Luận văn một số giải pháp nâng cao hiệu quả của hoạt Động Đánh giá thành tích ngân hàng tmcp Đầu tư và phát triển việt nam chi nhánh sở giao dịch 1

Performance appraisal is good because it makes employees to work hard and fulfill their responsibilities hence, contribute to the overall performance of the organisation.. Perceptions of

ĐẠI HỌC QUỐC GIA HA NOT

KHOA QUẦN TRỊ VÀ KINH DOANH

ĐỒ THỊ BÍCH NGỌC

SOLUTIONS TO ENIIANCE PERFORMANCE APPRAISAL

EFFECTIVENESS AT JOINT STOCK COMMERCIAL BANK FOR

INVESTMENT AND DEVELOPMENT OF VIETNAM-

SOGIAODICH 1 BRANCH

MỘT 86 GIẢI PHÁP NÂNG CAO HIEU QUA CUA HOAT

PONG DANH GIA THANH TICH NGAN HANG TMCP DAL TU

VÀ PHÁT TRIÊN VIỆT NAM - CIII NIIANII SO GIAO DICII 1

LUẬN VĂN THẠC Si QUAN TRI KINH DOANH

HA NOI - 2020

ĐẠI HỌC QUỐC GIA HA NOT

KHOA QUẦN TRỊ VÀ KINH DOANH

TH TTIIỊ BÍCH NGỌC

SOLUTIONS TO ENHANCE PERFORMANCE APPRAISAL

INVESTMENT AND DEVELOPMENT OF VIETNAM

SOGIAODICH 1 BRANCH

MOT SỐ GIẢI PHÁP NÂNG CAO HIỆU QUÁ CỦA HOẠT

ĐỘNG ĐÁNH GIÁ THÁNH TÍCH NGÂN HÀNG TMCP ĐẦU TƯ

VÀ PHÁT TRIÊN VIET NAM — CIII NIIANII SO GIAO DỊCH I

Chuyên ngành: Quản trị kinh doanh

Mã số: 6 34 01 02

LUAN VAN TIIAC Si QUAN TRI KINII DOANIL

NGUOIIIUONG DAN KIIGA IIQC: PGS.TS LE ANIT TUAN

HA NOI - 2020

DECLARATION

The author confirms that the research outcome in the thesis is the result of

author’s independent work during study and research period and it is not yet published in other’s research and article

The other’s research result and documentation (extraction, table, figure,

formula, and other document) used in the thesis are cited properly and the

permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee,

Hanoi School of Business and Management, and the laws for above-mentioned

declaration,

Date.

LITERATURE REVIEW AND THEORETICAL BACKGROUND ON

1.1 Definition:of key tetas , c sssssrscsvorssversesssseraneensersenor Renn ÍỈ

1.2 Purposes of performance ech, NjS04tĐiSiiNA1SE0l.8i3.ia80-05.681530403giaucain LÌ

1.3 Benefit of performance appraisal abut ta 0001

1.4 Method of performance appraisal ' "6 13

1.4.1 Behavior Anchored Rating Scales (BARS)

1.5 Multi-source performance appraisal nhớ khen chen 15

DSi (Selb eppraisal os cssissccsisomernrsmensceoeaemeomneansen GasmrneenmlD 1452; /P6&t gi 0EEIRATL su cnnc tiasnoidoonaiticdticgnsasealisetassasa licöiäsxccalusetuusrsaacoa, 5

1.5.3 Subordinate appraisal

1.6 Bias in performance appraisal

1.6.1 Rater and ratees personal characteristics

1.6.2 Other rater biases in performance appraisal meteors

1.6.3 Bias Effects on PA \oWnnsrlErmtpiusdiirserenariis'

1.7 Uses of Performance Appraisal xữnnrDriDmrrrirrtiiietmrEriir 30

1.7.2 Linking performance appraisal with career development 31

1.8.2 Performance criteria 37 1.8.3 Period of PA - - - 38

1.8.4 Faimess 10 PAL sects nesses seesssieeseeees re 39)

1.8.5 Linking PA to compensation and reward 40

1.8.7, Performance Appraisal Feedbaok se ¬ :

1.9 The analysis framework for the thesis - 44

APPRAISAL IN COMMERCIAL JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM — SOGIAODICITI BRANCII AS

2.1 Introduction of the Conunercial Joint Stock Bank for Investment and

Development of Vietnam, 8ogiaodich 1 branch ¬

2.1.2, BHDV's Oraanization Šữucte con eeeierserooooo.tB 3.1.3, BIDV's Main Dusiness Lines co co seenrersrorsoul]

2.2 Introduction abơut Sogiaodich 1 Branch

2.2.1 History and development

2.2.2, Organizational Structure - - 33 2.3.3 Situation of Workforce in BIDV SGD1 - 34 2.3, Human resource activities ác BIDV §GD1 cà senseeosese SỐ 2.3.1, Human resource planning - 36 2.3.2 Finployment recruiment - - - 39 2.3.3 Training and developing human resources "¬

2.4, Status of performance appraisal at BIDV 8GD1 suseerooo.02 2.4.1, Period of performance appraisal - - 62 2.4.2, Performance GIẢẦGHH8, nọ neeie ¬ 63

2.5 Achievements and drawbacks of current P.A system at BLDV SGD 1 75

CHAPTER 3: PROPOSAL ON SOLUTIONS TO ENHANCE PERFORMANCE

APPRAISAL AT COMMERCIAL JOINT STOCK BANK FOR INVESTMENT

3.1, Strategic orientation of BIDV «assesses sineseene ¬

3.2.1, Higher demand for quality of leuhan rcsourees ào 7Ð 3.2.2 Change in corporate cultural valuss con neeeeeeeoo.BỢ

3.2.4, Training and carcer development activities aro chang ug, 82 2.3.5, Higher complexity of Corapensation and BeneRit systerm 83 3.3, Requirement for performance appraisal at BIDV and SGDI 84 3.4, Solutions to improve Performance Appraisal Hffactiyenes at BIDV SGID1 .85 3.4.1, Raising awareness on job performance evaluation cesses 8S 3.4.2, Perform job analysis to standardize job titles - - 85

3.4.6, Selection and traming of rakI8 con neo ¬ -

3.5.1 Paying attention to developing human resouross oŸ the banking industry 93 3.5.2, Recommendations on Policies for training human resources in the banking and finance industry in general and BIDV in particular 94

CONCLUSION HH TH KH HH HH HH1 g0 grrưưc ¬ en DS

iv

LIST OF TABLE

Table 2.1: Workforce at BIDV SGD1

Table 2.2: Workforce in BIDV SGDI by gender

Table 2.3: Workforce in BIDV SGDI by age group -222 2222211

Table: 2.4: Workforce by education level

Table 2.5: Gender survey result

Table 2.6: Ages survey result

Table 2.7: Working experience survey result

Table 2.8: Working position survey result

Table 2.9: Educational background survey result

Table 2.10: Understanding about the purposes of PA

Table 2.11: Perception about the period of PA

Table 2.12: Perception about evaluation criteria

Table 2.13: Faimess in performance appraisal

Table 2.14: Raters knowledge and skills in performance appraisal

Table 2.15: Perception about the use of PA sec

Table 2.16: Perception about PA feedback

„—

72 ric}

74

„15

LIST OF FIGURES

Figure 1.1: Analysis Framework

Figure 2-1: BIDV’s Organizational Structure

Figure 2-2: BIDV’s Governance Structure

vil

.„.44

49 oS]

