of effective communication between the appraiser and the appraisee
2.8.3 The relevance of competent raters in a Performance Appraisal system
2.8.4 Segmenting the function of Performance Appraisals – An Innovative approach
2.9 Chapter summary

Chapter 3 – Methodology
3.1 Chapter introduction
3.2 Research development
3.3 The contribution of primary and secondary research
3.4 Distinguishing between qualitative and quantitative data
3.5 Selecting the sampling technique
3.6 Self- selection sampling – data gathering method
3.6.1 Identifying participating firms for the field research
3.6.2 Option 1: Self-completion questionnaire
3.6.3 Option 2: Participant observation
3.6.4 Option 3: Internet and intranet-mediated questionnaires
3.6.5 Option 4: Telephone questionnaires
3.6.6 Option 5: Interviews
3.7 Interview methods
3.7.1 Non-standard interviews
3.7.2 Semi-structured interviews
3.7.3 One-to-one interviews
3.7.4 Face-to-face interviews
3.8 Designing the interview questionnaire
3.9 Logistical preparation for the interview
3.10 Interview pilot test
3.11 The interviews outcome reliability
3.12 Ethical considerations when conducting interviews
3.13 Evaluation of the field research findings
3.14 Chapter summary

Chapter 4 – Research Findings and Analysis
4.1 Chapter introduction
4.1.1 Chapter overview
4.1.2 The respondents’ role and their participation in the field research study
4.2 Overview of the interviews approach
4.3 Research findings
4.3.1 The composition of manufacturing firms in Malta and their HR set-up.
4.3.2 Reasons for undertaking Performance Appraisals
4.3.2.1 Performance Appraisals as a control mechanism
4.3.2.2 The link of Performance Appraisals to a reward system
4.3.2.3 Performance Appraisals as a training needs identification tool
4.3.2.4 The link of Performance Appraisals to develop and build working relationships
4.3.2.5 The link of Performance Appraisals to increase productivity levels.
4.3.3 Claimed benefits and flaws within Performance Appraisals
4.3.3.1 Unfairness of Performance Appraisal due to subjectivity and biased opinions of managers
4.3.3.2 Do Performance Appraisals serve as a control mechanism and limit creativity?
4.3.3.3 Are Performance Appraisal’s flawed by the managers’ negative feedback?
4.3.3.4 Reluctance by managers to undertake Performance Appraisals
4.3.3.5 Political motivation
4.3.3.6 The claimed benefits of Performance Appraisals
4.3.3.7 Productivity improvements as a direct result of Performance Appraisals’ interview outcome
4.3.3.8 Increase in production output
4.3.3.9 Quality and accuracy levels
4.3.3.10 Statistical data
4.3.3.11 Cost savings
4.3.4 The extent of intended purpose of Performance Appraisals...
4.3.4.1 Are Performance Appraisals being applied as intended?..
4.3.4.2 Perceived fairness of Performance Appraisals..
4.3.4.3 Communication process and time allocation for Performance Appraisals..
4.3.4.4 The fairness of Performance Appraisals when appraisers rating are compared...
4.3.5. Performance Appraisals’ effectiveness – distinct perspectives by HR Practitioners..
4.3.5.1 Definition of effectiveness
4.3.5.2 Recommendations for enhancing effectiveness of Performance Appraisals
4.3.5.3 Recommendation for Performance Appraisal improvements specifically in terms of productivity
4.4 Chapter Summary

Chapter 5 – Conclusion
5.1 Chapter introduction
5.2 Conclusions from research analysis and discussion
5.2.1 The influence of HR Practitioners on Performance Appraisals effectiveness in manufacturing firms
5.2.2 The objectives of Performance Appraisals
5.2.3 Benefits and flaws of Performance Appraisals
5.2.4 Defining ‘Effectiveness’
5.2.5 The extent of Performance Appraisals fairness
5.2.6 Improvements in productivity.
5.3 Conclusive statements on the dissertation objectives
5.4 Recommendations
5.4.1 Initiatives that can be practically applied
5.4.2 The opportunities and challenges posed by these recommendations in their practical application
5.5 Reflections
5.5.1 Research strengths
5.5.2 Research limitations
5.5.3 Final comments

References

Appendices
Appendix 1 – List of manufacturing companies in Malta
Appendix 2 – Consent Form
Appendix 3 – Interview covering letter
Appendix 4 – Interview questions
Appendix 5 – Overview of manufacturing firms who took part in the study
Appendix 6 – Proposal and ethics approval

