Performance Appraisal: Functions and Implementation

Performance Appraisal: Functions and Implementation Chapter 1: 1.1 Introduction This dissertation project has been undertaken for the fulfilment of the business degree MBA, General Management from the University of East London. The findings of this dissertation will contribute to concerned company and the author to complete the MBA degree. At the beginning, a leading mobile tele-communication organisation in Bangladesh named Banglalink was chosen as the research organisation. In the middle of the study, the management refused to cooperate with providing information. As a result the author had to find and choose a suitable company to collect research information and data to finish the study. Secure Facilities Management Company Ltd. (SFM) was the new company chosen to finish the research. The introduction chapter gives an overall idea about the study. In this part, the background, objectives and research questions and the structure of this dissertation will be discussed. 1.2 Background of the Study The study discusses about the functions and the implementation of performance appraisal in the new era. The concept of ‘Welfare Personnel was developed in the end of the British golden colonial history by the humane concerns of some business families like Cadbury and Rowntree. Then within the next century, the concept had changed and became Personnel Management and later on Human Recourse Management. Now the world has just entered into a new millennium and the concept of human resource management has become a strategic partner for the business organisations. (McKenna Beech, 2008:2 3) Organisations require many things in order to be effective, a method for producing a product or service, financial resources, a way of marketing and human resources. While all of these are important to organisational effectiveness, the only factor that represents a potential competitive advantage is human resources. This is why the concept of human resource management is s important to every organisation.. The basics of managing people are getting people, preparing them, stimulating them motivate them. To manage human resources in any organisation the following questions are to be considered: (Dessler, 2005:4-5) Are the persons hired for the job wrong? Is the organisation able to milk out the best from the employees? What is the most frustrated area of human resource management? Is the rewarding system working properly? The above refers to how people worked in the past, what changes are required in future to make the production system effective, what are the weaknesses of the system and how to improve. These actually refer to the evaluation of employees of job which is called Performance Appraisal. Performance appraisal system is an important function of personnel department in any organisation. The system has a close relationship between organisation goals and individual performance. The performance appraisal system represents a year round exercise of managing individual performance in an integrated manner with a view to enabling employees to perform at their performance standards. (Dessler, 2005:310) With the view of increasing organisational effectiveness through the effective management of human resources, the organisations use different methods of appraising performance of their employees. For this research a small security service company named ‘Secure Facilities Management Company Ltd. (SFM) a private single owner security service company has been chosen. SFM became a successful organisation in the last few years. Their high standard efficient employees are one of the key factors for their success. For that, SFM has been chosen to practice the theoretical knowledge and to get familiar with the existing system of Performance Appraisal of a small private company. 1.2 Research Question In general, most of the organisations have a kind of formal or informal performance appraisal system. Through the performance appraisal system, the employees get to know their performance standards, which area of their performance needs to be developed etc. The supervisor also provides them with feedback, development and incentives to help them eliminating their performance deficiencies. If performance appraisal system is effectively used, it can improve attraction motivation of the employees on the job. If inappropriately used the appraisal process can have disastrous effects (Dessler, 2005:310). Hence the discussion leads to the research questions: What is the level of understanding and compliance of the employees on performance appraisal? What are the reactions of the employees regarding the performance appraisal? What are the constraints of the performance appraisal in practical life? 1.3 Aims and Objectives of the Study The research has been undertaken for the fulfilment of the requirement for completion of MBA, General Management for the year 2008/2009. This is mainly aimed to develop the job expertise in the performance appraisal activities under the guidance of expert faculty member of University of East London. It is really a difficult task to assess consistency, relevance and reliability of the tools and techniques of the system, however and effort is made to have some ideas about the matter. 1.3.1 Aims The study mainly aims at knowing about the awareness, the level of understanding and compliance of the employees of SFM regarding performance appraisal system. The study attempts to analyse the present performance appraisal system and the role of both appraisers and appraises in connection with the implantation of the system in real life situation. 1.3.2 Objectives To be acquainted with and acquire practical knowledge regarding performance appraisal system of an organisation. To relate the theoretical knowledge of performance appraisal with practical implication. To determine the acceptability and reliability of the performance appraisal system in a certain organisation. To assess the constraints/factors which influence the performance appraisal system. 