INTRODUCTION

1, Research Rationale

The success of every organization, public or private, depends largely on the

availability and quality of well-motivated human resource Organizations are now more focused on the need to get more from their employees if they are to achieve

organizational objectives Financial motivation and other forms of motivation in the

form of rewards and recognitions are used by organizations to achieve higher

productivity Most companies are able to meet set targets or even exceed because they have attractive reward and recognition systems for employees (Maund, 2001)

Performance appraisal systems began as simple methods of income

justification That is, appraisal was used to decide whether or not the salary or wage

of an individual employee was justified (Armstrong, 1988) The process was linked

to outcomes If an employee's performance was found to be less than ideal, a cut in

pay would follow If their performance was better than the supervisor expected, a

pay rise was in order Performance appraisal results are used either directly or

indirectly to help determine reward outcomes That is, the appraisal results are used

to identify the best performing employees who should get the majority of available

merit, pay increases, bonuses, and promotions Also, appraisal results are used to

identify the poorer performers who need training demoted or dismissed Accurate

appraisals are crucial for the evaluation of recruitment, selection, and training

procedures that lead to improved performance Appraisal can determine training

needs and occasionally, counselling needs It can also increase employee motivation

through the feedback process and may provide an evaluation of working conditions,

thus, improving employee productivity, by encouraging the strong areas and

modifying the weak ones When effective, the appraisal process reinforces the individual's sense of personal worth and assists in developing his/her aspirations

Performance appraisal is good because it makes employees to work hard and fulfill their responsibilities hence, contribute to the overall performance of the

organisation But, unless performance appraisal is performed effectively, it may not

help the organization to achieve the objectives of conducting it in the first place that

is, to improve organisational performance

For a long time, BIDV were operating in the traditional public administration

system using more subjective forms of evaluation This system was inherited by many institutions since the beginning of the economic revolution of Vietnam Some

research has inchcaled thal these three organizations in Vilna faced a nemmber of

challenges in relation to thew performance management systems These included

poor links between performance results and rewards, perception of unfaimess,

oonfrontation with sonior employces and resistance of line supervisors (Stanton and Pham, 2014) Perceptions of employees about the targets, outcomes, and uses of

performance appraisal results could be also a reason causing the ineffectiveness of a

performance appraisal sysicm For cxample, if the cmpluyess perecive the performance appraisal as a risk of being overobserved by their supervisors, they would be unsatisfied and reluctant with participating in the performance appraisal

process (Boachic-Mensah & Scidu, 2012) The thesis, therefore, investigate the

employees perception towards performance appraisal at ‘[ransaction Center 1

(SGD1), Bank for Investment and Development of Viemam (BIDV)

2 Review of previous research

Research article "valuation of work performance at the enterprise Vietnam" by Dr

Le Trung Thanh published in Economic and Development Journal, No 163,

Tanuary 2011 The article has recompiled [ive evaluation stages perform work, starL from agreeing on abjectives, monitoring public performance work, guidance and

assistance, provide feedback and evaluation al the end of the year The effective use

of assessment of job performance is also mentioned In addition to paying

remuneration, the results of the performance evaluation are used in human resource

imanagemen| prachees such as: trainmg and development, transfer and reloeale

personnel, promote and replace personnel

Besides, the article also mentions the necessary work that the manager human resources needed to apply this system successfully at businesses in Vietnam

W

Doctoral thesis of PhD student Hoang Minh Quang belongs to the school Da Nang University in 2012 with the theme: "Lvaluating staff achievements at Asian

joint-stock commercial bank ”, has shown the drawbacks in evaluation method,

selection of assessment objects, methods of evaluation ‘he practice has not yet created a link between results and compensation, thus hindering the main efficiency

and working ability of workers

The dissertation of Nguyen Dinh Xuan (2015) mentions the topic "Assessing

the performance of employees at the Dac Lak State Treasury", analyzing the current

situation of personnel assessment al ns url aud giving some solutions such as:

improving the criteria for evaluating achievements, improving the assessment

method, determining the period of periodic assessment,

Author Le Thi Le Thanh (2012) im the thesis with Wie Ge "Completing Ue

evaluation of staff performance at Central Hydropower Joint Stock Company” also systematized the theoretical basis of staff performance assessment and analysis of

the clements of the staff evaluation system such as evaluation criteria, evaluation

methods, evaluation objectives On the basis of assessing the situation, the author

offers a number of solutions such as building culture to evaluate achievements,

improve assessment skills, conduct job analysis

Phan Quang Quoc (2012) has carried out the thesis "Tivaluating staff performance

at Quang Nam Rubber One-member Co, Ltd." to point out the remaining problems in

the stalf cvalualion system at this urd anid propose some sululions 19 complele this work such as perfect assessment methods, identify suitable audiences, etc

T can be seen that the above works approach assessment aclivilies in a

number of different contents such as standards, methods, implementation processes

with practical inheritance values However no studies have investigated the

evaluation of employee performance al a specific bank like RIDV Therefore, the author stated that there is gap for this research topic

3 Research Objective

The main objective of the study is to propose solutions for improving the effectiveness and eficiency of performance appraisal systems at BIDV SGD1

Branch

‘The particular objectives

- Review of literarare on performance appraisal

- Syslematize the basic theories of performance appraisal

- Survey and analyze the status of performance appraisal of staffs at BIDV

SGD1 and propose several solutions to improve the effectiveness of the

perfortumee appraisal system al BIDV SGD1

- Scope of space: at BIDV SGD1

- Scape of time: Data has been collected during 2019, solutions are valid until

7

6, Research Method

* Secondary Data Collection: Secondary data will be collected through the

Human Resources Deparment of BIDV SGD1 Tn addit on, the thesis will use some

documents as well as information about organizational commitment from books,

disserlations, magazmes and the internet

* Primary data collection: Primary data collection methods are surveys, personal

interviews, observations In addition, synthetic analytical methods was applied

The questionnaire survey is the most important method in the study, which is

described in detail as follows:

Sampling:

© Sample size: According to EFA analysis, the minimum sample size is five

umes as much as the total number of observation variables im all scales The number

of observation variables, in this research, is 30 so the minimum sample size is 150

On the other hand, according to Multivariate regression analysis, the

minimum sample size: nu SO — 8*m (m: independent variable) The mumber of

independent variables, in this research, is 4 so the minimum sample size is 82

Therefore, in this research, the anthor chooses the sample size of 150 The

respondents will be chosen randomly

© Sampling objects: The staffs al BIDV SGD1

Design of questionnaires: Questionnaires are designed to be in line with the objectives of the thesis and theoretical framework in a clear and concise manner To ensure accuracy, (he questionnaire will be designed seeuding to the following process,

® Based on research objectives and frameworks to identify the information

needed: factors, variables and metrics;

Determine the type of question;

Determine the content of each question,

Determine the terms used for cach question,

Determine the logic of the questions,

© Draft questionnaire;

Submit a questionnaire to the instructor;

Instructors guide, review, and agree to conduct the investigation;

Ruler: use Likert's measure of 5 levels from the least to the most

Data analysis method

The dissertation uses qualitative method of data analysis

* Quantitative methods

- Statistical aggregation: Collected data and information collected, selected and

statistical information needed

- Comparison: After collecting and analyzing the necessary data, comparison will

‘be made over time

- Processing survey data using SPSS software 18.0

7 Thesis structure

In addition to the introduction, conclusion, references, appendixes; the

coment of ihe disserlalion is divided into three chapters:

- Chapter 1: Theoretical background on performance appraisal

- Chapter 2: Assessing the situation of performance appraisal in Joint Stock

Commercial Bank for Tnvesiment, and Development of Vietnam — Sogtaodich]

Branch

- Chapter 3: Proposal on solutions to enhance performance appraisal

effcctivencss al Joint stock commercial Bank for Invesiment and Development of Viet Nam 8ogiaodichl Branch.