List of tables

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List of figures

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List of abbreviations

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Chapter 1 Introduction

1. Introduction

1.1 Study background

Business organisations set realistic goals to ensure their competitiveness and profitability on a long-term basis. Herman (2005) sustains that PAs are a process that managers use to assess employees’ performance in order to attain company’s goals. PAs represent a strategic tool for evaluating performances defined as “the formal assessment and rating of individuals by their managers at or after a review meeting” (Armstrong 2009:618). Sheal (1992) stresses that the main objective of an appraisal system is to upgrade performances within individual and organisational structures. The potential benefits of appraisal systems have been expounded in detail by various researchers including Cascio (1986). Conversely, Taylor et al. (1995) sustains that appraisals tend to be perceived and even over rated as the cure to all challenges directly linked with employee performance.

Managers need to manage their manpower resource efficiently and effectively and therefore it is imperative that periodic upgrading of employees performance is undertaken (Bowman 1994). Although there is a pressing need so as to step up productivity, businesses are more than ever constantly questioning the reliability and validity of the design of PAs systems (ibid). Lawler III et al. (1984) highlight, that an insightful assessment of PAs should focus on the notion of effectiveness underpinning the whole system, in terms of the perspectives of both the appraiser and appraisee. This is sustained by Campbell and Barron (cited in Nathan et al. 1991:365) advocating that “Organisations are often dissatisfied with the efficacy of performance Appraisals”. Finally, the degree how far PAs impact employee performance and work attitude, is still to be determined in substantial depth (Nathan et al. 1991). Since empirical evidence is highly restricted, a high degree of research is essential in assessing PAs efficiency.

Lawler III (2003) advocates that the criteria established to ensure an effective PAs system are still highly disputed among researchers. There is definitely lack of agreement among researchers concerning the effective steps which need

to be undertaken in the design of PAs, so that employee performance particularly in terms of productivity, can be upgraded. Longenecker and Gioia (1988) indicate that PAs are considered by most researchers and likewise HR Practitioners as ineffective. This belief is strongly testified by Bratton and Gold (2007:285) who claim that “appraisal is arguably the most contentious and least popular among those who are involved”. Deming (1986) and Joiner (1994) sustain that appraisal targeted to individual employees are in an essence dysfunctional.

1.2 Defining Performance Appraisal effectiveness within manufacturing firms

Within the context of PA, Reddin (1970) views effectiveness as the degree to which a manager attains the targeted outputs within pre-determined time schedules. Furthermore Longenecker and Fink (1999) indicate three strategic criteria underpinning the effectiveness of PA systems. These include:

- Effective appraisal program
- Effective appraisal planning and practices
- Ongoing review and support

Jacobs et al. (1980) specify three criteria which are deemed as indispensable in ensuring the holistic effectiveness of appraisal systems. These embrace both the quantitative and qualitative criteria together with evaluation of performance practices (ibid).

It needs to be admitted that the importance of PAs are meaningful to both managers and subordinates. The latter are ranked in terms of their performance, and their overall contribution towards the fulfilment of pre-determined business goals. From a practical dimension managers are confronting challenges to benchmark the effectiveness of PA systems. This is because manufacturing firms across the wide spectrum of the economy are distinct in terms of size, industry sector, market related features, business cultures adopted and management design systems. Managers are persistently facing aggressive competitive pressure to hold the advancing impact of low-cost based firms.

1.3 Performance Appraisal within manufacturing firms operating in Malta

The year 1964 was of pivotal importance for Malta, not only as regards the attainment of its political independence, but also in setting a secure platform for manufacturing firms. So far, manufacturing firms were geared to meet the needs of the local market. Companies faced multiple problems foremost lack of capital, diseconomies of scale due to the limitations of the local market, lack of expertise in technical skills, and lack of government support. One cannot exclude the high degree of competition which the local product faced from their overseas counterparts. However, after 1964, consecutive Maltese administrators sought to invest in upgrading the necessary employment, technology, capital and general infrastructure, so as to attract and entice both local as well as foreign manufacturing firms (Gonzi 2005).

Malta’s competitive advantage within the sub-period 1964 - 1980 was the provision of cheap labour. However throughout the past two decades, manufacturing businesses based in Malta, in line with the Western counterparts, have been finding it extremely challenging to compete with low labour cost economies located within the Far-East region. Moreover East European countries are still providing low-cost labour. Apart from the challenge to compete with these countries, firms based in Malta are facing high employee turnover. This is because new career opportunities are emerging for the Maltese workforce within the financial services, ICT, I-gaming and construction.

