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UNIVERSITY OF NOTTINGHAM

THE UNDERSTANDING, THE APPLICATION AND THE EFFECTIVENESS OF

PERFORMANCE APPRAISAL

By: HAJI MOHAMMAD JAAFAR HAJI JOHARI

2005

A Dissertation presented in part consideration for the degree of MBA General

Acknowledgement

First and foremost I would like to thank my wife, children and family for their continuous and invaluable support I want to acknowledge the patience and support that Dr. Mark Learmonth, my dissertation supervisor has given me

Many thanks to Brunei Investment Agency, my employer and sponsor for giving me the MBA scholarship and Finally, to all my MBA Professors, Lecturers, Staff and friends

TABLE OF CONTENTS
Acknowledgements Table of Contents 1. The introduction 1.1 Aims, objectives and methodology of the dissertation 1.2 Dissertation outlines The understanding of performance appraisal 2.1 Definitions of performance 2.2 Definitions of appraisal 2.3 Definitions of performance appraisal The application of performance appraisal 3.1 The history 3.2 The goals and objectives 3.3 The purpose 3.4 The techniques and process 3.5 The benefits 3.6 The problems 3.7 The costs The effectiveness of performance appraisal The case studies 5.1 Introduction 5.2 Case study One: ECU 5.2.1 East Carolina University, US 5.2.2 Company Background 5.2.3 Performance Appraisal at ECU 5.3 Case study Two: A2Z 5.3.1 A2Z Travel, UK 5.3.2 Company Background 5.3.3 Performance Management at A2Z 5.4 Conclusion The conclusion Reference

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THE UNDERSTANDING, THE APPLICATION AND THE EFFECTIVENESS OF

PERFORMANCE APPRAISAL

1.

INTRODUCTION

The purpose of this dissertation is to examine one of the most important aspects of performance measurement: performance appraisal. The aim of the paper is to provide the reader an understanding of performance appraisal system and to give support to the authors beliefs that organisation should adopt performance appraisal system to systematically assess, evaluate, appraise employees performance and at the same time reward, promote and provide training and development opportunity for its employees.

For many organisations, the term performance management is synonymous with performance appraisal (Fletcher, 1993). Indeed, performance appraisal has a central role in performance management systems. Management is essentially concerned with the search for superior organisational or business performance. To achieve this, management will always be interested in getting the job done, and will also be looking for ways to get the right things done well. But management cannot ignore the most valuable asset of the company: people. A company may have the most

advanced and sophisticated machines in place but without the people to operate the machines, the machine is useless and unproductive. Because of this, it is essential that they are treated well in the organisation in accordance with the terms of the employment contract by giving good and reasonable pay package, attractive reward and incentive scheme, appropriate training and development programme for performer and non-performer alike, and other incentives and benefits like housing and education allowance for their children. It is fair to say that good and satisfied

employee will perform better, work harder, work smarter, highly motivated, remain loyal, fully committed and productive to the company. Vroom (1964) described in his expectancy theory that if a person desires a given outcome (valence) they will have high motivation to work toward that outcome if the outcome is associated with other desired outcomes they want (instrumentation) and if they also perceive that their efforts are likely to bring about the initial outcome (expectancy).

To most employers, the performance of employees is a very important cornerstone in developing the effectiveness and success of any organisation (Suliman, 2001). In order to get the desired outcome and good performance from the employees management must understand, manage and improve those aspects of its performance that best enable it to achieve its aims, goals and objectives. In doing so management must from the beginning clarify to the staff and employees the level of performance required to meet their strategic objectives, convert them into unit and individual objectives and manage them continually in order to ensure, not only that they are being achieved but also that they remain relevant and consistent with overall strategic objectives. With a proper performance management system manage by a team of specialised people, an organisation could structure a system that suit their needs, help Human Resource to recruit and select, devise performance appraisal system that will handle the assessment and evaluation of employee performance and provide assistance with developing the employees performance to optimise their human resources in the face of growing competitive pressures.

The single best predictor of overall excellence was a companys ability to attract, motivate and retain talented people (Fortune Study, 1998). The quotation illustrates the importance of good people management from the recruitment and selection to actually having them to perform and contribute to the overall performance of the company. The greater the extent to which the organisation can understand and fulfil employees needs, the greater will be their motivation and commitment and their

potential impact on business success.

On the other hand, employees also need to

understand their roles and responsibilities that can create good performance, relationship and commitment that meet the organisations goals and objectives. An employee has to equip himself with the right skills and expertise required for the job and must make the most of the trust and responsibilities given to him by his employer so that he could prove and perform to the best of his ability for his own benefit and the organisation as a whole.

Measuring human performance has long been of interest to employers, researchers and practitioners (Avery and Murphy, 1998; Bernandan and Beatty, 1984; and Hyde, 2001). The available literatures to date have to some extent helped organisations to better understand and adopt performance appraisal systems in the company. It has also helped management to understand the challenges with objectively measuring behaviour as well as some of the pitfalls associated with employee and supervisor bias in administering performance appraisal. Companies were able to make decision and determine which system is best to use or whether to customise the appropriate system to accommodate the needs of the organisation. Research by Long (1986) shows that the vast majority of organisations already have some kind of appraisal arrangements in place. In practice however, most companies were faced with criticisms and resistance in their effort to introduce or implement performance appraisal system. Indeed, appraisal has become an emotive word partly because it tends to be done rather poorly and partly because in recent years much of the public sector has had performance appraisal thrust on it as a matter of government policy. The wrong system selection, poor understanding and badly managed appraisal system would undoubtedly result in low moral and bad performance of the employee which will in turn affect the bottom line of the company.

1.1 Aims, objectives and methodology of the dissertation The author believes that it is necessary for every organisation both public and private to have some form of mechanism like performance appraisal to manage, monitor, control, reward, train and develop their employees. Companies, no matter what their size, should establish and consistently administer performance appraisal systems that provide feedback to employees regarding skill level, work quality and productivity, and to review the usefulness and appropriateness of the system to the company. To support this view, the author will try to illustrate in this paper the importance of performance appraisal in an organisation by first of all explaining the concept and definitions of performance appraisal. To achieve this aim, the author reviewed the relevant literatures, theories and researches to get a better understanding of performance appraisal. The focus will be on the application of the performance appraisal system, the pitfalls and issues associated with performance appraisal, and how management overcome the problems. It is hope that a general conclusion could be made as to whether the authors views and belief is valid.

Remarkably, despite the poor record of performance appraisal within organisations, it is an accepted part of management orthodoxy that there should be some means by which performance can be measured, monitored and controlled. According to the Institute of Manpower Studies (IMS) now known as the Institute of Employment Studies (IES) survey, Just 20 per cent of respondents had a formal performance management programme. The Institute of Personnel management (1992: 17)

however revealed that 66 per cent had other types of policies to manage employee performance and 14 per cent had no policies at all. The Institute of Personnel Development survey concluded that by 1998 the proportion of organisations claiming to have formal processes had increased to just over two-thirds. No doubt progress

has been made and the essential of performance management especially in the area of

performance appraisal is going to gain momentum especially in the era of globalisation and highly competitive business environment.

As the title of the dissertation suggests, the paper will cover the three areas namely the Understanding, the Application and the Effectiveness of performance appraisal, and for the benefit of the reader it will be presented in six sections as described under dissertation outlines in section 1.2.

The paper will focus and study performance appraisal with emphasis on why companies decided to adopt performance appraisal and how companies select performance appraisal system that fit the needs of the organisation. The paper will also look at the people involve in the process namely the supervisor and the employees. The paper will also look at the problems and issues of performance appraisal system at supervisor and employee level and see how management overcome the problems.

The author has chosen two real case studies namely East Carolina University (USA) and A2Z Travel (UK) to see why and how performance appraisal was applied in these organisations. The purpose of this exercise is to relate it to the literature covered in the earlier part of this paper and most important of all to see whether performance appraisal really is necessary for an organisation as argued by the author.

The research and methodology used in this dissertation consisted of literature reviews from research materials, textbooks, various publications and journals by well-known researchers, academics and writers.

1.2

Dissertation outlines

In this section, the author will introduce the outline of the dissertation which is covered in three main areas, the understanding, the application and the effectiveness of performance appraisal and will be presented in six sections as follows:

Section 1: the introduction In this section the author will introduce the important roles play by an organisation/employer and the employees in ensuring the best performance is adhered to and the desired target is achieved. It will highlight the importance of Performance Management System in helping management to handle Human Resource and performance appraisal system of the company. The section also clarifies the aims and objectives of the paper, and the methodology use by the author to produce this paper.