CHAPTER 1 LITERATURE REVIEW AND THEORETICAL BACKGROUND ON

PERFORMANCE APPRAISAL

1.1 Definition of key terms

Performance appraisal is one of the most important human resource practices

and is also one of the most heavily researched topics (Murphy and Cleveland, 1993,

Judge& Ferris, 1993) Performance appraisal can be defined as a formal meeting

between a supervisor and a subordinate, in a periodical basis (often annually), in

which the work performance of the subordinate is reviewed and examined in order

to identify strengths, weaknesses and opportunities for improvement and skill

development (Tran Xuan Cau, Mai Quoe Chanh, 2008)

Performance appraisal is a process of identifying, observing, measuring and

developing human performance in organisations and has attracted the attention of

both academicians and practitioners The process is also viewed as making an

important contribution to effective human resource management as it is closely interlinked to organisational performance (Nguyễn Hữu Thân, 2010)

Gupta (2006) defines performance appraisal as a process of assessing the performance and progress of an employee or of a group of employees on a given job

and his potential for future development He further argues that performance

appraisal consists of all formal procedures used in work organizations to evaluate

personalities, contributions and potentials of employees

Although the use of performance appraisal was believed to begin from early

history in both Western and Eastern countries (Wren, 1994; Patten, 1977), its use in industry was marked with Robert Owen's use of “silent monitors” in the cotton

mills of Scotland (Wren, 1994), The formal use of performance appraisal originated

in the US since the early 19th century mainly for evaluative purpose and with the

use of global ratings, global essays or traits rating scales as tools (Devries et al

1918) Management by objectives was first proposed by Peter Drucker in 1954 in

which performance appraisal focused more on feedback and developmental purpose

and involved the setting of performance goals jointly by employees and manager

The goals will then be discussed and modified until they are accepted by all parties

At the end of each period, the performance of employees is evaluated based on the

degree to which goals have been achieved New goals for the next period will also

be set during the meeting between employees and their manager

This research adopts Tran Kim Dung (2011), definition of performance

appraisal as “a system that provides a formalized process to review the performance

of employees Performance appraisal varies between organisations and covers

personality, behaviour or job performance and it can be measured quantitatively or

qualitatively Performance appraisal involves unstructured narrative on performance

of the appraiser”

1.2 Purposes of performance appraisal

Researchers have suggested multiple uses of performance appraisal

Bernadin and Beatty (1984), for example, identify two broad uses of performance

appraisal including 1) improvement of the effective use of resources and 2) the basis

for personnel actions such as salary determination and promotions Cleveland,

Murphy and Williams (1989) suggest four different purposes of performance appraisal: 1) to distinguish among employees, 2) to identify an employee’s strengths

and weaknesses, 3) to implement and evaluate human resource systems and 4) to

make and record personnel decisions In general, performance appraisal is supposed

to serve two main purposes: 1) evaluative purpose and 2) developmental purpose In

evaluative performance appraisal, the supervisor focuses on measuring employees’

work behaviors, identify the gap between work outcomes and established standards,

and the results are used primarily for such decisions as salary adjustments, promotion, retention-termination, layoffs and so on Cleveland, Murphy and

Williams, (1989) contended that evaluative functions involve between-person

decisions On the contrary, in developmental performance appraisal, the supervisor aims to find the employees’ strengths and weaknesses, provides performance

feedback, opportunities for improvement and development The results are used for

determination of individual training needs, assignment and transfer or within person decisions, according to Cleveland, Murphy and Williams, (1989)

Different purposes of performance appraisals have heen found to have

impacts on the performance appraisal processes and outcomes (Bemardin and

Beatty, 1984; Ostroff, 1993; Williams, Denisi, Blencoe and Cafferty, 1985;

Zedsck& Cascio, 1982) For example, performance appraisal conducted for

developmental purposes are less prone to ratings bias than those conducted for administrative purpose (Meyer, Kay, and French, 1965; Zedeck & Cascio, 1982)

The purpose of performance appraisal also alfecls the altitude of the amployees towards appraisal process and supervisors Hmployees’ perception of

performance appraisal uses would have a dominant influence on their attitudes

Perception of cvaluative use of PA can have positive impact on cmployces’ altitude

if it clarifies the link between perfonnance and rewards (Cleveland, Murphy, and William, 1989) Prince and Lawler, (1986) found that the integration of salary discussion into performance appraisal interviews even cnhance satisfaction with

PA Other researches, however, showed that perception of evaluative use of PA is

negatively related to satisfaction with PA and supervisor (Mayer, Kay, and French,

1965) Drenth (1984) proposed that evaluative PA often elicits negative feelings and

behaviors such as resistance, discouragement, and aggression, especially when

evaluation is negative

On the other hand, developmental PA is view as posilive because of ibs

futuristic and hetpful focus (Milkovich and Boudreau, 1997) Boswell and

Boudreau (2000) stuched the relationship between perception of PA use and

satisfaction with performance appraisals and appraisers They found significant

positive relationship between perception of developmental PA and satisfaction with

bolh appraisals and appraisers However, no significant relationship between perception of evaluative PA and satisfaction has been found Youngcowt, Leiva, and Jones (2007) expanded Boswell and Boudreau study by proposing another

purpose of performance appraisal in addition to evaluative and developmental

purpose which they termed role definition purpose ‘This purpose of performance

appraisal focuses on the position rather than the incumbent hey found a positive relationship between perception of developmental PA and affective commitment

They also found that perception of evaluative PA was significantly related to joh

satisfaction and the relationship was mediated by satisfaction with performance appraisals The relationships between perception of developmental PA or of role

definition PA and job satisfachion, however, are nol sigmificant

Kuvaas (2007) studied the relationship between perception of

developmental PA and job performance He found the connections between

perception of developmental goal selting and feedback in PA and work performance and that this relationship was mediated by intrinsic motivation but not by affective

commitment Finally he found that there would be a positive relationship between

perception of developmental PA aud job performance only among omployces with low autonomy orientation

Researchers contend that although performance appraisal is conducted for snultiple purposes, these purposes are often conflict (Cleveland, Murphy, and