HR Practitioners are highly interested in assessing employee performances to ensure the long-term sustainability of their manufacturing firms. The effectiveness of PA systems plays a pivotal role within these circumstances. The strategic role of HR Practitioners as the primary intermediaries between the appraisee and appraiser in PAs is both vital and beneficial. Failure to evaluate employee performance and continuously improving productivity is not an option for manufacturing firms operating in Malta but a strategic imperative.

1.4 Research objectives

Although there are substantial insightful research and empirical findings on PAs, the researcher identified a gap in the available literature, as regards to the effectiveness of PAs particularly on productivity improvements within manufacturing organisations. Thus, this dissertation aims to answer the following research questions:

- Are PAs effective in improving productivity levels of subordinates?
- What are the key elements that make PAs effective?
- What could be the criteria to test the effectiveness of such systems?
- Does company size matter when evaluating the effectiveness of PAs in manufacturing firms?
- Does productivity increase, decrease or remain unaffected after undertaking PAs?

As Murray (2006) argues, having clear objectives is fundamentally important in a dissertation and therefore the study objectives are defined hereunder:

(i) Identify the current research on PAs and critically describe their relevance in terms of their effectiveness within firms. Moreover, the researcher aims to assess the ‘gap’ within the literature findings in terms of productivity improvements.
(ii) Undertake a field research so as to evaluate the extent of PA systems as an effective tool to improve appraisees’ productivity performance in manufacturing firms operating in Malta.
(iii) Evaluate the effectiveness of PAs on criteria sourced from the literature review and compare it to what is actually being applied in manufacturing firms in Malta.
(iv) Identify factors that can improve appraisees’ productivity as a direct result of an effective PA system.

1.5 Dissertation scope

It is deemed imperative from the onset, that the dissertation scope is defined within the ambit of manufacturing firms in Malta. The term ‘manufacturing’ is specifically defined within the context of this study, as being the integration of a wide range of activities, facilitating the transformation of raw materials into finished tangible products. Beamon (1998) perceives ‘manufacturing’ as a set of inter-related yet distinct processes and systems, that once integrated translate into the output of another product. The manufacturing firms that participated in this study are listed in table 1.1.

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Table 1.1: Manufacturing firms in Malta selected for the field research

The study will investigate the ‘effectiveness’ of PAs as viewed by HR Practitioners engaged in these firms. HR Practitioners perform the role of a mediator linking the Functional Manager and the appraisee in the PA process. A justification and explanation of this approach is provided in section 4.1.2.

For the purpose of this dissertation, the term ‘appraisee’ employed by manufacturing firms in Malta, refers specifically to non-managerial employees working directly in production areas. Therefore it excludes support services employees (e.g. maintenance, logistics and security people) together with clerical or administrative staff. The terms appraiser, rater, respondent and interviewee are used interchangeable for the person undertaking the appraisal.

Finally, it is worth stating that the definition of PA is limited to interviews conducted on a periodic basis as indicated by Erdogan (2002) which can also be referred to in the framework suggested by Armstrong (2009) illustrated in Figure 1.1.

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Figure 1.1

The dissertation scope within the performance management cycle: performance review and assessment

Adapted from Armstrong (2009:621)

1.6 Dissertation structure

The structure of the dissertation is provided with a brief overview of the four chapters that follow after Chapter 1.

Chapter 2

This chapter includes the academic review findings undertaken in past studies. PA’s definitions, various applications and methods, claimed benefits and flaws, and the effectiveness of such systems are critically examined, contrasted and compared.

Chapter 3

The study then proceeds with a detailed account of the methods employed in undertaking this study, starting from the selection of the dissertation topic, moving towards the selection of primary and secondary research. The justification of each method employed is provided.

Chapter 4

The dissertation progresses with a description of the findings derived from the field research undertaken in conjunction with HR Practitioners in a selected sample of manufacturing firms operating in Malta. The findings are categorised in specific themes guided by the literature review outcomes. These findings are then evaluated on a set of criteria derived from the literature. A commentary follows on whether the interview outcomes support, conflict or have a neutral outcome when compared with the theoretical findings.

Chapter 5

This conclusive chapter includes the final dissertation conclusions derived from the findings in the previous chapter. Their relevance towards the achievement of the study’s objectives is discussed. A list of recommendations on how PAs can be more effective in manufacturing firms follows. Moreover, the study’s reflections including limitations and areas for further research are provided.