Section 2: the understanding In this section the author will explain the meaning of performance appraisal and look at among the many definitions of performance appraisal derived from a number of literatures.

Section 3: the application In this section, the author will first of all take a look at the history and development of performance appraisal so that the reader will know the history and background of performance appraisal and see the progress made over the years. The paper will also highlight the goals, purpose, benefits, techniques and process of performance appraisal. The objective is to get to know what process is involved and how and why management decide to choose which system to use. The author is also hoping to be able to get a fair argument from the employer and employees perspectives as to why they object or resist performance appraisal.

Section 4: the effectiveness In this section the author will highlight the problems and costs associated with performance appraisal. The author will also highlight how management overcome the problems and try from time to time to improve performance appraisal system to suit the present environment.

Section 5: case study In this section, the author chose two organisations to see how performance appraisal system is practised in the real world. It would be interesting to see how the two organisations manage their performance appraisal systems. The discussion will start with the background of the company, performance appraisal system and to be followed by the conclusion for each respective company.

Section 6: conclusion Finally in this section, the author will conclude with the summary of the assessment of the validity of the authors view that performance appraisal is necessary for all organisations. It will also include the recommendation going forward.

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2. UNDERSTANDING

In this section the author will look at among the many definitions of performance, appraisal and performance appraisal derived from a number of literatures. The

purpose is to get a better understanding of the words before going further into the essence of performance appraisal.

2.1

Definitions of performance

In reality, the word performance has different meanings for different people. For some the focus may be on financial performance; for others the focus may be policy effectiveness. Some maybe more interested in business process performance, whereas consumers are more interested in the quality of products or with the delivery of services. For students the word performance would obviously mean getting good results, a degree or passing examination. For a Formula One driver, performance would mean standing on the podium and tossing champagne, performing well and winning in every race and to win the driver and also constructions championships.

To understand the meaning of performance in business, it is better to look at performance from both the employer and employee perspectives. Unlike some other

organisational concepts, there is a general agreement among researchers that performance is an important variable in work organisations (Suliman, 2001) From

the employers perspective, he would certainly like to see how his business performs compare to previous year (internal performance) and whether his companys performance is better than his competitors (external performance). A good

management would review the overall performance of the company including the performance of its employees. Obviously, performance can be both good and bad. The performance review or audit will provide a good picture and tell how and why the company perform well or vice versa.

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A company or an employer with good business strategy would have a combination of good management and workforce that has aims and objectives to perform to the best of their ability for the company. An employer can set a reasonable performance target for his employees to achieve at any given time. the performance of employees is a very important cornerstone in developing the effectiveness and success of any organisation (Suliman, 2001). It is vital that organisations must understand, manage and improve those aspects of its performance that best enable it to achieve its aims, goals and objectives. An employer is expected to look after his employee in return for his good performance by giving reward or incentive like promotion, pay increase and bonus. Nowadays these things are handled professionally by the Performance Through performance

Management or the Human Resource Management team.

management, an organisation could develop employees performance by providing continuous training and development programmes to optimise their human resources in the face of growing competitive pressures.

From the employees perspective, performance is what is expected of him from the moment he sign his employment contract with the employer. McEvoy and Cascio (1990) defined performance as an accomplishment of assigned task. He has job descriptions and job responsibilities that will act as some sort of a manual or a guide for him to refer to and to ensure he perform his job satisfactorily and accordingly. Like his employer, he can set his performance target which must be in line with the company overall objectives. He has to carry out his duties, apply his skills, show his potentials and must impress his employer. Performance is those actions or behaviours that are relevant to the organisations goals and that can be measured in terms of each individuals contribution (McEvoy and Cascio, 1990).

To energise employee motivation, McEvoy and Cascio (1990) suggested that the definition of performance should include a description of what is expected of employees, plus the continuous orientation of employees towards effective

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performance.

They argued that performance description include three elements, Performance has to add value to the

namely goals, measures and assessment.

effectiveness of the organisation strategy, reflecting the contribution of individuals and groups. It would be reasonable to say that bad performance can devalue or

portray bad image and reputation to the company which both employer and employee must avoid at all cost.

So both the employer and employee expect something from each other in their working relationship. An employer expects his employee to perform well and the employee has the duty to perform and contribute to the success of the company and expect to be paid and rewarded for his effort and contribution.

2.2

Definitions of appraisal

The author believes that appraisal cannot be treated in isolation from performance. From the employers perspective, appraisal is how he assesses his employees performance measured against the performance standard set by the company and agreed by the employees. The most cited purpose of appraisal is to enable assessment of an appraisee (Fletcher, 1993). An important part of appraisal process is

assessment, whereby data on an individuals past and current work behaviour and performance are collected and reviewed. In other words, appraisal can act as an information-processing system, providing vital data for rational objective and efficient decision-making related to improving performance, identifying training needs and employees overall capabilities and potential, managing careers and setting levels of reward. Appraisal can be used to develop staff and maximise their potential and can become useful to the organisation to determine how individual are operating within the requirements of the organisations terms and conditions of employment (Bratton and Gold, 2003).

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From the employee perspective, knowing that his every single move and performance is monitored and assessed, a good employee would take every opportunity to prove that he is worth every single penny to the company. He would make sure that he perform to his best ability and expect to be assessed fairly and accordingly, and expect to be rewarded for his contribution (Vroom, 1964). It is therefore important that a carefully structured system of appraisal is in place for the benefit of both parties because without a structured appraisal system, there is little chance of ensuring that the judgements made will be lawful, fair, defensible and accurate and that this will affect the company overall performance.

2.3 Definitions of performance appraisal Performance appraisal is also known or called by many names including performance review, performance evaluation, personnel rating, merit rating, employee appraisal or employee evaluation. The terminology varies from organisation to organisation

strategic measures, critical success factors, performance indicators, key indices but the intention is generally similar. The aim is to underpin all work activities with measures that enable the organisation to assess whether employees are performing effectively and how their performance can be improved. There are many literatures on the definitions of performance appraisal by various authors and researchers in this field. The good thing about this development is that management were able to adopt new approach to performance appraisal systems that would suit and contribute to the companys overall performance. One of the definitions of performance appraisal is that it is a personnel decision that affects the status of employee regarding their intention, termination, promotion, transfer, salary increase or decrease, or admission into a training program. The way

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in which performance appraisal systems are used may significantly affect morale and organisational climate. Winston and Creamer (1997) defined performance appraisal as an organisational system comprising deliberate processes for determining staff accomplishments to improve staff effectiveness. They believed performance appraisal can be viewed as the process of assessing and recording staff performance for the purpose of making judgements about staff that lead to decisions. It is also seen as a system of highly interactive processes which involve personnel at all levels in differing degrees in determining job expectations, writing job descriptions, selecting relevant appraisal criteria, developing assessment tools and procedures, and collecting interpreting, and reporting results. Performance appraisal was also defined as a structured formal interaction between employee and manager that usually takes the form of a periodic interview, in which the work performance of the employee is examined and discussed, with a view to identifying weaknesses and strengths as well as opportunities for improvement and skills development. Performance appraisal is based on results obtained by the

employee in his job, not on employees personality characteristics (Bratton and Gold, 2003). Like many other people management concept such as organisational commitment, performance appraisal is subordinated under a notion of the individual as resource, to be drawn on and used to the full, much like machinery (Ramsey 1991; Coates 1992). In this, performance appraisal stresses both employer and employee should focus on the complementary purpose of the organisations furtherance. On the one hand individuals are a potential business resource through the enhancement of their personal skills. While on the other, they are seen as any other investment in

equipment (cf. Cutler 1992).

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Flowers (1979) stated that the productivity of all individuals is measurable to some extent. If an objective measurement is impossible, a subjective measurement is

attempted, perhaps comparing one individual with another. The measurement of individuals is vital to good personnel administration and management and it must be accepted as part of employment. The rating or evaluation of one person by another is as old as mankind itself. It is a natural phenomenon with the sense that individuals continually judge others by what they say, what they do and how they affect other people. This process applies not only to work situations but also to all facets of life (Bourne, Hill and Mitcheson, 1982). Clearly from the number of definitions above, the message is that performance appraisal is a system or process that a company or an employer use to assess employee performance measured against the performance standard set and agreed from the very beginning. Both parties are aware and agreed to the conditions of the performance standard to be achieved and an employee know that he would be rewarded for achieving the standard or desired goals and/or will be trained and developed to prepare him to reach the target and level expected of him. An employer could use his power to remind or warn his employee if he did not perform after being given the proper training and development programme. Performance appraisal also helps company to plan their human resource needs in terms of number of employees sufficient to run their business, the level of expertise and specialist, training needs and development programme, salary scale and benefits, and other human resource issues.