Williams, 1989, Ostroff, 1993; Meyer et al., 1965) ‘hey believe that this conflict

prevents performance appraisal from attaining its goals, and may have negative

impacts on individuals and the organizations Other researchers found that

employees prefer performance appraisal is used for a certain purpose rather than for

others (Jordan and Nasis, 1992: Harvey, 1995) McNerney (1995) advocated that

auployecs camol gel accurate fecdback aboul their strengths, weaknesses and development needs if two PA purposes are combined As a result, researchers and

managers have proposed separale uses of performance appraisal

Boswell and Boudreau (2002) conduct a study about the impacts of separating evaluative and developmental uses of performance appraisal on

amployces PA salisfaclion and satisfaction wilh supervisors Thay hypothesized that employees in separated use PA systems have higher level of PA satisfaction and satisfaction with supervisors than those in the traditional umseparated PA systems

that combine the two uses They also predicted that employees in separated system

would report higher awareness of development opportunities than those in

10

traditional systems The results, however, suggested no significant difference in PA

satisfaction and satisfaction with supervisors between two groups Employees under

separated PA systems did not report higher awareness of development opportunities

either However, they found some significant difference in the intention to use development opportunities between the two groups The employees under new

systems reported they intend to use less development than those under the

traditional system Boswell and Boudreau (2002) suggested that the separated PA

use may have weakened the instrumentality of using developmental PA to gain

valued outcomes for employees under the separated systems because there are no

longer the links between development and salary raise or promotion

In summary, previous studies suggested that perception of different PA uses

influences employees’ satisfaction with both appraisal and appraisers Generally,

perception of developmental PA will lead to higher satisfaction while evaluative PA

may have negative impacts However, some rresearches found that evaluative PA

can also have positive impacts on employees” satisfaction with PA if used

appropriately

1.3 Benefit of performance appraisal

Appraisal is the analysis of the successes and failures of an employee and the

assessment of their suitability for training and promotion in the future (Maund,

2001) According to Maund (2001), appraisal is a key component of performance

management of employees When effective, the appraisal process reinforces the

individual’s sense of personal worth and assists in developing his/her aspirations Its

central tenet is the development of the employee Performance appraisal was

introduced in the early 1970s in an attempt to put formal and systematic framework

on what was formally a casual issue (Maund, 2001), Accurate appraisals are crucial for the evaluation of recruitment, selection, and training procedures Appraisal can

determine training needs and occasionally counseling needs It can also increase

employee motivation through the feedback process and may provide an evaluation

of working conditions and it can improve employee productivity, by encouraging

the strong areas and modifying the weak ones Further, employee evaluation can

improve managerial effectiveness by making supervisors more interested in and observant of individual employees (Auerbach, 1996) Objectives for performance

appraisal policy can thus, best be understood in terms of potential benefits

Mohbrman et al (1989) identified the following

+ increase staff self-esteem

* increase motivation lo perform effectively

* gain new insight into staff and supervisors

+ _ better clarify and define job functions and responsibilities

develop valuable communication among appraisal participants

* encourage increased self-understanding among staff as well as insight into the

kind of development activities that are of value

+ disinibute rewards on a fair and eredible basis

+ clarify organizational goals so they can be more readily accepted

+ improve institutional/departmental manpower planning, test validation, and

development of training programs

Appraisal focuses on what has been achieved and what needs to be done to improve it It should be used to help clarify what an organization can do to meet the

training and development needs of its employees According to Maund (2001),

appraisal is to facilitate effective communication between managers, employees and

should provide a clear understanding for both of them based on four main

components; ihe work thai must be done, the criteria by which achievement will be

judged, the objectives of the exercise, the process for giving the appraise feedback

+ The appraiser and the appraisee are forced to meet formally

« The employee becomes aware of what is expected of him/her

+ The employee learns or reaffirms his or her exaot status

12

* Valuable feedback can be received by both employee and employer

* The manager can learn what the employee is actually doing rather than what

he/she thinks he/she is doing

1.4 Method of performance appraisal

1.4.1 Behavior Anchored Rating Scales (BARS)

According to Swan (1991) BARS is one of the most systematic and elaborative

rating techniques The system is usually costly as it involves in depth analysis of each

job to which the system will be applied The BARS scale used for a certain job is reached through a five step process as follows: Critical incidents, which refers to

experts in the job listing specific examples of effective and ineffective behaviours;

performance dimensions developed from the incidents arrived at in the critical incidents phase, Retranslation that occurs when a second group of knowledgeable

individuals on the specific job validate and refine the performance dimensions; Scaling

incidents which relates to the rating of the dimensions by the second group of

individuals and the final instrument is the behavioural anchor in the BARS instrument

The BARS instrument consists of a series of vertical scales that are anchored

by the included incidents Each incident is placed on the scales based on the rating

determined in step four (Swan, 1991) The system is accurate in that it creates

measures that are closely job-relevant and is highly legally defensible

1.4.2 Trait Scales

The appraisal system contains a list of personality traits or qualities such as

motivation, innovativeness and adaptability The judge or manager performing the

appraisal assigns a value or number to each trait, indicating the degree to which the

employee owns the quality (Ibid.)A variation of this system requires the manager to

evaluate the employee on each of several trait labels, with short definitions and along the line containing a variety of adjectives In most cases the trait-rating scales are

informally analysed to ascertain which personality traits should be included in the system

The trait-rating scales may be broadly defined and the criteria such as meet

requirements or exceed requirements are also not clearly defined This makes the

trait scales very difficult to legally defend because it is difficult to prove the job

relevance Without specific job related criteria, the system is vulnerable to rater

error such as halo effect, positive or negative leniency and central tendency The

scales also make it difficult for a manager to identify training and development

needs The manager essentially asks the employee what they are and not what they

do (Swan, 1991)

1.43 Management by Objectives (MBO)

Erasmus et al (2003) argue that this system concentrates on setting and

aligning individual and organizational goals but it can also be used for evaluating

performance Participation in the setting of objectives allows managers to control

and monitor the performance by measuring outcomes against the goals that the

employees helped to set Bagraim et al (2003) state that the MBO system should

keep employees focused on the deliverables of their job and in this way, the organisation would have delivered on a strategic promise

1.4.4, Essay Method

The manager is required to write a report on each employee (Erasmus et al 2003) describing the person’s strengths and weaknesses The format is not fixed

and the results depend on the writing skills of the manager and relative rating

techniques where managers compare an employee's performance to that of another

person doing the same work

145 Ranking

The system rank individuals from the best to the poorest performer according

to performance factors The technique can only be used with a limited number of

employees in the exercise There is no comparison between teams and the feedback

is not aimed at the employees (Erasmus ef al, 2003)