Chapter 2 Literature Review

2. Literature Review

2.1 Chapter introduction

Literature review findings on the subject matter are presented in this chapter. Every effort was undertaken by the researcher to critically evaluate, contrast, and compare the distinct views presented by various researchers. An overview of past studies on PAs commences this chapter, followed by theoretical definitions. After evaluating the objective for undertaking PAs the term ‘effectiveness’ is defined within the context of PAs outcome. The respective flaws and benefits of PAs are likewise indicated, backed by a theoretical perspective on how these can be improved.

2.2 Studies on Performance Appraisals

There is a general consensus linking business professionals and academics, that the importance of intellectual capabilities within business organisations is crucial for corporate survival. Companies strive to ensure that their human asset is maximised, since this determines the successful organisational outcomes (Falcone 2007). It is therefore no surprise that employees’ performances have been under critical scrutiny by practitioners adopting HRM orientation. PAs have been investigated throughout the past eight decades by various academics (Landy and Farr 1980; Fletcher 2002).

Stroul (1987), claims that this practice has been an on-going process since 1957. However, Brutus (2010) argues that research on PAs has primarily focused on performance ratings. Tziner and Murphy (1999) sustain that only minor attention was granted to political factors regarding PAs within the context of academic research. Others, including McGregor (1972) argue that PAs have become a benchmark in HRM. However, there are conflicting views whether PAs are effective or otherwise within organisations. There is quite a considerable volume of research suggesting that PAs are effective since they tend to augment worker performance and productivity (Rodgers and Hunter 1991). Conversely, Kuvaas (2007) suggests that since no conclusive evidence can be provided as to whether PAs affects employee work performance or not, future research on this topic is recommended. Martin and Bartol (1998) argue that although the arena of PAs has been extensively researched, very limited attention has been directed on how PAs are effectively maintained.

2.3 Defining Performance Appraisals

“Performance Appraisal is defined as the formal process of evaluating organisational members ...including establishment of performance standards, appraisal related behaviours of raters, ...determination of performance rating, and communication of the rating to the ratee” (Erdogan 2002:556). Falcone (2007) incorporates a step wise approach in the holistic cycle of PA. These include goal setting, the constant provision of feedback and training, backed by a fully fledged appraisal and reward mechanism (ibid). PA takes place when there is a long-term relationship between the appraisee and the appraiser (ibid). Lee (1985:323) sustains that PA refers “to the accuracy of performance observations and ratings as well as the ability of the performance appraisal process to improve the ratee’s future performance”. It is also relatively important that the maintenance of the system is explained by HR Practitioners to appraisees (Martin and Bartol 1998).

2.4 The purpose to undertake Performance Appraisals

Some scholars maintain that one of the main purposes of endorsing PAs is to provide feedback to employees on how they can upgrade organisational performance within the holistic dimension of the organisation ( Asmuß 2008; Peretz and Fried 2008). Fletcher and Williams (1996) remark that this exercise is intended to encourage commitment by the employee, as well as to upgrade the organisation’s effectiveness. Patz (1975) advocates that the most common reason to undertake PA is salary justification. Chu and Chen (2007) argue that PA refers to a method that enables the management to keep full control within the organisation and provides information so that reasonable decisions can be effectively taken as regards promotions, transfers, incentives and training.

Chu and Chen (2007) advocate that within manufacturing companies, PAs are mostly employed to sustain a competitive advantage. This is attained by providing the necessary training and by sustainably developing employees’ skills and abilities (ibid). A more distinct approach adopted towards the planning and implementation of the appraisal system is derived by Ritchie and O’Malley (2009:2) who claim that this is essentially an “emotional transaction”.

McGregor (1972) and Beer (1981) sustain that PAs provide judgments to established salaries, promotions and demotions. Moreover McGregor (1972) and Beer (1981) ventured a step further by stating that PAs serve as a unique opportunity for managers to inform subordinates regarding their respective performance. From a critical perspective, PAs also provides the exclusive opportunity to deliver periodic coaching and counselling by the superior (ibid). It is appropriate to state, that after collating all these distinct theoretical approaches, the researcher identified that the primary objective in undertaking PAs is to have “...formal evaluation of an employee’s job performance in order to determine the degree to which the employee is performing effectively” (Griffin and Ebert cited in Schraeder et al. 2007:20).