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3.

APPLICATION

Having defined the word performance appraisal it is time to look into detail the history and development of performance appraisal and to see the progress made over the years. This section will also highlight the goals, purpose, benefits, techniques and process of performance appraisal to know the process involve and how and why management decide to choose which system to use, and to get a fair argument from different perspectives to see why some object or resist performance appraisal.

3.1

The history

In order to understand present performance appraisal practices and to see what the future of performance appraisal would be, it is interesting therefore to look back at how performance appraisal has evolved in the past. In other words, to comprehend how and why ideas and techniques in the field of appraisal evolved in the way they did (Fletcher and Williams, 1992). This is made possible by the contributions from many literatures and researches by academic writers in this area of study.

There is evidence in the history of performance appraisal that suggests formal performance appraisal began to appear and used in the evaluation of work performance as early as in the 20th century from the time of the First World War initiated by American rather than a British phenomenon (Fletcher and Williams, 1992). Initially, in the US, organisation used performance appraisal as a measure to raise the morale of the workforce, the assumption being that high morale led to high productivity a motion reinforced by Hawthorne studies in 1920s.

But the introduction of performance appraisal in the 1920s and 1930s was limited mainly to managers and how to identify those amongst them who had potential for development. In the 1950s the potential usefulness of appraisal as tool for motivation

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and development was gradually recognized and the number of companies using performance appraisal programs has risen since then (Fletcher and Williams, 1992).

Hale and Whitlam (2000) claimed that as with many human resource systems, performance appraisal systems evolved out of a perceived requirement to institutionalize and centralize good human resource management practise. The

systems were set up in order to aid corporate decision-making, particularly for the purposes of salary review and promotion. The assumption was that line managers concentrated on their line activities and the human resource manager was interested in the people aspects of management. This led to the disempowering of the line

manager and the abdication of good people management practices to the human resource department.

After a while, the trend has moved back to empowerment and decentralisation where the role of the human resource manager in many organisations is geared towards facilitating, coordinating, identifying and spreading good practice (Fletcher and Williams, 1992).

In the 1960s it was realised that a more systematic approach ought to be used and hence the introduction and development of a number of performance appraisal techniques including the popular technique called the management by objectives (MBO). But although very logical in design, the systems were less successful in

practise because it was implemented mechanistically and that objectives were imposed on subordinates from above. Critics to MBO argue that the style was judgemental, and feedback would be given without the right to reply. By the end of 1960s, performance appraisal was generally seen as a more participative, problemsolving process concentrated on task performance rather than personality (Fletcher and Williams, 1992; Bratton and Gold, 2003).

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The following decade saw a number of more specific development and an even greater shift towards openness and participation in appraisal, reflecting changes in society as a whole. Belief about the nature of human abilities, theories of motivation, trade union concerns, government legislation and changing social attitudes have all influenced and modified performance appraisal process (Fletcher and Williams, 1992).

During the 1990s the evident difficulties of assessment and appraisal as isolated activities resulted in growing shift in performance management and the need to link the requirement of business strategy to all employees (Fletcher and William, 1992; Bratton and Gold, 2003). Hence the performance measurement system like Balance Score Card (BSC) introduced by Norton D.P and Kaplan R.S. (1992) come to fore and becoming popular and used by many large organisations globally to measure the overall extensive performance of a company including performance appraisal.

Unlike earlier performance appraisal systems where the application of the systems limited to the managers, there were trends to broaden the application of performance appraisal systems to employees in most job roles, and making performance appraisal much more than a top-down only process. It is commonly accepted that performance appraisal is more effective if an appraisee have more involvement in the review of his own performance (Hale and Whitlam, 2000). Moreover, with the development in upward appraisal, whereby the subordinate actually appraises the performance of the boss, performance appraisal has become even more democratised.

Some observations on the development of performance appraisal practice concluded that the changes that taken place in the field of performance appraisal illustrate the fact that activity in this area reflect wider changes in societies as a whole. As societies have become more open and less rigid, so has performance appraisal. Performance appraisal has developed from becoming the sole concern of top

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management to being something that the appraisees, the trade unions, the government have a say in (Fletcher and Williams, 1992; Bratton and Gold, 2003).

3.2 The goals and objectives The fundamental goal of a performance appraisal system is to deliver for the organisation those levels of performance that ensure that the organisation reaches all of its goals and objectives (Lawson, 1995). The goals vary from organisation to organisation depending on the needs, strategy, organisation structure, performance appraisal system and resources. It is possible to identify two general goals that can be achieved by means of performance appraisal: administrative and behavioural. On the administrative side, the process can supply the documentation on which to base decisions regarding individual employees including promotions, salary increases, transfers and dismissals. Behavioural goals relate to the question of how well the

individual performs assigned tasks and what can be done to improve performance (Evans, 1975; Tznier, 1993). According to the report by the Committee on Performance Appraisal for Merit and Pay (1991) performance appraisal has two ostensible goals: to create a measure that accurately assesses the level of a persons performance in a job and to create an evaluation system that will advance one or more operational functions in an organisation. It is therefore essential that those involved in the appraisal understand these goals from the early design stage up to the implementation stage. They argue that these two goals are represented in the literature by two distinct approaches to theory and research. First, the measurement tradition emphasizes standardisation and objective measurement. Second, the applied tradition emphasizes the organisational context and the usefulness of performance appraisal for promoting communication, clarifying organisational goals, informing pay-based decisions, and motivating employees.

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These goals are broken down into departmental or team goals that show how each will contribute to the overall organisation goals. Objectives are then created for each position and show how they will contribute to the overall team goals. The performance of individuals against these objectives will be reviewed on regular basis and will determine whether the organisation meets its goals. Management will

determine to reward employees for objectives met and exceeded, and to determine which objectives were not met and to develop action plans to ensure they are achieved in the future. Among the reasons for many failures of performance appraisal were no clear direction, no mission and corporate vision, inappropriate action plan, inadequate preliminary discussion and consultation with managers and everyone involved in the performance appraisal exercise (Fletcher and Williams, 1992). It is therefore very important that the goals and objectives of the performance appraisal are spelt out clearly and shared among the staff and employees. As the author will show in later section 3.6 and in the ECU case study, one of the reasons for the performance appraisal to be ineffective is that staff and employees were not inform of the objectives, tools, policy and procedures of the system.

3.3

The purpose

As was already mentioned earlier, company uses performance appraisal to assess its employee performance. Traditional measurement theory is concerned almost

exclusively with assessment. Assessment need not imply any contingent rewards or punishments for high or low scores, either intrinsic or extrinsic, nor is it intended to have an impact upon the level of performance of the individuals or institutions being evaluated.

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In the process, managers will get feedback from the employees and vice versa. A good performance appraisal system could improve the performance of the staff through feedback and development plans, give employees a clearer understanding of performance standard, and improved communication between employees and their managers. The goal of feedback is the shaping of desired performance through the immediate receipt of intrinsic rewards contingent upon success (Vroom, 1964). Where skilfully employed, feedback of performance evaluations can produce high levels of motivation and of desirable performance behaviour (Vroom, 1964; Fletcher, 1997). This is particularly effective, if individual employee is given or promised promotion and rewards for excellent performance. Fletcher (1993) suggest that performance appraisal provides the basis for assessing and making decisions in a number of key areas: improving the performance of individuals by linking their objectives to business objectives; motivating employees to perform better in the future through encouragement; succession planning and identifying potential for future development and growth of individuals and the organisation; the assessment of unsatisfactory performance; and the making of reward decisions about individuals pay bonuses and other forms of remuneration.

As with the case of goals and objectives, the company should know and made known the purpose of performance appraisal to all those involve in the performance appraisal so that they clearly understand the motive behind the system so as to avoid misunderstanding and grievances. Performance appraisal is to help employees to improve and thus to improve organisational effectiveness. Performance appraisal therefore should address the companys needs as well as employees needs, abilities, motivation and expectations of both employer and employees.

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3.4

The techniques and process

The performance appraisal process may be seen as a key sub-process of the wider performance management process. Before a company decide to embark on a

performance appraisal system, a proper study of the needs of the organisation has to be carried out which include to find out which appraisal technique/s to be used in the process. It is important so that when the system is launched the company is well prepared and know the right appraisal technique or a combination of appraisal methods are used accordingly without any difficulties.