1.4.6 Paired Comparisons

The system allows the manager to compare each employee separately with

each other employee (Ibid) The ranking of the employee is determined by the

number of times he/she was rated better than other workers The limitations to the

number of employees that can be rated in this technique are a drawback

14

1.4.7 Forced Distribution

Erasmus ef al (2003) states that when using this system, the manager should

assign some portion of the employees to each number of specified categories on

each performance factor The forced distribution decided upon can specify any

percentage per category and need not necessarily comply with the requirements of a

normal

1.5 Multi-source performance appraisal

The traditional PA advocates the use of supervisor performance appraisal,

under which work performance of the employee is evaluated primarily or solely by

his or her direct supervisor This style of PA emphasizes the vertical one way top-

down flow of information within the organizations Nowadays, however, changes in environment have lead to the changes in organizational structure such as

decentralization, fewer level organizational hierarchy and matrix organizations The

new organizational structure requires the expansion of information flows to increase

the speed and amount of performance appraisal feedback Horizontal, bottom up

flows of information have been established in parallel with top-down flow, As a

result, multi-source performance appraisals become more and more common in new

performance appraisal systems

1.5.1 Self appraisal

Self appraisal is the process in which work performance of an employee is

evaluated by the employee himself The use of self appraisal is advocated by the

belief that the employees are the best people to observe their own work behaviors

and to give most accurate performance ratings Many researchers have pointed out

the potential benefits of self-appraisal Farh et al (1991) argued that self-ratings can

contribute to the overall effectiveness of the performance appraisal system and have

positive impacts on employees’ satisfaction and the perception of justice and

fairness Gomez-Meija (2001) suggested that self-appraisal allows subordinates to

participate into the system and thus help them identify the real causes of their

performance problems Jackson and Schuler (2003) believed that when subordinates

participate in the performance appraisal process they become more involved and

committed to the goals Furthermore, the involvement of the subordinates in the

appraisal process helps reduce goal ambiguity and conflicts Other benefits of self

appraisal include increased communication between rates and ratees regarding a

number of performance related aspects, increased ratees participation, satisfaction and acceptance of appraisal results (Caroll & Schneider, 1982; Fletcher, 1986,

Latham and Wexley, 1981) Self appraisal was judged as fairer, more accurate, and

even more effective than supervisor appraisal in Farh et al, (1988) study

On the other hand, several researchers suggested limited use of self-appraisal

as a performance appraisal tool They pointed out that the self-raters have self-

enhancement desire and that most of them do not evaluate themselves objectively

and reliably enough (Denisi & Shaw, 1977, Anderson et al 1984) Previous studies

have suggested mixed results about the usefulness of self appraisal Thorton (1980),

in his review of self appraisal, found evidence of leniency in self appraisal in most

of the studies reviewed, The employees tended to give themselves higher ratings in

comparison with both supervisor and peers appraisals Other characteristics of self-

rating as suggested by Thorton’s review (1980) of 22 studies in the field of self

appraisal include: less variation among self appraisals, less discriminant validity and

fewer halos He also concluded that self appraisal have lower reliability than

supervisor and peers ratings

1.5.2, Peer appraisal

Peers appraisal is the process in which evaluation ideas from the employees’

peer workers are used to rate the employee's performance Among several rater

sources, peers appraisal is consider the best source of performance evaluation

(Murphy and Cleveland, 1995) Korman (1968) concluded that peer ratings are among the best predictors of job performance Peer appraisals have been found as valid ratings in many types of jobs including industrial managers, sales representatives and police officers (Roadman, 1964; Waters & Waters, 1970; Landy

et al 1976) Previous studies also suggested that peer appraisals have consistent reliability (Dejung & Kaplan, 1962; Fiske & Cox, 1960) They reported test-retest

reliability coefficients of 0.6 and 0.7 for periods ranging up to one year The high

16

reliability was believed to be the effect of the daily interaction among peers and the

combination of multi-raters (Latham et al, 1979; Miner, 1968)

On the other hand, peers appraisals also have some shortcomings One of

these, as suggested by Farr (1983) was that as peers work together, they often

develop personal relationships and friendships with one another When they are

required to evaluate their peers’ performance they tend to be more lenient, that is,

they would give other peers higher ratings Murphy and Cleveland (1995) suggested

that peer rates will rate everyone in a similar way in order to maintain harmony and

consolidation within their groups

1.5.3 Subordinate appraisal

Subordinate appraisal is the scheme in which subordinates evaluate the work

performance of their supervisors Subordinate appraisal is almost completely

different with the traditional top-down performance appraisal practice The reasons

for use of subordinates was based on the fact that subordinates are often in closer

contact with their supervisors than the supervisors’ bosses or peers, therefore they

can observe their supervisors’ behaviors and give accurate ratings (Bernadin, 1986)

He also suggested that subordinates are directly affected by their supervisors’

behaviors and thus can give valuable first-hand feedback about management styles

Others advocate that subordinate ratings, like peer ratings, can remove potential

biases inherent with single rates appraisal (Redman & Snape, 1992)

In practices, studies have suggested that up-ward or subordinate appraisals

can positively contribute to supervisor’s behavior change Reily, Smither, &

Vasilopoulos (1996) and Walker & Smither (1999) found evidences that the

continuous application of subordinates appraisal can result in sustained positive

behavior changes for the period from 2.5 and 5 years Subordinate appraisal can also result in improvement in management skills Atwater et al (1995) concluded

from their study that subordinate appraisal can improve management skills of managers who were rated poor to moderate by subordinates six month after

appraisal, provided that the supervisors’ self-ratings were not also low

However, there are also a number of drawbacks that are associated with the

use of subordinate ratings Bernadin, Dahmus & Redmon (1993), for example, pointed out several potential pitfalls and drawbacks of using subordinate appraisal

First, in order to gain favorable ratings, managers may try to please subordinate and,

as a result, the authority of supervisors could be reduced and the status of

supervisors are also undermined Second, subordinates are qualified to evaluate

only some limited aspects of supervisor's job When the other aspects of job are

included, ratings by subordinate may be inaccurate Furthermore, under such

circumstances, managers do not feel that subordinates are able to evaluate which

leads to the failure of the scheme

As discussed above, each of the appraisal sources has its strengths and weaknesses,

careful consideration of these strengths and weaknesses will be needed in order to

yeild the best results Besides, one of the issue that attracts most of the concern

regarding multi-source appraisal is the agreement among these sources

1.6 Bias in performance appraisal

Despite the vital role of performance appraisal in the functioning of organizations and development of individual, performance appraisal systems are not

without shortcomings (Cascio, 1987) Lee (1989) pointed out a number of reasons

for which performance appraisal systems failed to achieve their desired

effectiveness These reasons include poor design, lack of communication, ambiguity, lack of supports, inappropriateness One of the most important reasons,

however, was biases in performance appraisal

Biases in performance appraisal can be defined as the difference between

actual performance level and performance ratings given by raters Bias is minimized

when performance ratings perfectly reflect actual performance level However,

there are many factors that may introduce biases into performance appraisal

Sources of biases in performance appraisal can be the raters, ratees or the

interaction between them (McKinney and Collins, 1991),

As suggested by Lazer (1980), rater biases result from the subjective nature

of evaluation and ratings based on raters’ observation and judgment When

18

objective measures are available, rater biases may decline but it is difficult to

establish such objective measures or out-put criteria for all types of jobs especially

those of high levels in the organizations The most common biases in performance

appraisal are the halo effect and hom effect, leniency error, error of strictness,

central tendency error, recency effect, contrast error and similarity error This

section will review several factors that are related to rater biases in performance

appraisal including raters and ratees characteristics such as gender, age and sex,

prior expectation and knowledge of performance, rater-ratee acquaintance and grievance activities

1.61 Rater and ratees personal characteristics

1.6.1.1 Gender bias in performance appraisal

Gender of the raters

Researches on the impacts of raters’ gender on performance appraisal have

suggested mixed results Studies by Pulakos and Wexley (1983), Landy and Farr

(1980), for example, showed no difference between male and female supervisor

appraisal ratings Similarly, Shore and Thorton (1986) also suggested no significant impacts of rater’s gender on both self and supervisor’s ratings In contrast,