2.5 The extent of Performance Appraisals’ effectiveness

2.5.1 Conflicting perspectives

The output of PAs is one of the major debates which motivated researchers to disseminate the final result of this measuring method. In fact, Schraeder et al. (2007), claim that many researchers and HR Practitioners questioned the efficiency of PAs in terms of their own respective organisation. Kuvaas (2006) argues that the effectiveness of PAs tends to be assumed and thus lacks empirical evidence. Conversely, Stroul (1987) emphasises that after capitalising on PAs for a period beyond 35 years, manufacturing organisations studied within his research managed to produce highly effective and successful business outcomes. Although there are still questions whether PAs are effective, it has been admitted by many researchers that inbuilt issues will jeopardise the effectiveness of PAs (Schraeder et al. 2007).

2.5.2 A holistic definition of ‘effectiveness’

Drucker (2002:1) defines ‘effective’ as “getting the right things done” and ‘effectiveness’ is about getting the right things done right. McCrimmon (2007) classifies ‘effectiveness’ within a management context as doing the right things at the least cost. On the same lines of thinking, Hackett (2003) labels the same term as the degree to which organisational goals are met. Wojtczak (2002) defines ‘effectiveness’ as the activity that attains the intended purpose of use. When analysing the various definitions of ‘effectiveness’, the researcher qualifies this term as the degree to which a task is achieving its pre-set objectives undertaken in the right time, place and manner. From a subjective perspective, the definition of ‘effectiveness’ entails a determining factor in the actual results of this study, since PAs will be evaluated on the merit of their effectiveness within manufacturing firms.

2.5.3 The implications of organisational culture on the effectiveness of Performance Appraisals

A study undertaken by CRANET ^[1] in 21 countries around the globe identified that the effectiveness of PAs is directly embedded within the social values and norms (Peretz and Fried 2008). Apart from establishing cross-cultural connections, the distinct organisational conditions have directly impacted their employees (ibid). Moreover, studies revealed that PAs effectiveness can be effected by various factors such as “social ...nature of the task, the ...work group, ...rater and ratee’s attitude [and] ...judgemental error” (Lee 1985:330). In a study undertaken by Kuvaas (2006:514), PAs were found to be “...more effective in influencing attitudes and behavioural intentions than in increasing work performance’’. This notion can be further illustrated in figure 2.1 where employees’ motivation, skills and knowledge will influence their behaviour in their work performance.

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Figure 2.1

Factors influencing employees’ behaviour

Source: Haringey Council (2007:11)

Bretz Jr et al. (1992) and Schraeder et al. (2007) remark that in order to be effective, PAs must be implemented as an on-going process. Stonich (1984) and Nathan et al. (1991) claim that PAs must be linked to the firm’s organisational culture and in essence serve as quality improvement on-going programmes. These theories strongly suggest that PAs are directly influenced and furthermore shaped by both organisational behaviour and culture.

2.5.4 Performance Appraisal’s effectiveness in assessing employees’ performance

Past research on PAs effectiveness is related to the applicability and practicality of using this tool to assess appraisees’ performances at the workplace. In fact, Orpen (1997) argues that PAs are mostly effective in assessing performance of employees whenever there are applicable, reliable and quantifiable measures. This could be more appropriate in manufacturing companies especially where production quotas are in place. Similarly, appraisees can be tested on their ability to produce to specific quality product standards. In line with this thinking, Roberts and Reeds (1996) advocate that whenever there is a common standard of performance, PAs can prove to be highly effective in improving productivity. Once PAs are applied on a common standard of performance, appraisees may be motivated to produce more. Pettijohn et al. (2001) sustain that PAs are expected to influence employee work performance in a healthy manner. Furthermore, Boswell and Boudreau (2002) suggest that the ultimate objective of PAs is to improve employee performance, and thus help in sustaining a competitive advantage to the respective organisation.

It may also be the case the PAs can be used as a way to have a formal method of recording employees’ performance and use these records to monitor improvements throughout the year. This idea is shared by Lawler III et al. (1984) revealing that PAs are mostly effective when they manage to document performance for further detailed analysis. Practical examples of this approach are found in a study undertaken by Sanwong (2008) in Thailand, were it was revealed that PAs serve as a tool to upgrade employees’ performances. Through PA outcomes, HR Practitioners can assess appraisees’ needs and improvement areas for further career advancement and progress. Supporting this premise, Wanguri (1995) maintains that PAs can be effective when these are specifically linked to training and development needs.