The appraisal techniques used vary depending on the size and the objectives of the organisation. Research suggests that the best option is to identify appraisal in terms of development and motivation. This satisfies the need to be acceptable to appraiser and appraisees, fits in with organisational strategy of improving performance and appraisal becomes a device for assessing individuals relative to their peers (Fletcher, 1993)

Over the years, companies that used performance appraisal systems have used many approaches to performance appraisal ranging from relatively simple techniques, such as ranking and traits rating, to more complex and elaborate methods, such as behaviourally anchored rating scales. The most commonly used and best-known performance appraisal techniques include essay appraisal, graphic rating scale, field review, forced-choice rating, 360-degree, critical incident appraisal, MBOs, workstandards approach, ranking methods, and assessment centres. Each of these has its own combination of strengths and weaknesses, and some are more complex than others. The techniques also vary between those that emphasize the past, for example rating and ranking techniques, and those that also focus on the future, such as management by objectives (MBO) (Snape, Thompson, Yan and Redman, 1998).

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The different approaches to appraisal have their advantages and disadvantages, and achieve different things. The temptation for many organisations is to try and combine elements of the different approaches within the same scheme, in the hope that they will fulfil all the purposes they see for appraisal. The result is typically an appraisal scheme that has objective setting alongside ratings of performance. Experience

suggests that it is not a happy compromise, and that it does not overcome the contradictions and conflicts (Snape, Thompson, Yan and Redman, 1998).

The essay appraisal and numerical rating and scoring techniques are the most common performance appraisal technique used by many organisations because it can be extremely valuable so long as the system is simple to understand and that the score rating increments is clear and easy to interpret. Very often, the following rating categories are employed: Highly Successful, Fully Successful, Making Progress and Unsatisfactory. Different companies use different approach to preparing the

questionnaires from merely a-one page to a couple of pages.

Another popular performance appraisal technique is known as 360-degree appraisal system (Ward, 1997). This system as the name applies, serves to evaluate and

provide feedback on the performance of individuals in an organisation from an all round perspective such as superiors, peers, subordinates and sometimes, even customers. The system has become popular in the past few years and being used by many of the Fortune 500 companies in the US like Intel and Hewlett-Packard. From literature, it seems that the success rate and feedback received so far has been excellent and companies in the US which are using the 360-degree system say it boosts productivity by giving workers a more accurate sense of their personal strengths and weaknesses. But although 360-degree system is a powerful form of appraisal, the drawback is that the feedback tends to be quite time-consuming and administratively complex, normally limiting its use to the upper end of the organisational structure.

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It is fair to say that the success of any performance appraisal program that uses the available techniques will largely depend on how they are used relative to the goals of that program. The most important factor is the selection of the right systems that fit well with the goal and strategy of the organisation. It must be acceptable and

understood by all involved in the preparation and the application of the systems. The whole process must be fair, easy to operate, free from bias (although this is not easy), consistent, practical and reliable. It must be an on-going process where everyone is willing and look forward to participate, to be assessed and to provide feedback.

Nowadays companies can take advantage of an increasing number of professionals and consultants providing professional services, training and software in this field. They provide services ranging from advisory, consultancy, in-house training to designing the right system for the companies. The most widely considered appraisal systems use the immediate supervisor as the appraiser. The advocates of immediate-supervisor-performance-ratings (ISPR)

approach argue that the immediate supervisor has an adequate opportunity to observe employee performance over a reasonable period of time, and this makes him capable of producing accurate and objective ratings. According to McEvoy and Cascio

(1990) if appraisal is done at all, it will probably be done by the immediate supervisor. He or she probably most familiar with the individuals performance and in most jobs has had the best opportunity to observe actual job performance. Furthermore, the immediate supervisor is probably best able to relate the individuals performance to the departmental and organisational objectives.

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3.5 The benefits

Performance appraisal systems are generally regarded as a necessary part of the organisations management system because of the widely accepted benefits. Strong advocates of performance appraisal view it as potentially the most crucial aspect of organizational life. Performance appraisal could benefit an organisation and

employees in a number of ways such as an increase in staff self-esteem and staff motivation to perform effectively; management could gain new insight into staff and supervisors; job functions and responsibilities are clearly defined; performance appraisal also could develop valuable communication between employees and managers; performance appraisal also could encourage increased self-understanding of performance standard among staff as well as insight into the kind of development activities that are of value; performance appraisal too could distribute rewards on a fair and credible basis; the organisational goals can be readily accepted, and finally performance appraisal could improve institutional/departmental manpower planning, test validation, and development of training programs (Mohrman, Resnick-West and Lawler, 1989).

Performance appraisal can also help to improve employees job performance by identifying strengths and weaknesses and determining how their strengths can be best utilised within the organisation and weaknesses overcome. Performance appraisal also can provide information for Human resource planning to assist succession planning and to determine the suitability of employees for promotion (Armstrong, 1998). The most effective companies know that their continued success depends upon constantly assessing performance of the employees and the organisation as a whole. Many organisations already have some system of feedback in place, usually in the form of formal annual appraisals but few are actually realising the full potential and benefits of the process. In addition, through over reliance on formal annual reviews,

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many companies are missing out on the benefits of timely, more informal on-the-spot feedback that can often resolve a situation before it develops into a major issue. As can be seen from the list of benefits mentioned here, no doubt performance appraisal when properly planned and structured will become a very important part of an organisation.

3.6

The problems

Despite the potential benefits performance appraisal system can offer to a company, management acknowledge that performance appraisals are inherently problematic. But still management are committed to adopt performance appraisal and have tried to develop and improve new system although statistically fewer have succeeded in translating them into convincing measures of performance across the organisation. Perhaps the reason why companies still continue to exercise performance appraisal is because performance appraisal has become an unquestioned fact of life in most large organisations (Nickols, 2000). Brown (2005) argues that there has to be a perception of some need for change; this point is widely accepted in the literature on goal and cultural change. (EFF) A survey in 2004 conducted by Conference Board of Canada of more than 48,000 employees, managers and CEOs from 126 organisations in the USA found that just 13% of employees and managers and only six percent of CEOs say their organisations performance appraisal system is useful (Brown, 2005). Most people think performance management systems failed to add much value. Many CEOs believe the flaw in performance management lies with line managers, not the systems said Prem Benimandu, Vice President, organisational performance at the Conference Board of Canada.

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Performance appraisal involves a great deal of interaction between human beings: managers, supervisors and employees. As already mentioned in earlier sections

performance appraisal is an assessment of employees which is based on personal judgement and is very often subjective in nature. Therefore, very often performance appraisal has become problematic if it is not properly planned and structured. Performance appraisal needs not be carried out based on personal feeling, bias and favouritism. Another problem with performance appraisal is that it takes up a lot of time and money and energy although on the other hand, they supposedly provide benefits that offset these costs. A company have to make a thorough research and study before they launch an appraisal system. It will involve all the departments in the company and some even use the service of professional consultant to advise them to set up a system which can be very costly and time consuming as can be seen in one of the case studies in later section.

Another factor that led to the ineffective of performance appraisal is that in reality many companies often select indiscriminately from the wide selection of performance appraisal techniques without really thinking about which particular technique is best suited to a particular appraisal objective. As a result, a wrong assessment criteria is applied that led to resistance by unsatisfied employees. The difficulty also occurs however, when, as with most organisations, there is an intention of creating meritocracy. If someone is performing well and this is agreed through performance appraisal, and successful performance is rewarded through the remuneration and reward system, then there is naturally a link. For this reason, a number of organisations now create time distance between the appraisal and the pay review, whilst accepting that there is a connection between the two.