McKinney and Collins (1991) found that female raters gave higher ratings than

male raters at the significant of 0.01 from their data Benedict and Levine (1988)

used student subjects and a laboratory setting to show that females were more

lenient with poor performers However, study by Fummham and Stringfield (2001)

indicated that female raters were stricter in their ratings of male subordinates No

such difference was found among male raters

Gender of the ratees

Performance appraisal biases regarding ratees” gender attracted many more studies Findings from these studies, however, are inconclusive with the emergence

of three different stances (Millmore, Biggs and Morse, 2007)

A number of studies using both student and employee subjects showed

evidence of favoring males in performance ratings Rosen et al (1975), for

example, found that male candidates were rated more favorably than female along

some specific performance dimensions such as acceptability, service potential and longevity Gutek and Stevens (1979) found that pro-male bias exists in some types

of jobs Dipboye et al (1975) study suggested that males are rated higher than

females even though their qualities are all the same ‘They found that 72 percent of the top ranking candidates for a hypothetical managerial position were male

although the characteristics of male and female applicants were identical Nieve and Gutek (1980) cited attribution theory as an explanation for the favor of males in performance ratings They proposed that when women perform well, their

performance is attributed to other factors rather than ability Deaux and Fimswiller

(1974) found that when women perform as well as men on male related tasks, their

performance was attributed to extemal factors such as luck while the same performance

of males was atlibuled to skills which are au micrnal factor Other sludics also

suggested that good performance of women tends to be attributed as temporary while that of men are attributed as permanent (Feldman - Summer & Kiesler, 1974, Taynor &

Deaux, 1975)

Other studies found no difference in the evaluation of both males and females Frank and Drucker (1977) found no difference in performance ratings of

due and women on sensitivity, organization, planning and written communication

Shore and Thorton (1986) studied 35 male and 35 female assemblers and their 35

supervisors consisting of 16 men and 19 women Their data suggested no gender

diTerence for both self and supervisor rating Similarly Hall and Hall (1976) found

no sex difference in ratings of overall task performance Thompson and Thompson

(1985) reported no sex difference in field setting where job analysis was used to

develop a tasked based performance appraisal instrument Tsui and Gutck (1984)

indicated no difference in the attitude of supervisors towards male and female

subordinates Griffelh and Bedeian (1989) provides a possible explanation for ihis

phenomenon ‘They proposed that overtime, many occupations have become gender

neutral rather than being viewed as male or female oriented and thus gender bias no

longer existed

Yet, there is another line of studies which indicates that females are rated more favorable than males Jacobson and [ffertz (1974) found that followers tended

to rate the performance of male leaders worse than that of female leader even the

actual performance was the same Results of Funham and Stringfield (2001) study showed that male ratees received lower ratings compared to female ratees

Millmore, Biggs and Morse (2007) studied 66 managers (33 males and 33 females)

who represent 92 percent of 72 managers in the UK headquarter of a large financial

services organization They used a combination score of self, supervisor, peers and

subordinates ratings and found thai females have significantly higher score thar males McKinney and Collins (1991) studied the influence of age, race and sex on

performance appraisal bias in public parks and recreation Their results indicated

thal Lemale ratecs received significantly higher ralings than did male raloes They also proposed that the results may suggest that female were inherently better at performing, the duties and responsibility of the position under investigation or, in other way, represent a lenioncy effect Using studont sample, Dobbins, Cardy and

‘Traxillo (1988), found that female professars are rated higher by students Neiva

and Gutek (1980) concluded that gender bias in performance appraisal exists but its

effects are not consistent across all situations ‘hey suggested several factors that

affect the performance evaluation of men and women

First, they proposed that the higher the required level of inference the more

likely evaluation bias oxisls Appraisal based on past performarice is subject lo less

‘bias because it requires minimum level of mference On the other hand, when appraisal is based on judgment aboul the individual’s ability, about causes and value

of performance which require high level of inference, bias are more hkely to occur

They also argued that when performance criteria are clear or when specific and

conereie information arc available, the required level of inference is low and thus

less bias occurs

Second, they proposed the effect of sex role congruence, in which behaviors

that violate the societal sex role expectation tend to be negatively rated They cited a

number of studies which suggested that both males and females suffered when

applying for sex-typical jobs, Furthermore they also found that when females behave in a manner that is not compatible with sex-role expectation they become disliked and are excluded from the group or their performance is underestimated or attributed to unstable and extemal factors rather than ability

Finally, they suggested that level of qualification or performance may affect gender bias The level of qualification or performance is higher for males than for females, especially in demanding or challenging tasks or occupations, Thus, males are evaluated more highly when they succeed than when they fail On the contrary, females are valed more favorably when they fail raiher when they sueveed Moreover, unsuccessful females are less seriously penalized than unsuccessful males but successful women are not rewarded as heavily as successful men

1.6.1.2, Rave biases on performance appraisal

One of the most pronounced areas of concern regarding bias in performance appraisal has been race biases (McKinney and Collins, 1991) Ilowever, the results are inconsistent Mobey (1982) studied 1035 cmployecs of both managerial and non-managerial jobs to explore the impact of race on performance ratings Data of previous year performance appraisal were collected together with sex and race of both supervisors and employees ‘Ihe results showed that in general, race of the raters did not have any significant impact on their ratings of subordinates,

On the other hand, difference has been found regarding race of the ratees White employees received higher ralings compared to black employees Kraiger and Ford (1985) reviewed a number of studies regarding race effect on performance appraisal and concluded that white employees tend to be rated higher than blacks They also suggested that supervisors gave higher ratings to employces of their own race Other studies also provided supports for this finding (Schmitt and Hill, 1977, Schmitt and Lappin, 1980; Bass and Tuer, 1973) Brugnoli, Campion, and Basen (1979) found that blacks were rated lower than whites on global dimensions but were rated as highly as white on some specific behavioral dimensions Brutus, Fleenor and Mecauley (1989) studied managers sample and found evidences in support of their hypothesis

22

that managers from minority groups were rated lower than managers from majority

proups

Other studies, however, found no such race effect on performance rating McKinney and Collins (1981) found that race of both raters and ratees did not have

any significant impact IJall and Hall (1976) used student subjects and reported that

no differences were fourxd when sex and race were examined alone They allnbuted the findings to the conditions of the study Mobley (1982) also found evidences against the hypothesis that supervisors tend to give higher ratings to employees of

their owt race

Regarding the inconsistent results about race effect on performance

appraisal, McKinney and Collins (1991) advocated that race bias is a complex amalter and (hal other contextual variables may have mflucneed the relauonships

‘They pointed out that stereotyping of black or white dominated jobs or performance evaluation settings can be potential factors that influence the results

1.6.1.3 Age bias in performance appraisal

Another area of concern regarding performance appraisal bias is the impact of age

on performance ratings

Regarding age of the raters, some studies have suggested that older raters

gave lower ratings than younger raters (Cleveland and Landy, 1981; Waldman and

Avolio, 1986) Other studies reported contradictory results as they suggested that

younger ralers raled more harshly than older ralers (Gnilleth and Bedeian, 1989)