2.5.5 Appraiser and appraisee’s perception on Performance Appraisals’ effectiveness

In order to assess whether PAs are effective, one has to take into account a set of inter-related factors. Firstly, one has to assess the manner PAs are being perceived by the manager and at a later stage the manner by which PAs are critically judged by the appraisee (Lawler III et al. 1984). Ideally it should fulfil both perceptions (ibid). This approach is also agreed upon by Longenecker and Goff (1992) when they seek to critically assert whether the two criteria embedded within a PA is effective or not. Both the appraisee and the appraiser must agree on defining the set of functions for which the PA is being employed within a particular situational context. At a later stage, both the appraiser and the appraisee have to seek agreement whether PA is rightfully serving its intended purpose. PAs must not be enacted in a vacuum, but must occur within an interpersonal relationship linking both managers and employees (Nathan et al. 1991).

2.5.6 Fairness of Performance Appraisals

One of the most important criteria mentioned by researchers on how to assess whether PAs are effective or not, concerns the degree of fairness by which it has been undertaken (Jacobs et al. 1980). Zhang and Lovegrove (2009) suggest that the employees’ perception about justice being generated by a PA is crucial in ensuring fairness. The perception of justice in the eyes of the appraisee and the appraiser is specifically linked to this aspect (Konovsky and Cropanzano 1991).

There are various opinions on how a procedure to undertake a PA interview is perceived to be fair. Erdogan (2002) claims that the procedure employed in PA systems can be considered as being unfair. The appraisee must be given a fair hearing, meaning that the participant must be granted adequate time to present his/her case and explain the input before a decision is taken (ibid). Erdogan (2002) proclaims that the communication process must also be perceived to be fair throughout implementation. This includes the provision of a two-way communication process, with respect and consideration for opinions from both sides.

Researchers argue that in order for PAs to present a true and fair view, it must be in line with the organisational culture (Maroney and Buckely 1992). Appraisers must enact every possible effort to ensure that full scale justice is tactfully applied (Erdogan 2002). Organisations disallow employees undertaking comparison exercises of their respective ratings with their colleagues since this generate unnecessary competition (ibid). Whenever, PAs are perceived as being fair, transparent and unbiased by the subordinates, then they are deemed effective (Murphy and Cleveland 1995).

2.6 Claimed flaws within Performance Appraisal systems

Before attempting to investigate the extent of PA’s effectiveness, one must critically evaluate the claimed flaws within this system. This topic is a source of dispute between both practitioners and researchers. Only a few researchers sustain the effectiveness of PAs (Longenecker and Goff 1992; Fletcher 2001). Way back in the 1960s when General Electric undertook a study on its PA systems, it was found that through extensive effort and design together with commitment from the management the best is attainable through PAs (Lawler III et al. 1984). Furthermore, a study in China revealed “...the lack of openness, transparency, mutual influence and objective standards” in PAs (Benson et al. cited in Zhang and Lovegrove 2009:191). Tagliaferri (1978) maintains that although PAs are still in use, they are mostly subjective. Kuvaas (2007:388) further sustains that “...the present study suggests that perceptions of developmental PA do not increase work performance’’.

Problems generated from PAs are in most cases attributed to conflicting objectives, inadequate time to carry out the appraisals and failure to reward managers in systematically developing particular skills on the part of their subordinates (Stroul 1987). Fletcher (2004:21) argues that PAs has been perceived by employees “as biased, subjective and unfair” . Stroul (1987:72) advocates that PAs are mostly associated with “control mechanisms rather than as a tool for development’’. Lawler III et al. (1984) argue that whenever the PA system is inadequately designed, it is doomed to be ineffective.

Many researchers claim that leaders and managers are reluctant to undertake PAs (Bernardin and Villanova 2005; Brown et al. 2010). Further research sustains that having an optimal appraisal system does not necessarily imply that the procedure is effective (Longenecker and Goff 1992). Henderson (1984); Zhang and Lovegrove (2009) further claim that whenever a PA system is ineffective, the outcomes are destructive and inspire abhorrence and lack of trust between employees.

Patz (1975) argues that there are major obstacles dampening the holistic effectiveness of PAs as an effective management tool. Additionally, Heathfield (2007) sustains that PAs are biased in favour of the appraiser and they are imperfect in their very nature. In a study undertaken in a Fortune 500 service organisation, the main bottlenecks which were highlighted to be associated with PAs were: the “multiple use of the ...[appraisal document], subjectivity and inflated ratings, problems in defining objectives and dissemination of the evaluation results to employees” (Laird and Clampitt 1985:50).