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One of the biggest areas of debate regarding performance appraisal is its link with pay. The advocates of Performance-Related-Pay (PRP) believe that if there is a direct link between the appraisal interview and the salary review then seeking to achieve a developmental and open discussion with the appraisee regarding strengths and weaknesses can be difficult. Because if by admitting to weaknesses could mean a smaller pay rise, an appraisee might consider it prudent to keep quiet at this stage. Enica (2001) described how experts in performance appraisal have often suggested that performance appraisal should not be tied to decisions about pay raises. They argued that when performance appraisals are tied to pay raises, employees are more defensive and less open to change. Research by Meyer (1965) seemed to support these conclusions and indicated that more could be achieved if appraisal was kept separate from pay and was tied to goal-setting. Much of the research into pay and motivation suggests that money itself is in fact less of a motivator than we may have assumed in the past (Vroom, 1964). Money

motivates in so far as it allows individual employee to meet their needs (recognition, achievement or personal development). More important is the de-motivational effect of an individual feeling that they are under-rewarded compared to others in their work group or organisation. This suggests a real need to ensure that the reward system, however closely linked to performance appraisal, is seen to be implemented in a fair, equitable and defensible way. In many organisations there is concern about the hidden agenda that may underlie the introduction of more systematic forms of performance appraisal. It is perceived as a prelude to a range of more threatening developments privatisation, cost cutting, or staffing reductions. Often, of course, such concern is justified. The desire to improve performance appraisal may well be part of a much wider drive towards improved organisational performance in a number of areas. Another common perception about performance appraisal is that it is a threatening concept in its own right. As measures

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are introduced, employees may feel that the very basis of their contribution to the organisation is being questioned. There is however strong argument which claims that performance appraisal must unequivocally be linked to reward outcomes. The advocates of this approach say that organizations must have a process by which rewards - which are not an unlimited resource - may be openly and fairly distributed to those most deserving on the basis of merit, effort and results. It is fair to say that in reality there are people that are

motivated by reward money, promotion and other form of incentives. Another concern expressed by researchers and management commentators is the validity and reliability of performance appraisal. They have suggested that the

process is so inherently flawed that is maybe impossible to perfect it. In practice the performance appraisal process often proves highly problematic simply because appraisals are judgemental. Many managers dislike appraising because they are

called upon to act as judges. They dislike the role which requires distancing which many managers find discomforting. Appraisal is very subjective - the process of setting individual goals is a very subjective one as is the process of interpreting goal accomplishment. McGregor (1960) reported that the key reason why appraisal failed was that managers disliked making judgements about an employees contribution, value, worth, capability and potential has to be considered as a vital dimension of a managers relationship with employees. There is always a danger in any situation when a manager has to provide feedback to employees that the outcome will be demotivated employees. It is vital that managers need to be trained and taught on how to do appraisal properly, how to conduct interview, which appraisal technique to use, how to judge and evaluate appraisee, how to make proper assessment and how to communicate skilfully and effectively. As can be seen later, the problem with

performance appraisal is not the system but the people.

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In the past there has been much emphasis placed on using a numerical rating system and it is now accepted by many organisations that numerical scoring can be extremely valuable so long as the system is simple to understand and it is clear how the score rating increments should actually be interpreted. The problems arise where

employees are rated by manager in different way maybe bias or have incomplete view of their work. There needs to be clarity as to how rating differs, and this must be clearly explained to assessors and those being appraised. Another problem associated with performance appraisal is regarding personal values, bias rater carelessness which can replace organizational standards. A manager may not lack standards, but the standards he uses are sometimes the wrong ones and for political and personal reasons. For example, unfairly low ratings may be given to valued employees so they will not be promoted out of his department. More often, however, outright bias dictates favoured treatment for some employees. Wildblood (no date) sighted two main reasons why performance appraisals tend not to work. Firstly, the bad design of the performance appraisal system, Walters (1995) sighted the problem with the performance appraisal arise not because of problems with the handling of individual performance measures, but because too little effort has been made to understand organisational priorities and dilemmas, and secondly the underlying poor relationship between the supervisor and the employee.

Performance appraisal systems are at the heart of effective two way business relationships between manager and employee. At least they should be if they are carried out with the right approach and with the appropriate degree of commitment by all parties involved. Unfortunately, the underlying relationship between manager and employee is often quite poor. Performance shortfalls by employees have not been picked up or spoken about. The manager has omitted actions which could have done to better support employees. Possibly because of this, most traditional performance appraisals are no better than the manager's off-the-cuff judgements - the focus is on

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blame rather than on helping the employee assume responsibility for improvement (Encina, 2001). To improve relationship and in addition to the formal review and meeting, a frequent and informal review and feedback is recommended to build good working relationship to release tension and make the review more relax (Ilgen, D.R., Fischer, C.D., & Taylor S.M., 1979). Rigg (1992) said that traditional performance appraisal methods damage teamwork because of the focus on supervisors evaluating individuals; they may strip people of their sense of control." Rigg also said that evaluations should provide feedback to individuals so problems may be corrected and higher performance can be rewarded. While large companies almost always have a formalised review process, many smaller to mid-sized companies have a less structured system, sometimes leaving it up to individual managers as to conduct an employee performance appraisal. As a result, managers who are uncomfortable with conflict often fail to accurately address an employees shortcomings until the problem get out of hand. But companies, no matter what their size, should establish and consistently administer performance appraisal systems that provide feedback to employees regarding skill level, work quality and productivity. Not all organisations work to a profit motive for example charities and voluntary bodies, and therefore may not have the facility to reward individuals financially on the basis of performance, nor may they wish to do so. The problems mentioned represent a formidable challenge, even considering the available battery of appraisal techniques. But attempting to avoid these pitfalls by doing away with appraisals themselves will not solve the problems. The more logical task is to identify those appraisal practices that are (a) most likely to achieve a particular objective and (b) least vulnerable to the obstacles. In practice, Professor Oberg (Oberg) from the Graduate School of Business Administration, Michigan State University pointed out that formal performance

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appraisal systems have often yielded unsatisfactory and disappointing results. Oberg added that some critics even suggest that organisation should abandon performance appraisal due to the scores of problems. The author acknowledged the problems highlighted here did not deter company to carry out performance appraisal in their respective organisation simply because these problems can be tackled and solve by the company by tracing back the cause and roots of the problem which normally is the people and not the system.

3.7

The costs

The reasons performance appraisal systems fail to provide the benefits claimed for them seem firmly rooted in the nature of organisations and the behaviour of people. Costs of introducing and implementing performance appraisals are much more difficult to quantify. The costs could be extraordinary and many of the supposed benefits cited do not withstand serious scrutiny. The costs consist chiefly of the

direct and indirect expenses associated with activities such as preparing appraisals, setting goals and objectives, conducting interim and annual performance reviews, reviewing at higher levels appraisals written at lower levels, designing, printing, copying, filing, and distributing appraisal forms, designing and communicating the appraisal process, and handling post-appraisal appeals, grievances, and lawsuits The interpretation of costs therefore could be linked to how successful and vice versa the system is implemented. The whole process of performance appraisal begins from the planning, inception and the implementation. If the system succeeds the whole organisation benefit and if it failed, the organisation will suffer in terms of high turnover, low morale and poor performance. Costly performance appraisal systems can become beneficial to corporation and many familiar pitfalls of performance

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appraisal programs can be avoided if management take appropriate steps and the matching efforts effectively (Oberg, no date) There have for many years been attempts to account for the value of people in organisations, the main focus having been how to develop models to measure the cost and values of people. One consequences of this was that there was a tendency to treat people in financial terms putting people on the balance sheet.

Smart companies could save money by engaging professional consultant to design and customise performance appraisal system for their companies like in the case of A2Z Travel which will be discussed in section 5. It may be expensive to the

companies but will be beneficial to the companies in the long term.

4. EFFECTIVENESS
In this section the author will highlight the problems and costs associated with performance appraisal and how management overcome and improve performance appraisal system to suit the present environment. Most important of all, is

performance appraisal really necessary for every organisation as the author have suggested? Perhaps similar to the argument on measuring cost, it is not easy to measure the effectiveness of performance appraisal. It all depends on the objective set by the company at the very beginning and how serious and committed the company about carrying out the performance appraisal system. As the author outlined earlier, there are companies that engaged performance appraisal seriously by engaging professional consultant and spent a lot of money on designing and implementing a custom-made system and there are those who just wanted to have appraisal system in place so that

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not to be seen as out of touch with progress and/ or just to fulfil the company requirement. The effectiveness of a system depends on the degree of effort put in by management to the introduction and implementation of a system. To start with management must be well-prepared and install a system that is going to work efficiently and effectively. It is useless in trying to measure the effectiveness of a system if management know it is not going to work for the company. This includes among other things choosing the right appraisal technique, provide training to managers and employees on the appraisal system, telling employees of the policy and procedures and adopt an open and fair system which is acceptable by both parties. And it is also important that continuous monitoring of the system is carried out. Employees should be introduced to new system perhaps by using pilot programs. If an organisation cannot effectively control the diverse agendas of its managers and employees then there is increased potential in producing biased data regarding employee performance. This argument is supported by Performance appraisal systems are at the heart of effective two-way business relationships between team leaders and their team members. If an appraisal system is to be of any value to organisation, it must be of use to them in achieving their short and long term strategic objectives (Wildblood, no date). Effective performance appraisal system depends upon a precise understanding of performance, in all its aspects and in all parts of the organisation and its processes. In many organisations, managers are now striving to evaluate performance at many levels, including the contribution to the achievement of strategic objectives; the measures of quality; quantity and volume; efficiency and value for money, and the measures of external and internal customer satisfaction. An employer makes

judgements about the effectiveness of employees with reference to what they accomplish the result they achieve, the output they produce. And Ilgen and