Yet some other researchers reported no effect of raters’ age on performance ratings

(Klores, 1956, Schwab and Heneman, 1978; McKimmey and Collins, 1981)

Regarding the age of the ratces, Bretz, Milkovich and Read (1989) suggested

that age of the ratees received limited attention However, previous studies on the

effect of ratee’s age also yielded mixed results A umber of sludies mdicated that

‘younger employees are rated more favorably than older employees (Rosen, Jerdee, Lunn, 1981, Terris et al 1985) Lawrence (1988) found that managers who are

ahead of their age cohort were rated higher than those behind their age cohort

Schwab and Heneman (1978) suggested that bias against old ratees was likely to

occur among old raters than among younger raters On the other hand, Rohdes

(1983) provided evidence that ratee’s age can influence appraisal results in all

possible directions Griffeth and Bedeian (1989) reported no main effect of rates’

age on performance appraisal ratings

The inconclusive results about the effect of age on performance appraisal

have led McKinney and Collin (1991) to believe that the relationship may also be

affected by such factors as type of jobs, research settings and performance measures

in use They also pointed out that there was a belief that performance generally

decrease with age and argued that until this belief is consistently proven across

studies this attitude would limit the opportunities for older workers Regarding this

belief, researches have indicated a more complicated relationship between age and

performance Waldman and Avolio (1986), for example, found evidence from their

meta-analysis that performance did not necessarily decrease with age and proposed

that performance may actually improve with age based on the criteria used

Similarly, McEvoy and Cascio (1989) also conducted a meta-analysis and the

results showed that age and performance are unrelated Cole (1979) found that

employees’ job performance can increase with age at start of the careers, become

stable at midlife and then increase or decrease when they grow older

In conclusion, although previous researches have suggested that the

characteristics of raters and ratees such as age, sex and race biased performance

appraisal, the biasing effects were inconclusive Researchers agreed that such

biasing effects are complicated and that others contextual factors may also have

impacts on the relationship

1.6.2 Other rater biases in performance appraisal

1.6.2.1 Prior expectation and performance knowledge

Bretz, Milkovich and Read (1989) studied the actual practice of performance

appraisal systems of the Fortune 100 and compared these practices with the research

directions in the field In their review of literature regarding bias in performance

appraisal, they suggested that information processing can affect the performance

appraisal process

Bretz, Milkovich and Read (1989) argued that under objective-based performance appraisal systems prior expectations of performance almost always exists When the

supervisors and subordinates met each other to discuss and agree on performance

targets, each of them has had some ideas about the accepted level of performance,

or, in other wards, expectations of performance

Hogan (1987) argued thal prior expectation of a ralee’s performance may

bias performance rating in the subsequent period She proposed that the correlation

between actual performance and performance rating represent appraisal accuracy

Bias occurs when the correlation arc Jess Lhan perfect She also poi oul four

perspective that affect performance ratings ‘Ihe first was the information processing

perspective which suggests that individual prefer to search for, perceive and recall

information consistent wilh their prior expectalion than information thal is inconsistent Second, she recalled Hedonic relevance perspective which suggested that disconfirmation- a mismatch between a prior expectation and later perception

of actual porformance- affects cvaluations Specifically, she hypothesized that disconfirmation of prior expectation would diminish ratings ‘I'he third perspective

was attribution perspective which proposes that I) when disconfirmation occurred the individual would try to find causation to it and attribute this to extemal and

unstable factors and 2) evaluator’s attribution would affect subsequent ratings And

finally was the avoidance of negative feedback perspective in which evaluators

avoid giving negative feedback and thus they altribule any poor performance to extemal factors and good performance to internal factors Using data from 19

supervisor-subordinate dyads in a longilucinal study, she found that supervisors

gave lower ratings than actual performance warrants when there was

disconfirmation of prior expectations no matter what actual performance

disappoinls or excceds expeclations She also found supports [or the hypothesis derived from avoidance of negative feedback perspective, that is, the supervisor would attribute performance to internal causes when they gave high ratings The

results, however, provided no support for hypotheses derived from other

perspectives mentioned above

Mount and ‘Thompson (1987) also studied the effect of prior expectations on performance ratings in a field setting They examined subordinates’ ratings of

managers and suggested that when behavior meets expectation, ratings tend to be

snore accurate but also more lenient and biasing

Some other studies also examined the effect of performance knowledge or

past ralings ou current performance ralings Huber et al., (1987) found thal past

yatings tended to provide guidelines for current ratings Other authors, on the other

hand, suggested that prior performance tended to cause current performance ratings

to bias away from prior level of performance (Murphy, Ralver, Lockhart and

Kiseman, 1985, Smither, Reilly and Buda, 1988) Steiner and Rain (1989) used

student subjects in two studies to examine the effect of serial position of a single

poor or good performance on performance ratings They found thal overall performance varied depending on whether good or poor performance occured last They also found that poor or good inconsistent performance was rated more similarly to preceding average and suggested a tendency to bias inconsistent extreme performance toward the stable impression already established

1.6.2.2, Rater-Ratee acquaintance

Many authors have pointed out that although acquaintance is a critical factor

that may affect the appraisal process, there has been little research about its impacts

on rating accuracy and rater bias (Van Scotter, Moustafa, Bumett and Michael,

2006)

Some authors proposed that acquainted raters may have had more time to observe

the ralee’s behavior and therefore they might have more comprehensive, more

varied and more representative sample of information regarding the ratec’s job

Better information should enable the raters to give more accurate ratings and to

avoid factors that may distort evaluations (Cooper, 1981; Molowidlo, 1986) Others

argued that unacquainted raters have no reason to rate the employees lower or higher than they deserved and that unacquainted ratings are free of between rater and ratee biases (Denisi, et al 1984).

Empirical evidence indicated an inconsistent relationship between acquaintance and rating quality Some studies proved that acquaintance improved

validity, reliability and reduced halo errors (Bare, 1954: Ferguson, 1949: Brown,

1968) Other studies found no improvement in rating quality (Hollander, 1956) and some even revealed that rating quality diminished with acquaintance (Ferguson,

1949; Knight, 1923)

Kingstrom and Mainstone (1985) proposed some possible explanations for the

conflicting findings They distinguished between two types of acquaintance: task

acquaintanec and personal acquaintance in which task acquainlance refers to Ihe amount and type of work contact raters have with ratees and personal acquaintance

refers to the degree of rater’s familiarity with ratee’s personal habits, interests and

values Kingstrom and Mainstone (1985) argued thal previous studies on raler-ratec acquaintance focus mainly on task acquaintance but failed to consider personal

relationship between rater and ratee When rater became more familiar with the

xatec, they arc likely to develop some degree of positive or nogative affect towards the ratee ‘he above authors conducted a mail survey of sales supervisors to

examine the effect of task and personal acquaintance on performance ratings Their

results indicated no significant relationship between rsater’s task and personal

acquaintance with ratee and halo error Tlowever, they did found evidence that rating favorability was associated with both task and personal acquaintance Ratees

wilh higher lask or personal acquainlance with rater recvived higher ralings

Vanscotter et al (2006) studied 101 Airforce officers enrolled in a Master degree

course in an allempt fo examine the unmpact of rater acquaintance wilh ratee on

xating accuracy and halo Their results also supported evidence of rating favorability

given by acquainted raters for briefing delivery and effectiveness dimensions as

well as overall rating, They also found that acquamled ratings deliverod higher accuracy and that acquainted and unacquainted were not different in the extent to which they were affected by halo