1.4 Scope of the Study Target group includes officers of all level. The working forces those who are working in the head office and also in the other sites. Value Perception of both appraisers and appraises of the organisation under study. 1.5 Limitations of the Study While preparing this report, the following limitations had been faced: At the beginning a renowned mobile Tele-communication company in Bangladesh, Banglalink, was chosen for the study but they refused to deliver any information and cooperation just one and half month before the submission date. As a result, the author had to choose a small security company, Secure Facilities Management Company Ltd. (SFM) to carry on and finish the study within such a short time. SFM has a master plan on performance appraisal, but at present implementing a part of it. As a part of the business strategy, SFM did not provide all information on their performance appraisal procedure. The major limitation of the study was the lack of time for such an intensive work which compelled the author to narrow the scope of the study. All officials were very busy with their own assignments. As a result, they had a little opportunity for giving much time in this regard. Limitation was faced on the volume of the report due to which many relevant and important things will remain unexplored in detail. 1.6 Organisation Profile Introduction to Secure Facilities Management Company Ltd. (SFM): Since its formation SFM has built its reputation by providing security personnel of the highest calibre. This has been achieved by combining sound management with sensible terms and conditions for all staff. SFM strives to ensure that their clients and staff benefit from a focused and well-defined professional approach, the ratio of management to client is kept to no more than one manager per 10 clients. SFM strives to provide the highest standards of efficiency to all its clients, both large and small. SFM understands the importance of first impressions and that their personnel are often the first point of contact for their clients visitors and residents. 1.7 Structure of the Research This structure of this study has the following five chapters: Chapter 1 is the introduction chapter where the background, research question and rationale, objective, company profile and structure of the research are stated. Chapter 2 contains a brief literature review on performance management, history and meaning of the performance appraisal, purposes, functions, types of performance appraisal, MBO, 360 degree appraisal, problems and solutions of performance appraisal and essentials of a good performance appraisal. This chapter will provide a basic understanding about performance appraisal which is related to the research questions. Chapter 3 contains Research Methodology which includes research framework, the design of the research, population and sampling, and questionnaire. Chapter 4 provides Data analysis, statistical analysis and findings of the research. Chapter 5 describes the critical review of the findings. Chapter 6 discusses on recommendation and conclusion of the study and reflection summery. Chapter 2: Literature Review 2.1 Introduction Organisations require consistent levels of high performance from their employees in order to survive in a highly competitive environment. In a view of this, performance appraisal can be a systematic system through which evaluation of an employee is done analyze effectively to determine required performance. It plays a key role in rewarding systems. It is the process of evaluating the performance of employees, sharing information with them and searching for ways to improve their performance. Appraisal is necessary in order to: Allocate resources in a dynamic environment; Motivate and reward employees; Give employees feedback about their work; Maintain fair relationships within groups; Coach and develop employees; and Comply with regulations. It is also a formal opportunity to do what should be done much more frequently in organisations to express appreciation for employee contributions. Companies must administer their employee performance reviews, at all levels, fairly and without discrimination. Since all appraisals can be used against a company in an appraisal employee lawsuit, it is critical that these reviews should be completely accurate. This practice of performance appraisal has been given a variety of titles. The academicians call it performance appraisal, performance review etc. In Government services in Bangladesh, it is known as ACR (Annual Confidential Report). In private organisations, it is often described as merit rating, personnel rating, progress rating, annual performance, etc. Performance appraisal plays a major role in Human Resource Management. The subject is a part of Performance Management. It is necessary to discuss the performance management briefly before proceeding to performance appraisal. Performance Management The primary concern of performance management is the improvement of individual and collective performance. It is a continuous cycle of self-renewing. The aim of performance management is make direct link together individual goals, departmental purpose and organisational objectives. It integrates the major elements of HRM like appraisal and employee development, performance-related pay and reward management, individualism and employee relations. In other way it can be called as day-to-day management activity as it deals with organising works to get the best result. â€Å" a strategic integrated approach to delivering sustained success to organisations by improving the performance of the people who work in them and by developing the capabilities of tams and individual contributors†. Armstrong (2001:467) According to Armstrong (2001:475) the main activities of performance management are Role Definition, The Performance Agreement or Contract, The Performance Development Plan, Managing Performance Throughout the Year and Performance Review. These activities are a continuous cycle. According to Marchington Wilkinson (2004:187), the process of performance management system involves Induction and Socialisation, Reviewing and Appraising Performance, Reinforcing