Schneider write in similar term Performance is what the person or system does. Performance measurement is the quantification of what was done, and performance

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evaluation is the attachment of a judgement of the value or quality of the quantified performance measurement (1991). Performance appraisal systems can be made considerably more effective if management will fit practice to purpose when setting goals and selecting performance appraisal techniques to achieve them (Oberg, no date). So to ensure performance appraisal system is successful, objectives need to be measurable and clearly stated. The process must be open and fair conducted by skilful and with quality manager, recognise productivity through rewards, and must also include workable formats that avoid biases like giving preferential treatment to some but not all staff, rating all staff the same, being overly lenient or overly harsh toward some or all staff, and practising conscious and unconscious racial or gender prejudice. Research shows that the

measures and systems we now have are not free from bias (Cleveland & Murphy, 1992; Dewberry, 2001; Scott & Einstein, 2001; and Lam & Schaubroeck, 1999). The effectiveness of employees is likely to be limited if they are not motivated to perform. One of the means that organisation can use to enhance employee motivation and performance is to provide performance-related compensation. A reward and compensation system is based on the expectancy theory (Vroom, 1964), which suggests that employees are more likely to be motivated to perform when they perceive that there is a strong link between their performance and the reward they receive (Fey and Bjorkman, 2001; Guest, 2002; Mendonca, 2002). In other words, the compensation system contributes to performance by linking the interests of employees to those teams and the organisation, thereby enhancing effort and performance (Kalleberg and Moody, 1994; Huselid, 1995; Kling, 1995). Anthony et al., (1993) cited that the design and implementation of a compensation system are important to the achievement of an organisations goals.

Several studies have revealed the positive effects of reward and incentive systems on organisation performance. Banker and Lees (1996) Empirical Research which s

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based on data of 34 major retail stores support the theoretical prediction that stores that implement an incentive plan will experience a positive impact on sales, profit and customer satisfaction. Another study conducted by Kalleberg and Moody (1994) based on data collected from the US National Organisational Study also found that profit sharing is positively correlated with product quality, product development, profit, customer satisfaction and growth in sales.

Nevertheless, some scholars suggest that performance-linked compensation practices have their drawbacks. The findings of Decis (1976) research show that monetary rewards do not always increase peoples motivation to perform. He indicates that contingent monetary payments are an extrinsic control system that makes people less willing to perform in the absence of external rewards, as monetary rewards has been perceived as the reason for performing tasks. By contrast, intrinsic rewards, such as positive feedback, praise, interpersonal supportiveness, motivate people to perform through ego-involvement and a desire to perform competently (Deci, 1976). Lawler (1983) also indicates that performance-linked monetary rewards are based on extrinsic rather than intrinsic rewards, which might have a negative impact on workforce stability and a companys long-term development.

Although there is no single right way to structure an effective appraisal system, it is interesting to note that from the literature reviews, the author sums up that effective performance appraisal programs do share some common elements such as periodic reviews, consistency, clear identification of measurement standards and objective measurement regarding whether the employees is meeting performance standards.

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5. Case Studies

5.1 Introduction
In this section, the author is going to explore real case studies from two different organisations that adopted performance appraisal. The case studies under review were East Carolina University, US (ECU) and A2Z Travel, UK (A2Z). ECU case study was obtained from an article published on the internet written by Mani B.G. (no date). A2Z is a case study published in a book by Walters, M. (1995). Broadly speaking, the main objective is to see why ECU and A2Z employ performance appraisal in their respective organisation and what drive them to use performance appraisal system to appraise and develop their employees. The other main aim is to see how performance appraisal system is practised in the real world, what path is chosen by ECU andA2Z in implementing the system, are they serious and really practising the appraisal system, what are their preparations?, What are their planning towards creating and implementing the appraisal system?, What do

they benefit from having performance appraisal system?, What do the employees think of the system?, How useful performance appraisal system is to the two organisations under review?, Does it give support to the authors argument that performance appraisal is a necessity for an organisation?, What are the lessons that can be learnt from their experiences?, How they handled the problems if any?, What were the development and training program, rewards and incentives program available to their employees. It is hope that by the end of the case studies the reader would be able to understand the concept, to get greater understanding of whether performance appraisal system is useful or does it add value to the companies under review,

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However, it is noteworthy to mention here that during the research on the two organisations, the author encountered several shortcomings. One of the obvious problems is for example the reliability of data and information. Initially the reason why the author chose the two organisations was that since both started to use performance appraisal in the mid 1990s, the author believes that by now the author could follow the progress made by these two companies. However, as in the case of A2Z, the author found that most part of the case only relates to the initial preparation towards implementing the performance management system and performance appraisal. The author could not tell whether the implementation has been useful or effective because there is no information available in that perspective which relate to the next problem experienced by the author during the review that is accessibility and communication. The author could not get the relevant and the most updated data from the companies. So the author have to rely on the available source of information for the research review, the author has to rely on the out of date information and therefore could not comment on the latest development or progress made by the two organisations under review. During the review and analysis of the companies, the author had to make a number of assumptions because of the way the cases were presented. formats, layouts and styles of presentations. They have different

They also have different business

background (private and public sector), different stages of system implementation and different sizes. But the message and objectives are similar, that is they all want to have performance appraisal system in place as a mean of assessing, measuring and evaluating staff performance. Brown (2005) argues that there has to be a perception of some need for change. Therefore, the author decided to analyse and treat the cases separately in order to get a better understanding of the individual cases starting with the company background, the performance appraisal system in place, the objectives, the implementation and the authors comment on both case studies at the end of the section.

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5.2

Case study One:

5.2.1

East Carolina University, US (ECU)

The case study is based on an article entitled Performance Appraisal Systems, Productivity, and Motivation: A Case Study by Mani B. G.. The paper explores employees and administrators perceptions of a performance appraisal system specifically designed to appraise performance of North Carolina Subject to the Personal Act (SPA) employees at East Carolina University.

5.2.2 Company background ECU is an established and reputable university in the USA. ECU is run by the Board of Trustee and academic staff. ECU offers a wide variety of academic courses incampus and off-campus. ECU employs academic professionals and normal staff engaged in various faculties and departments in the university.

5.2.3 Performance Appraisal at ECU The performance management at ECU was implemented in 1993. The objectives for the program were to motivate and reward meritorious performance, to support fair and equitable personnel decisions, to give input to top level managers who develop and monitor implementation of the universitys goals, to connect employee performance to accomplishment of the universitys goals, and to enhance the performance measurement and communication processes for employees and supervisors.

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ECU adopted a performance appraisal system which starts with a process where managers and employees prepare and agree to a work and development plan. The

Key Responsibilities and Results (KRR), dimensions and behavioural expectations and criteria standards for performance measurement are prescribed and clarified. Although they maybe expressed differently for different jobs but the basic areas of measurement for all jobs are quality, quantity, cost and timeliness. The assessment of an individual employee is done by the immediate manager and the employee is given rating - outstanding, very good, below good and unsatisfactory. To ensure feedback for maintaining or improving productivity, two documented semi-annual feedback sessions are required with informal feedback session on individual employees needs.

A survey was conducted by the ECU to find out whether performance appraisal system at ECU is effective in trying to motivate people to work harder by linking performance to pay. The questionnaires were designed by the a group of Master degree students from the university. The theme of the questionnaires was focussed on the perceptions of the fairness, trust and satisfaction between supervisors and employees and does the performance management system motivate the employee to work harder. Four out of the twenty job classifications were involved in the survey representing the whole ECU workforce. The survey was done through meetings with the employees.

Among the findings from the survey was that the majority of employees believe ECU policies and procedures were not fully understood due to communication problems. About two thirds of the employees surveyed believe that ECU needs to improve communication of policies and procedures. The system doomed to fail if the

employees are not fully aware or are not clear about the organisation policies and procedures. To be effective, ECU must communicate effectively the goals,

objectives, the policies and procedures that is what the system want to achieve.

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In response to the question of fairness of the system, only 36 percent of the employees believe that ECU system is fair. Those employees that think the system is unfair argue that too much ECU policies and procedures are left to the supervisors discretion and therefore subjective and judgemental. About 40 percent were dissatisfied with the system and did not trust their supervisors. The reason for the dissatisfaction was when they perceive that some employees receive high ratings when they do not deserve them. Dissatisfaction also occur when some employees that received high ratings but have not received monetary rewards from ECU.

The other important finding is that whether the performance management system motivate the employees? Interestingly, the result shows that employees were self motivated by the enjoyment at work and not related to the system at all. Pay is both the motivator for employees and the supervisors but because of the lack of funding to reward the employees, it is suggested that ECU must allocate new funding priorities in the legislature so that ECU is able to reward their employees properly.