Heathfield (2007) argues that although there are a number of criteria to determine the manner an employee is performing, employees are still judged by the manager’s subjective opinion. Moreover, Patz (1975) maintains that in most instances, PAs are directly associated with political motives. Nickols (2007) tends to adopt a harsher approach in his criticism, remarking that PAs lead to a reduction in productivity and erodes performance whilst hindering organisational agility.

Heathfield (2007) claims that PAs lead to a de-motivated workforce because the appraisee thinks that the manager does not sufficiently care for his/her pay rise. As to the relationship between managers and subordinates, it is argued that managers lack the vital package of skills to undertake PAs and thus they do not provide an honest opinion and feedback to the appraisee (ibid). Opponents argue that PAs “...never worked to begin with and now it’s no longer relevant” (Hyde cited in Bowman 1994:133) and such systems “...discourage innovation and reinforce the status quo” (Bowman 1994:134). Beer (1981) mentions the flaws within PAs when undertaking interviews, may conduce to lack of trust and build an adversary relationship.

The employees tend to internalise negative feedback on the part of their managers as very difficult to accept. Whenever employees face negative outcomes from their appraisals, the net effect is that they are going to end up de-motivated (ibid). Additionally, managers feel embarrassed to criticize in some situations (McGregor 1972). Thus whenever this is the case, PAs are counter-productive (ibid).

2.7 Claimed benefits when conducting Performance Appraisals

There is no doubt that various empirical studies claim that PAs promise major benefits. Organisations today are investing in PAs to assess their employee’s performance and moreover to provide meaningful opportunities for employee development ( Asmuß 2008). Kuvaas (2007) claims that when PAs are linked to a BSC System, they tend to improve employees’ commitment to the company’s goals. For instance it transpired in a study undertaken in the US, that several companies use PAs to improve employee performance (Murphy and Cleveland 1995). Moreover, there is a general consensus that PAs have positive impacts on organisations (Keeping and Levy 2000).

Fletcher (2001) and Poon (2004) argue that PAs are critical for HR practice. Fletcher and Williams (1996) claim that empirical studies have found that high quality PAs augment job satisfaction. Roberts and Reed (1996) sustain that when a PA is well administered, designed and implemented, it provides multiple benefits including increased motivation and productivity. Moreover, Longenecker and Goff (1992) emphasize that PAs ensure high standards for wage determination, upgrade employees’ development, provide information to take effective decisions and present managers with the necessary planning structures and clear goal setting approaches. A number of studies have also determined that PAs are positively linked to marked improvement in employees’ performance (Broady-Preston and Steel 2002).

One can observe that whenever PAs are effective, they help directly to improve the overall quality of job performance, enhance motivation, ensure commitment, and minimise labour turnover rates (Ahmed et al. 2010). This is also supported by other researchers who sustain that when linked to objectives, PAs can have effective influence on organisational performance (Kreitner 2008). Jenks (1991) further maintains that PAs can increase employee productivity and can also improve effective vertical communication systems between the superior and the subordinate.

Whatever the criticism inflicted on PAs, managers are not willing to discard them (Patz 1975). This is because as Stroul (1987) maintains that employees tend to perceive PA as both effective and positive when their managers assume the role of a counsellor. Managers and subordinates believe that PAs are effective since they enhance motivation, change behaviour and improve understanding among all stakeholders concerned (Lawler III et al. 1984). This is further supported by Boswell and Boudreau (2002) who emphasize that PAs improve the effectiveness of employees at the workplace.

2.8 Improvements in Performance Appraisals’ effectiveness

2.8.1 The importance of improving Performance Appraisals

The application of PAs evolved throughout consecutive years, motivated HR Practitioners so as to constantly test and upgrade the effectiveness of this instrument. It is a common belief that PAs promise major benefits for the respective organisation whenever applied appropriately. Throughout the past decades, research undertaken has identified various factors that can upgrade PAs effectiveness in a sustainable manner. For instance Patton (1973) and Lawler III (2003) argue that the underlying objectives of PAs serve to reward individual performance. Stroul (1987) sustain that PAs can only be upgraded by altering employee’s approach, rather than revising evaluation forms. Brown et al. (2010) maintain that the quality of PAs impact organisational efficiency and thus their systematic improvement is of pivotal importance.