Performance Standards and Counselling and Support. Beardwell and Holden (2001:538) stated â€Å"Performance Management is not simply the appraisal of individual performance: it is an integrated and continuous process that develops, communicates and enables the future direction, core competencies and values of organisation, and helps to create an ‘horizon of understanding†. Performance Management is an effective tool by which the employees work behaviours are aligned with the organisations goals. There is no one way to manage performance. Whatever system is adopted needs to be similar with the culture and the principles of that organisation. However, most system of performance management has several parts: Defining Performance: Carefully defines employee performance so that it supports the organisations strategic goals. Setting of clear goals for the individual employee is a critical component of performance management. Measuring Performance: Measuring performance does not need to be narrowly conceived, but can bring together multiple types of performance measured in various ways. The key is to measure often and use the information for mid-course corrections. Feedback and Coaching: In order to improve performance, the employee needs information (feedback) about their performance, along with the guidance in reaching the next level of results. Without frequent feedback, employees are unlikely to know that behaviour is out of synchronization with relevant goals, or what to do about it. The major aim of performance management is to find ways of continual improvement of levels of both organisational and individual performance and performance appraisal is the perfect weapon for that improvement. The Rise of Performance Appraisal The performance appraisal has a long history which started China in the third century, the reign of Wei Dynasty. It was mainly used for the civil servants, army officers and managers until recently. Now it is very much wide spread all over the world and has become a popular management tool. In the UK most of the private sector organisations has introduced and are practicing performance appraisal during the last decade or two. Some people suggested that the reason behind for its growth is to use the individualised performance-pay system. Some other factors like market competition, managing change, organisation goal, milk out the best from the employees etc. are also important. Now the terminology ‘performance appraisal is changing to ‘personal development review and ‘performance review and development. (Taylor, 2004:247-248) Meaning of Performance Appraisal Performance Appraisal (PA) is a methodical, on the job-review of an employees abilities and accomplishments. Performance appraisal functions as a valuable management assessment tool and a superior employee motivation weapon. It enables us to strike a workable balance between organisations need for qualified and trained personnel and employees need for feedback and motivation. Performance is the contribution and appraisal is the procedure of measuring the contribution. Performance appraisal is an integral part of a system of managing individuals working in an organisation. Performance appraisal is an inevitable inspire of modern technology and all the systems and controls coming into widespread us, people remain the most important factor in all kinds of business, government agencies, charitable organisations and all other organisation. Performance appraisal is a process of bringing together the approaches of performance management like counselling, training, improving performance etc. that helps the managers to exercise them to achieve the goal of the organisation. It is a procedure of rewarding and disciplining the employees to improve the over performance of the organisation. It is the process of evaluating performance or contribution of an employee to the organisation during a specific period of time by his or her supervisor with relation to his or her job requirements. An effective, reliable and valid performance appraisal system recognizes the legitimate desire of employees for progress in their professions. Integration of organisational demands and individual needs through career management is the part of performance appraisal. Therefore, the performance appraisal program is inevitable for measuring the contribution of both â€Å"employees and managerial personnel†. Performance appraisal program is the basis of determining who is profitable to higher position and who is to be rewarded for better contribution to the organisation he or she belongs to. Performance feedback lets employees know how well they have performed in comparison with the standards of the organisation. Performance appraisal program is the administrative and employee development tool, which is the domain of the management not shared by the employees. Opponents of the performance appraisal attack it on a variety of grounds but without appraising performance of the employees career development, organisational development, recently a number of organisations have revamped their appraisal system in a bid to reduce possible negative outcomes. Appraisal, no doubt is a complex issue and it is clear that to be effective, a system must be designed and implemented with great care. â€Å"Performance appraisal means evaluating an employees current and/or past performance relative to his or her performance standards†. (Dessler, 2005:310) Michael Armstrong (2001:486) says â€Å"Performance review discussions enable a perspective to be obtained on past performance as a basis for making plans for the future.