The findings conclude that there is a need to improve the internal performance management system. Internally, the finding shows that ECU needs to improve the communication of policies and procedures. ECU also had to transmit their mission and vision and to improve the quality of assessment and development plans. ECU

need to build the trust between the supervisor and employees which can be improved through regular two-way communication and dialogue for example by having regular informal and formal review sessions and feedbacks.

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5.3

Case study Two:

5.3.1

A2Z TRAVEL (A2Z)

The case is extracted from Walters, M. (1995) article entitled Bringing it all together: A Case Study and Some Conclusions. The article is based on a real case study of a bus company in the UK. The aim according to Walters is to try to demonstrate the practical applications and potential pitfalls of performance management system.

5.3.2 Company background The company was formed in 1995. The nature of A2Zs business is providing bus and coach services in various parts of the UK. A2Z runs a number of scheduled services between major UK cities and leisure excursion service to tourist resorts. A2Z employs 400 staff (1995) comprised of 200 coach drivers; 100 personnel in marketing, sales and customer service; 100 personnel in administration, management and support service of various kinds. Most of the staff was absorbed from the parent company during the spin-off.

5.3.3 Performance Management at A2Z The performance management at A2Z was implemented in as soon as A2Z was established. Unlike the parent company, A2Z wishes to be competitive and therefore decided to establish a framework for managing performance of its workforce that would support the company challenging business goals. The senior management decided to employ a much more systematic and comprehensive approach to performance management.

The first step taken was to study and understand the real needs of the organisation with the help of an external consultant. A2Z embarked on a mission to get as much

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information from the managers and employees which is hoped to give them information with regards to the need for formal performance appraisal for all staff; the need for some formal link between pay and performance, whether at an individual or a corporate level; the need to ensure that the workforce had the skills and commitment to deliver the objectives of the new company; and the need to ensure that the company was able to measure its progress in improving the workforces performance and capability.

The result from the findings and feedback from the exercise, A2Z concluded and acknowledged a number of issues and realised that they need to develop a customised approach to performance management that fully reflected the companys distinct needs. They succeeded in identifying a number of broad performance priorities including improved reliability in delivering the core customer service; improved productivity and cost efficiency in carrying out all organisational activities; and improved customer service both in providing the core transport services and in support areas such as the provision of timetable or schedule information or the handling of queries and complaints.

Having identified its key business priorities, A2Z moved to the next stage that is to develop the performance measures by conducting a series of extended interviews with managers and employees to explore the precise meaning and implications of the businesss key goals across the organisation.

The findings revealed a number of critical performance issues like companys performance priorities were not clearly or consistently understood across the organisation for example few local managers has established any reliable measure of performance; barriers to performance improvements were both numerous and highly varied; many staff at all levels lacked the skills and competencies required to deliver

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improved performance; and performance problems were occurring as a result of poor service from outside the company. The senior team began immediately to develop some key measures of organisational performance designed to reflect its own defined priorities. The aim was to identify the key indicators that were expected to underpin continuous improvement in business performance. These key measures include a formal measure of service reliability; formal measures of productivity and cost efficiency based on reviewing the levels of staffing and other resources needed to deliver defined units of service; and formal measures of customer satisfaction.

Having identified the core performance measures for the organisation, A2Z then began to develop its processes for individual performance appraisal for all the staff and employees. Given the nature of its performance needs, the company decided to adopt an approach with dual focus.

The appraisal scheme was designed to assess the individuals performance both against defined performance or development targets and against defined stylistic or cultural requirements. In other words, the individual would be evaluated at the highest level only if he or she was doing the right things in the right way.

A2Z began by developing a framework of the behavioural competencies required from employees. A2Z believe that this will provide a definition of the types of behaviour that would be used during the performance appraisal or assessment of individual employee.

The resulting appraisal was a two-dimensional matrix. The manager had first to review the individual against the behavioural competencies and second, the manager would then review the individuals performance against performance which had been agreed at previous appraisal. The individual was then rated against the two

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dimensions of this matrix. Finally, the process required the manager and appraisee to agree the competence and contribution goals for the coming year and to identify the development required to support these.

A2Z went one step further by introducing a performance pay scheme to demonstrate that the company was operating in a new commercial environment. A2Z decided to adopt a relatively simple approach that would be readily and easily understood by all employees. At the corporate level, the general level of annual increase that is the available budget was to be explicitly linked to company performance, although not through a fixed formula. At the individual level, within the available budget, the level of performance was to be explicitly linked to the rating produced by the matrix.

Once the appraisal scheme was in place, the company recognises that it would need to find effective ways of responding to the development need of individuals. A2Z

encouraged managers with the help of Human Resource Department to identify a range of development opportunities in addition to formal training.

The whole process received a very positive response and there is a belief that it has played a major part in enabling the organisation to meet the challenges of its competitive environment. There is an awareness that the process can be further refined and developed including the competence framework, the appropriate appraisal technique and tool, performance standards, and payment systems. A2Z employee has become accustomed to the broad concepts of performance management and is supporting the performance management initiatives by A2Z management.

Most important of all, A2Z has formally acknowledged, as a key priority for its senior management team, both the importance of performance management and the need for continuous review and development of the performance management process.

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5.4

Conclusion on case studies

Interestingly, the case studies reveal that both organisations under review come from the service industry. ECU is an academic institution providing higher education courses, and A2Z is in the business of providing transportation services for UK residents and tourists alike. Services are unlike products, they are intangible and not easy to measure although there are quite a number of methods and techniques invented by experts in the field of operation management. Since service industry involves direct and indirect human contacts, the performance of the companies depends largely on how the employee provides the service to its customers. Employees performance is measured by the company and the company normally will get feedback from their customers. The better the service provided by the employees especially the front line staff, the more people will use their service, the better the company performance and its reputation, the better will be the appraisal of the employees. So in the case of A2Z, the better the transport service in terms of customer relations and satisfaction, time schedule, service reliability and comfort, the more people will use A2Z service and therefore the more money will be made available for employees training and development and also maybe bonus payments and other incentives like free holidays. Secondly, both organisations use ratings and to assess their employees. No doubt it is a popular technique used by most organisations to assess its employees. But they must be very careful because of the subjective and judgemental nature of ratings. McGregor (1972) as in Townley B. (1999:pp290) pointed out early research which concluded that performance appraisal process is judgemental. As can be seen from the survey at ECU, only about 40 percent of the employees surveyed think the system is fair and slightly below 40 percent were unsatisfied with the assessment system. To avoid being bias and misuse of judgement, a proper training on how to rate and interview would solve the problem. The rater must have the confidence, knowledge and comfortable to use any appraisal technique especially at ECU where essay were

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used in the appraisal process. At the same time the employees have to be told on how they are to be assessed and on what basis. The employee must know what his strengths and weaknesses through the performance review and the supervisor must be able to discuss ways to improve their working relationship so that both understand each others needs and expectancy. Cleveland & Murphy (1992); Dewberry (2001); Scott & Einstein (2001); and Lam & Schaubroeck (1999) pointed out experience show that the effectiveness of an appraisal system depends on the people (appraiser and appraisee). An effective performance appraisal system needs a good relationship and understanding between the supervisor and employee. The communication

between the two parties plays a very important role in achieving the aim of the appraisal system. It can be formal and informal review of performance where

discussion will focus on the progress of the employee and to find ways of improving the employees performance. Supervisor or manager has to treat its subordinate fairly and not to exercise bias towards some employees and to undermine other employees in the process especially in giving promotions, rewards, compensation, and training and development. The organisations under review used immediate managers as

appraisers (McEvoy and Cascio, 1990) but adopt different appraisal techniques to measure the performance of their staff. This is considered to be the best approach of performance appraisal because logically the immediate supervisor or manager is the one who is working close to the employee and is expected to have full knowledge of what the employees needs, expertise, strengths and weaknesses. But it is important to note here that this does not guarantee an effective appraisal unless good working relationship is develop through regular review and effective communication between them. Thirdly, Anthony et al. (1993) maintained that managers should confer on the objectives, frequency and standards of evaluation for performance appraisal. Unlike A2Z, employees at ECU expressed dissatisfaction because the company did not communicate their policy and appraisal system clearly to them. As mentioned in the case study, it is essential that for any appraisal system to be effective and successful,