2.8.2 The significance of effective communication between the appraiser and the appraisee

The importance of effectively communicating the outcome of PAs is highly expounded within the arena of management literature. From the managers’ perspective, it is pertinent that the outcome is clearly understood by the subordinate. The manager must know where he/she stands with the subordinate. Sincerity when providing feedback to the subordinate is crucial in designing an effective PA system. Managers should provide “...true pleasure when giving positive feedback and true concern when giving negative feedback” (Ritchie and O’Malley 2009:6). As Lee (1985) comments, the effectiveness of PAs can therefore improve whenever regular feedback is given to the employee’s performance.

Furthermore, Beer (1981) proclaims that PAs can be structured in a systematic manner so that negative feelings particularly on the part of the employee are minimized, together with systematic improvements in the communication process. The interview undertaken in the PA process is crucial in providing information regarding the employees’ opinions (Roberts 2002). Longenecker and Goff (1992) argue that both the appraisee and the appraiser must perceive and believe that the PA is indispensable to their respective interests to ensure a high degree of effectiveness.

Thompson (cited in Youndt et al. 1996:845) went even further to state that “continuous employee feedback and developmental performance appraisal would likely be of great value to manufacturers pursuing flexibility strategies”. Ritchie and O’Malley (2009) maintain that the way how feedback is granted from the superior to the employees, generates a specific impact on the effectiveness of PAs.

2.8.3 The relevance of competent raters in a Performance Appraisal system

Researchers recommend that raters are trained to ensure that PAs outcome are more fair and effective, thus increasing acceptance by subordinates (Farh et al. 1988; Nathan et al. 1991). Schraeder et al. (2007) argue that organisations must train the raters, use behaviour-based methods, provide feedback, and use multiple rates. Inderrieden et al. (2004) suggest that managers must understand how the work of their subordinates is being performed to have an effective PA.

Managers must be educated and trained to manage a PA system effectively (Patz 1975). Longenecker and Goff (1992) sustain that managers must have the competence and are willing to implement PAs. The superior undertaking the PA must be trained in collecting the relevant information, processing and observing the subordinates behaviour (Lee 1985).

2.8.4 Segmenting the function of Performance Appraisals – An innovative approach

Researchers such as Beer (1981) sustain that the PA systems need to be strategically segmented. In this respect, two appraisals need to be designed - one which is directed towards the assessment of performance and the other representing an insightful assessment on training and development (ibid). Vasset et al. (2010) recommend that the managerial power must be restrained so as to ensure successful outcomes regarding PA exercises. This idea is supported by Patz (1975) who recommend HR Practitioners to keep PAs easy and straightforward and separate from the promotion system.

PAs effectiveness can be systematically improved whenever these are linked to constructive outcomes. Within this context, Youndt et al. (1996:860) sustain that “...results-based performance appraisal...may still be very appropriate for manufacturers pursuing cost containment”. Gabris and Giles (1983) advocate that the productivity and effectiveness of PAs can be periodically upgraded via non-financial rewards. These incorporate job rotation, group building, training and counselling management. Moreover, Orpen (1997) remarks that PAs can be more effective whenever the methods and systems engaged are corresponding with the type of assignment being performed.

2.9 Chapter summary

The literature reviews findings on PAs have demonstrated that this subject area raises controversial and conflicting opinions on the part of both HR Practitioners and researchers. The secondary research has established that employees’ performances are measured, monitored and controlled through PAs. Some academics even state that through this exercise, the interaction process linking the appraisee and appraiser, contributes a significant element to the success or failure. The literature findings have identified diverse reasons justifying the application of PAs. Foremost, they are utilised as a reward system to improve employee performance. This includes behavioural changes, directing employees towards achieving organisational goals, determining and evaluating training needs of appraisees and establishing a long-term sustainable relationship between the appraisee and the appraiser.

The literature review findings established that the term ‘effectiveness’ can be holistically evaluated on various criteria. However, such views centred primarily on the objectives that PAs should attain. They must be shared and agreed jointly by the appraiser and the appraisee, backed by a reliable and agreed rating system. Researchers agree that PAs should be perceived to be fair by both sides. Moreover, the literature review established that in order to be effective, PAs should spearhead organisations towards overall improvement in productivity levels. Conversely, researchers claim that PAs are flawed, since they are prone to subjectivity by the appraiser. Moreover, they are politically motivated and mostly employed as a control mechanism with unclear objectives. Subsequently, the literature suggests constructive tactics in improving the overall effectiveness of PAs.

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^[1] Cranet stands for:The Cranfield Networkon International Human Resource Management