† He explains that the five elements of performance management (measurement, feedback, positive reinforcement, exchange of views and agreement on action plans) can be achieved through performance review. In the conclusion it can be said that, performance appraisal is the process by which an employees contribution to the organisation during a specific period of time is assessed. Performance Feedback then lets the employee know how well they have performed in comparison with the standards of the organisation. Who Should Do The Appraisal? By traditionally a managers authority typically has included appraising subordinates performance. The logic behind this tradition seems to be that since managers are held responsible for their employees† performance, it only makes sense that these managers do the evaluating of their performance. The employees immediate boss conducts about 95 percent of all performance appraisals at the lower and middle levels of the organisation. Purposes Purposes of Performance Appraisal: HRD Employees View Performance appraisal or evaluation serves a number of purposes for Human Resources Department and for the development of the employees. Management uses performance appraisal for general human resource decisions. Evaluations provide input into such important decisions, transfers, and terminations. Performance appraisals identify training and development needs. They pinpoint employee skills and competencies that are currently inadequate but for which programs can be developed to remedy. Performance appraisal can be used as a criterion against which selection and development programs are validated. Newly Hired employees who perform poorly can be identified through performance appraisal. Similarly, the effectiveness of training development programs can be determined by assessing how well those employees who have participated do on their performance appraisal. Performance appraisals also fulfil the purpose of providing feedback to employees on how the organisation views their performance. Furthermore performance appraisals are used as the basis for reward allocations. Decisions as to who gets merit pay increases and other rewards are frequently determined by performance appraisal. Purposes of Performance Appraisal: Organisations View Identify the successful less successful aspects of the employee needs organisational goals. Assist decision makers in allocating resources in planning for future. Assist managers in just frying expenditure accounting for those expenditures. Monitor employee activities to detect any change in activities or the quality of services. Serve as a benchmark, i.e. identifying best practice performance, using that performance as a goal, investigating the factors that led up to that performance, then trying to replicate that level of performance. Functions / Uses of Performance Appraisal Multiple uses of Performance Appraisal are: Development uses. Administrative uses/decision makings. Organizational maintenance/objectives. Documentation. Types of Performance Appraisal There are various types of performance appraisal which includes Alternation Ranking Method, Graphic Rating Scale, Management By Objectives (MBO) etc. (Dessler, 2005:315) These are explained below. Alternation Ranking Method It is the oldest simplest of formal systematic rating is to compare one person with all others for the purpose of placing them in a simple rank order of worth. In doing this, the appraiser considers person and performance as an entity; no attempt is made to systematically fractionize what being appraised into component elements. Graphic Rating Scale This method is widely used in merit rating is similar to the techniques in point-evaluation plan. This involves the supervisor to rate employee performance in terms of prescribed traits i.e. quality of work, quantity of work, initiative, dependability, knowledge of work etc. Each trait is defined various degrees of each are prescribed in some way. From traits degrees over-all rating can be obtained. Forced Distribution Choice Another attempt to counteract the tendency of raters to give average ratings or even sometimes to â€Å"twist† a report to bring about a desired result is the forced-choice technique. Here the rater is faced with groups of three of four statements, he must tick the one, which applies most nearly to the employee under assessment. These statements are so devised that it is impossible for the rater to know which will give the most favourable rating. Grading It is a further development to the guideline approach which attempts to provide a frame work of reference by defining a number of levels at which the characteristics is displayed asking Managers to select the definition which most closely describes the individual they are assessing. For example, in rating effective output the Manager in a typical grading scheme is asked to choose between: Outstanding Outstanding output of high quality work Satisfactory Satisfactory level of output effort Fair Completes less than the average amount of effective work Poor Low output poor worker. Critical Incident Method The critical incident method requires every Supervisor to adopt a practice of recording in a note-book of those significant incidents in each employees behaviour that indicate effective or poor behaviour. These are recorded in a specifically-designed notebook that contains characteristics under which the various behaviours can be recorded. Management by Objectives (MBO) Management by Objectives (MBO) is a critical process that often consists of four steps as a way to attain desired performance: Objective setting-joint determination by manager employee of appropriate levels of future performance for the employee, within the context of over-all unit goals resources. These objectives are often set for the next calendar year. Action planning-participative or even independent planning by the employee as to how to reach those objectives. Providing some autonomy to employees is invaluable; they are more likely to use their ingenuity, as well as feel more committed to the plans success. Periodic reviews-joint assessment of progress toward objectives by manager employee performed informally sometimes spontaneously. Annual evaluation-more formal assessment of success in achieving the employees annual objectives coupled with a renewal of the planning cycle. Some MBO systems also use performance appraisal to tie rewards for employees to the level of results attained. MBO had been taken likened to a modem form of scientific management. It is also subject to the same possible criticisms of too great an emphasis on individual job definition together with a management authority structure, the assumption of no conflict between individual organisation goals. MBO should not be applied simply as a pressure device by which management apply increasingly demanding targets which Staffs are expected to achieve. MBO draws attention to the objectives for individual members of the organisation as a whole. MBO is a potentially attractive system. It provides an opportunity for staff of accept greater responsibility to make a higher level or personal contribution. There is much to recommend it to both the organisation individual managers. 