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the aims and objectives are made known to the employees so that full support and commitment by the employees towards the successful implementation of the system is achieved. Fourthly, from the case study, both organisations rewards their employees by performance related to pay. No doubt people have motivation to work harder and smarter as long as they know at the end of the day they will be rewarded for their efforts but the findings of Decis (1976) extensive research on rewards and motivation show that monetary rewards do not always increase peoples motivation to perform. It is therefore not surprising to see employees at ECU are motivated by not only an appraisal system that is linked to pay but also where they can enjoy and get job satisfaction. Lawler (1983) also indicates that performance-linked monetary rewards are based on extrinsic (monetary payments) rather intrinsic rewards (praise and recognition) which might have a negative impact on workforce stability and a companys long term development. But this may not be the motivation factor forever, therefore ECU must be prepared for any eventualities because pay is always a strong motivation factor in any employment. In the absence of these, ECU may risk losing employees and incurring expensive replacement costs. Last but not the least the last important finding was that A2Z has shown a very good example of how a company should prepare themselves before embarking on any appraisal system. A2Z has the luxury of having to start an appraisal system from scratch with the help of professional consultant. The author believes A2Z has made the right move in engaging the professional consultant in their effort to do a systematic way of doing performance appraisal. A2Z could gain a lot from their expertise and advice in creating the right system that fit their needs. There were evident that shows that the trend of using professional consultant is gaining popularity and is seen as necessary for an organisation. Their services vary from providing inhouse training to conferences. The consultant was engaged from the very beginning and was involved in all the stages for the design of the performance management

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system. The professional consultant worked along side A2Z management to uncover issues such as unclear and inconsistent performance priorities; numerous and highly varied barriers to performance improvements; many staff at all levels lacked the skills and competencies required to deliver improved performance; and performance problems were occurring as a result of poor service from outside the company (inherited from parent company). The advantage about using the professional consultant is that they can guide A2Z along the way and give their opinion based on their experience and expertise. Although the cost of engaging the professional consultant can be very expensive but as in other professional service like legal advice for instance they can be very beneficial especially when the company did not know how to design and handle a proper performance appraisal system. With the advice from the professional

consultant, A2Z finally decided to adopt a customised approach to their appraisal system because during their initial findings A2Z believe this is the only way to improve the performance of the employees. So the lessons from the case study is that proper understanding of the needs of the organisation and employees is very important, the policies and procedures must be communicated effectively to the employees to avoid misunderstanding, managers and supervisors must be trained to assess their staff, the use of the right technique and proper judgement is also crucial for an appraisal system to work effectively and efficiently. The working relationship between the managers and employees must be established including knowing the criteria of assessment. Lastly, companies can make use of the service of the external consultant to tailor-made or customise an appraisal system for a particular company.

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6. Conclusion
Most companies recognise the importance of people in the organisation. And the most effective companies know that their continued success depends upon constantly assessing performance of the organisation as a whole and of individual members of staff to ensure everyone is moving towards the same objective. A company that invest a lot of money, time and effort in people and performance management system as a whole would certainly want to see the return on their investment sooner or later. It would be foolish for A2Z to just introduce a

performance management system without monitoring or evaluating the effectiveness of the system. Similarly, it would be wrong for a company to employ people and not assess their performance and development potential. Company can sets, harness and motivate employees to succeed, so that they can help organisation to succeed but without performance management, company will not stand a chance in the competitive environment because an effective performance management would provide enough guidance so people understand what is expected of them. To be effective the systems needs regular polishing, certain degree of flexibility and adaptability so that individual creativity and strengths are nurtured. It would provide enough control so that people understand what the organisation is trying to achieve. It would outline the objectives, goals of the company, it would motivate employee to achieve the goals. It would create a fair, consistent and

systematic assessment process that would benefit the individual as well as the organisation. Most business would benefit from performance appraisal because it encourage and promote better communication between managers and employees. As mentioned in section 3.6, one of the problems of most performance appraisal system is the poor relationship and lack of communication between managers and employees. A regular

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formal and informal dialogue between the parties should provide solution to the problem. The nature of appraisal and the circumstances surrounding it play an important role in the success or failure of an appraisal system. Very often, the introduction of a formal performance appraisal has been treated with high level of suspicion and cynicism especially in the public sector. But problems can be overcome. One of the solutions is to be well-prepared and to know what the objectives of the whole organisation are. A2Z is an excellent example of how a company should do. A2Z has done their homework well, did not follow the step taken by the parent company and with the help of an external consultant A2Z managed to customise a performance management system that fit well with their corporate needs. It may cost the company to engage the consultant but they usually give value for money. The success of any performance appraisal program will also depend on how they are used relative to the goals of that program. The most important factor is the selection of the right systems that fit well with the goal and strategy of the organisation. It must be acceptable and understood by all involved in the preparation and the application of the systems. The whole process must be open, fair, easy to operate, free from bias (although this is not easy), consistent, practical and reliable. It must be an on-going process where everyone is willing and look forward to participate, to be assessed and to provide feedback.

There is of course no one right way of operating appraisal scheme, just as there is no such thing as a perfect appraisal system. Effective performance appraisals are

difficult to do. They require a full understanding of the work job and of his or her performance. They demand psychological insight and interactive skills. Even the best appraisers rarely say an appraisal is simple and easy (Buzzota and Beatty, 1999).

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The question remain therefore is why formal appraisal are conducted given the problem of its not achieving its objectives and resisted by those involved in the process. Advocates to performance appraisal sees appraisals as fulfilling an important ritual institutionalizing the ideology of achievement and they argues that appraisals are tolerated to the extent that they do not constrain activities and because they sometimes conceal or confer latent benefit. Attracting, motivating, securing commitment, achieving the best performance, retaining and rewarding employees is arguably one of the biggest challenges facing management. Measures are typically established within organisations to monitor

staff turnover, sick leave, training investment and employee productivity. However, the key to improving employee commitment and performance is to understand their satisfaction levels, opinions of the environment in which they work, their expectations and their attitudes. In addition, they can improve communications and the quality of working life and make employees feel that they are valued and recognised by the organisation.

Additionally, performance appraisals are both effective and successful if trainings are provided to those responsible for appraisals; the purpose of appraisals and how the system operates should be explained to those who are being appraised; the amount of paperwork should be kept to a minimum and appraisal forms should be simply and clearly designed. The well-crafted performance appraisal system is designed to make sure a win-win proposition exists from a Relationship as well as a Task perspective. No matter the behavioural style of the manager or the employee if the performance appraisal factors are well-defined the performance appraisal outcome can be very rewarding while contributing to the development of the employee and the manager (Fletcher, 1997)

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Throughout this dissertation, the author have tried hard to convince the reader that a formal performance appraisal is considered essential for good management because it provides a means of control over employee job performance and, thus, over individual and organizational productivity. It also carries with it what many managers and supervisors believe to be a powerful sanction for failing to achieve a satisfactory performance and level of productivity. That sanction is the granting or withholding of economic rewards, opportunities for advancement and promotion, and in the case of totally unsatisfactory performance, dismissal from the organization. What is assumed is there is a direct relationship between conducting performance appraisals and maintaining or improving 'an 'individual's contribution to the organization.

It is also relevant to mention that even though performance appraisals has its setbacks and pitfalls, it is still a very important choice for any company to decide how it is going to review and monitor its internal and external operations and employees performance and training development.

The author agrees to Singh (2001) that effective performance appraisals have always been a difficult and sensitive performance management tool. Numerous surveys carried out have attested to the fact that it is difficult not only for the appraisers, but also for the appraisees. They require a full understanding, psychological insight and interactive skills, (Buzotta & Beatty, 1999) and should not be seen in isolation with other areas such as Human Resource planning.

One logical conclusion from this is thathe author strongly believe that a proper and well-structured performance appraisal system must have a place in every organisation. A performance appraisal system is neither worthless nor evil, as some critics implied, nor are they panaceas, as many managers might wish. It is at the very least a commendable attempt to make visible and hence improvable a set of essential organisation activities. Personal judgements about employee performance are

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inescapable and subjective values and fallible human perceptions and values into the open, make it possible for at least some of the inherent bias and error to be recognised and remedied. By improving the probability that good performance will be

recognised and rewarded and poor performance corrected, a sound appraisal system can contribute both to organisational morale and organisation performance. Moreover, the alternative to a bad appraisal program need not be no appraisal program at all, as some critics have suggested. It can and ought to be a better appraisal program. And the first step in that direction is a thoughtful matching of practice to purpose. No doubt more research and study need to be done especially on the behavioural aspects of performance appraisal compare to the administrative side. The study must include an up-to-date statistics and information on the progress made by companies that adopted performance appraisal with specific information on techniques used and perhaps the costs involved. With this information one would be able to reach a conclusion whether performance appraisal system is effective and if not, why and how to make it effective.

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