1.6.2.3 Grievance activities and performance appraisal bias

Grievance systems have been established in many organizations in order to protect the rights of the employees and provide an effective voice mechanism The

system enables employees to present matters of concem related to their employment

to appropriate officials and to have them considered expeditiously, fairly and impartially, and resolved as quickly as possible One of the issues that need

consideration is (he managers’ reactions to the filing and processing of grievance Tf

the managers react negatively to it, they may show discrimination against the

employees wha presented grievance when making important human resources

decisions such as discipline, promotion and performance appraisal

Some studies have focused on the effects of grievance activities and

supervisors” ratings of performance Lewin and Peterson (1987) found that the

employees who had presented grievanve received lower ratings than lhose who did not in the following year and that those who won grievance received lower ratings than those who lost Klaas, [leneman and (Ison (1988) suggested that the negative offect of filing griovance on performance ratings occurred in the same year as the grievance was presented

Klaas and Denisi (1989) carried out a longitudinal study from 1978 to 1985

with data collected from a public organization to examine the effect of grievance

activities both against a supervisor and against organizational policy on

performance appraisal They hypothesized and found that the number of grievance

an employee filed against a supervisor was negatively related to his or her performance ratings They also found that the positive outcomes gained from these

giievances activities were adversely correlated with performance ratings Qn the

other hand, Klaas and Denisi (1989) did not find similar relationships between performance ratings and grievances against organizational policy One interesting

finding in their rescarch was thal Ihe employees who fled grievances only reccived negative ratings if they were rated by managers involved in the grievances When rated by other managers there were no such effects

In summary, it can be conchided from the previous studies on the effect of

grievance on performance ratings than the employees who filed grievances against

2

their employees would receive lower ratings from the managers This places a

question on the effectiveness of grievance systems as a mechanism to protect the

rights of employees and as a channel of upward information

1.6.3 Bias Effects on PA

Gabris & Mitchell (1989) have reported a disruptive bias in performance

appraisal known as the Matthew Effect It is named after the Matthew of biblical

fame, who wrote, "To him who has shall be given, and he shall have abundance: but

from him who does not have, even that which he has shall be taken away." In

performance appraisal, the Matthew Effect is said to occur where employees tend to

keep receiving the same appraisal results, year in and year out That is, their

appraisal results tend to become selffulfilling: if they have done well, they will

continue to do well; if they have done poorly, they will continue to do poorly The

Matthew Effect suggests that no matter how hard an employee strives, their past

appraisal records will prejudice their future attempts to improve A study of

supervisors in nearly 40 different organizations found that subordinates tend to be

divided into two groups: in-groupers and out-groupers This study, by Heneman et

al (1989) reported that ingroupers are subordinates who seem to be favored by their

supervisors In their relationship with the boss, they enjoy "a high degree of trust,

interaction, support and rewards." On the other hand, out groupers don't do as well

They appear to be permanently out of favor and are likely to bear the brunt of

supervisory distrust and criticism The effect is therefore similar to the homs and halo

effect, supervisors tend to judge employees as either good or bad, and then seek

evidence that supports that opinion It was found that when an ingrouper did poorly on

a task, supervisors tended to overlook the failure or attribute to causes such as bad luck

or bad timing; when they did well, their success was attributed it to effort and ability But when a outgrouper performed well, it was rarely attributed to their effort or ability

And when an outgrouper performed poorly, there was little hesitation in citing the

cause as laziness or incompetence It is not clear how supervisors make the distinction

between ingroupers and outgroupers Whatever the criteria, it is clearly not objective,

equitable or reliable This bias must inevitably lead to a distortion of the appraisal

process It must also be a source of frustration for those employees who are

discriminated against

1.7 Uses of Performance Appraisal

1.7.1 Linking performance appraisal with pay

As researchers have suggested, the two main purposes of performance

appraisal are evaluative and developmental purposes (Boswell and Boudreau, 2000,

Nguyen Van Diem & Nguyen Ngoc Quan, 2012) Linking performance appraisal

with pay is one of the main practices of evaluative performance appraisal Pay-for-

performance or performance-related-pay refers to the practice under which an

employee's pay is directly related to his or her performance as opposed to the

traditional seniority based pay or time-based compensation scheme This section

reviews the literature regarding pay-for-performance

The theoretical base for the potential benefits of pay-for-performance can be

derived from equity theory or expectancy theory Equity theory (Adams, 1962)

proposed that people want to be treated fairly In the workplace, employees tend to

use social comparison to compare the input-output ratio of self versus that of a

referent The perception of equity does not require that the outputs are the same but

the output-input ratios should be equal Employees who perceive themselves as

being in an inequitable situation will seek to reduce the inequity either by distorting

inputs and/or outcomes in their own minds (“cognitive distortion”), by directly

altering inputs and/or outputs, or by leaving the organization (Carrell and Dittrich,

1978) Pay for performance is expected to contribute to the feeling of equity as pay

(outcomes) is made contingent upon performance (input) as compared to seniority-

based or time-based pay scheme

Expectancy theory (Vroom, 1964) claimed that employees will be motivated

if they perceive that putting more efforts would lead to better performance, better

performance would lead to rewards such as pay increase or promotion and that

rewards are of importance to the employees Vroom (1964) proposed three variables

within the expectancy theory including the effort-to-performance expectancy, the

performance-to-reward expectancy and the valence of the rewards He also

30

proposed that for motivation to occur the two expectancy values must be well above

zero and also the rewards must be attractive enough Pay for performance can be a

motivation factor as it enhances the performance-to-reward expectancy by making

pay associated with performance

There are several forms of pay for performance or performance related pay

Kessler (1994) for example, identified 3 forms of pay for performance The first is

individual merit and pay-for-performance systems based on performance appraisal

which replace the basic time based salary Merit pay and piece rate are examples of

the first form of pay for performance Piece-rate is considered the most precious

way to link pay with performance as an employee’s wage is completely dependent

on output while merit pay is based on supervisor's evaluation of an employee's

output and thus is subject to errors (Brown, 1990)

The second is individual bonus which is based on the achievement of targets

Targets can be a single factor or on a combination of several factors These factors

can include: productivity and output, quality, financial performance, cost

management, sales and so on

The third are group-based bonus and such scheme as profit sharing and gain

sharing Under group-based bonus schemes, performance targets will be measured

at the level of specific group and bonus will be determined by group performance

Group-based bonus, thus, can help improve communications and foster team

working spirits Profit sharing is an incentive plan under which part of the

company’s profit will be paid to the employees Gain sharing is a program that

returns cost savings to the employees It is a productivity measure while profit

sharing is a profitability measures Bonus is a form of variable pay which can help

link pay to performance without permanently increasing the pay bill,

1.7.2 Linking performance appraisal with career development

While pay-for-performance has been used by many organizations, the link

between performance appraisal and career development and/or promotion is not

widely researched In fact, one of the practices to link performance appraisal with

career advancement or promotion is the use of merit-based promotion system This