360 Degree Appraisal or Evaluation The latest approach to performance appraisal is the use of 360 Degree evaluations. It provides for performance feedback from the full circle of daily contacts that an employee might have, ranging from mailroom personnel to customers to bosses to peers. The number of appraisals can be as few as three or four evaluations or as many as 25; with most organisations collecting five to ten per employees. The appeal of 360-degree appraisals is to fit well into organisations that have introduced teams, employee involvement, and TQM programs. By relaying on feedback from co-workers, customers and subordinates, these organisations are hoping to give every one more accurate reading on employee performance. Appraising Performance: Problems and Solutions Few of the things a manager does which are more risky than appraising subordinates performance. Employees in general tend to be overly optimistic about what their ratings will be, and also know that their raises, career progress, and peace of mind may well hinge of how they are rated. This alone should make it somewhat difficult to rate performance; even more problematic. There are more numerous structural problems that can cause serious doubt on just how fare the whole process is. Some of the main appraisal problems and their solution are explained below. Dealing with the Five Main Rating Scale Appraisal Problems Five main problems can undermine appraisal tools such as graphic rating scales: unclear standards, halo effect, central tendency, leniency or strictness, and bias. Unclear Standards: The problem of unclear standards is illustrated. Although the graphic rating scale seems objective, it would probably result in unfair appraisals because the traits and degrees of merit are open to interpretation. For example, different supervisors would probably define ‘good performance, ‘fair performance, and so on differently. The same is true of traits such as ‘quality of work or ‘creativity. Halo Effect: The halo effect means that the rating of subordinate on one trait (such as ‘gets along with others) biases the way that person is rated on other traits (such as ‘quality of work). This problem often occurs with employees who are especially friendly (or unfriendly) towards the supervisor. For example, an unfriendly employee will often be rated unsatisfactory for all traits rather than just for the trait ‘gets along well with others. Being aware of this problem is a major step toward avoiding it. Supervisory training can also solve the problem. Central Tendency: Many supervisors have a central tendency when filling in rating scales. For example, if the rating scale ranges from 1 to 7, they tend to avoid the highs (6 to 7) and lows (1to 2) and rate most of their people between 3 and 5. In a graphic rating scale, this central tendency could mean that all employees are simply rated ‘average. Such a restriction can distort the evaluations, making them less useful for promotion, salary, or counselling purposes. Ranking the employees instead of using a graphic rating scale can avoid this central tendency problem because all employees must be ranked and thus cannot all be rated average. Leniency or Strictness: Some supervisors tend to rate all their subordinates consistently high (or low), just all some instructors are notoriously high graders and others are not. This strictness/leniency problem is especially serious with graphic rating scales since supervisors arent necessarily required to avoid giving all their employees high (or low) ratings. On the other hand, when the raters rank subordinates, they are forced to distinguish between high and low performances. Thus, strictness/leniency is not a problem with the ranking or forced distribution approach. In fact, if a graphic rating scale must be used, it may be a good idea to assume a distribution of performances-that, say, only about 10% of the people should be rated ‘excellent, 20% ‘good, and so forth. In other words, try to get a spread (unless, of course, the raters are sure all their people really do fall into just one or two categories). Bias: Individual differences among raters in terms of characteristics like age, race, and sex can affect their ratings, often quite apart from each rates actual performance. In one study, for instance, researchers found a systematic tendency to evaluate older rates (over 60 years of age) lower on ‘performance capacity and ‘potential for development then younger employees. The rates race and sex can also affect the persons rating. However, bias is not necessarily consistently against minorities or women, as it seems to be in the case of older workers. In one study, high performing females were often rated significantly higher than were high performing males. An interesting picture of how age can distort evaluations emerges from a study of registered nurses. When the nurses were 30-39 years old, they and their supervisors each rated the nurses performance virtually the same. In the 21-29 category, supervisors actually rated nurses higher than they rated themselves. However, for the 40-61 nurse age categories, the supervisors rated nurses performance lower than the nurses rated their own performance. The conclusion here may be that supervisors are tougher in appraising older subordinates. Specifically, they dont give them as much credit for their success, while attributing any low performance to their lack of ability. A related problem is described in the Diversity Counts feature. An employees previous performance can also affect the evaluation of h