Performance appraisal and the applications in building useful appraisal practices in PECC 1

PURPOSE The first objective of this thesis is helping PECC 1 to handle their current problems and improve its current performance appraisal practices through analyzing the... METHODOLOG

vietnam national university, HANOI

hanoi school of business

Tran Thu Ha

Performance appraisal and the applications in building useful appraisal practices in pecc 1

master of business administration thesis

vietnam national university, HANOI

hanoi school of business

Tran Thu Ha

Performance appraisal and the applications in building useful appraisal practices in pecc 1

Major: Business Administration

TABLE OF CONTENT

Abstract………i

Tóm tắt………ii

Acknowledgements……….iv

Table of content……… v

Executive summary……….viii

1 NESCESSITY OF THE THESIS _ 1

2 PURPOSE 1

3 KEY RESEARCH AREA 2

4 METHODOLOGY 2

5 CONTRIBUTION OF THE THESIS 2

6 OUTLINE 3

1.1 PERFORMANCE APPRAISAL _ 4 1.1.1 What is performance? 4 1.1.2 Performance appraisal _ 6 1.1.3 Performance appraisal’s critiques 10 1.1.4 Benefits of performance appraisal _ 12 1.2 PERFORMANCE APPRAISAL APPROACHES 15 1.2.1 Trait approaches _ 15 1.2.2 Behavioral approaches 18 1.2.3 Result approaches 21

1.3 RESPONSIBILITY FOR PERFORMANCE 231.4 MODERN APPROACHES 251.4.1 306-degree feedback 25 1.4.2 Appraisals of team performance _ 25 1.5 PROBLEMS OF APPRAISAL APPROACHES _ 261.6 SUM UP OF THE APPROACHES _ 281.7 PERFORMANCE APPRAISAL IN PRACTICES _ 291.8 METHODOLOGY 32

2.1 OVERVIEW OF PECC 1 34

2.1.1 An overview 34 2.1.2 Company analysis 35 2.2 RESULT FROM SECONDARY RESEARCH 372.3 RESULT FROM PRIMARY _ 392.3.1 Patterns of the survey samples 40 2.3.2 The content of the survey 2.4 FINDINGS _ 58

3.1 RECOMMENDATIONS FOR PECC 1 _ 633.1.1 Short term recommendations _ 64 3.1.2 Long term recommendations _ 73 3.2 ACTION PLAN _ 763.3 CONTRIBUTIONS TO PERFORMANCE APPRAISAL 79

3.3.1 Contributions to performance appraisal practices _ 79 3.3.2 Contributions to performance appraisal theory _ 80

INTRODUCTION

1 NESCESSITY OF THE THESIS

PECC 1 is a state own company which is going to be equitized at the end of 2006 This reality put them under the pressure of improving and strengthening all of their resources in order to survive Currently, the turn over rate is quite high The company now facing the threat of losing its intellectual blood especially the employees who have the long time experience tend to switch to higher positions in EVN With newly graduations, they often leave the company after working for PECC 1 in 2 or 3 years because their objective is just gaining the experience PECC

1 is now lacking of skillful engineers who can help the company to carry and manage big projects Through the current surface of PECC 1, the student thinks that these issues are related to human resource management of the company There are many different explanations for the leaving employees; however, there is a common explanation that they will receive a higher salary package The level of new packages according to them is worthy to their efforts That means the current salary package PECC 1 has not made them feel satisfy in some way or we can say that the current performance appraisal of PECC 1 has some disadvantages Therefore, if PECC 1 wants to keep their current staffs and attract more talents, they have to revise their current performance appraisal system then improve it Besides, PECC 1 also want to develop a standard performance appraisal system in order to enhance the strength of their current human resources From through the knowledge and experience of this MBA course, the student thinks that PECC 1 can settle their problems through improving the human resource management overall, especially focusing in performance appraisal system

2 PURPOSE

The first objective of this thesis is helping PECC 1 to handle their current problems and improve its current performance appraisal practices through analyzing the

PECC 1 from the angle of a performance appraisal perspective This thesis will goes from the performance appraisal theories, withdraw the best performance appraisal practices then suggest some recommendations that fit with PECC 1 The recommendations will be given out by finding the answers for these following questions:

 How do employees feel about the current performance appraisal of PECC 1?

 In fact, how effective the appraisal system of PECC 1 was?

 What will be the effective ways for PECC 1 in gather the information that

useful for appraisal process?

 Whether can we develop some new appraisal practices in PECC 1? If yes,

what are they?

The second objectives is the contributions to performance appraisal in both applications in theory and practices for Vietnamese companies that have the similar issues as PECC 1

3 KEY RESEARCH AREA

This research focuses on reviewing the performance appraisal theories and analyzing the current problems of PECC 1 from the angle of performance management How to apply the performance appraisal approaches into PECC 1 appropriately

4 METHODOLOGY

The methodology will be base on: (i) deep research by collecting the data from

internet, reviewing all the studies related to the performance practices and analyze the PECC 1’s performance appraisal policy; (ii) quantitative survey that can help to find out the employees’ opinion on the current performance appraisal of PECC 1

5 CONTRIBUTION OF THE THESIS

The student hopes this thesis will help students who are interested in researching on the performance appraisal practices in the future And the most important thing is

that this thesis can help those companies who are in the same situation as PECC 1

can draw out the appropriate practices for them

6 OUTLINE

The thesis includes three chapters

 Chapter 1: Literature review

This chapter will provide the summary of performance appraisal theories The author will come from the definitions to methods to measure appraisal as well as the development trend in using the performance appraisal

CHAPTER 1: LITERATURE REVIEW

As we all know that almost employees will be paid based on their performance and appraising employees performance is considered as the most difficult and important

of the managers’ job, so before researching and analyzing about performance appraisal we should answer the question below

1.1 PERFORMANCE APPRAISAL

1.1.1 What is performance?

People often say she is high performance or he is poor performance In addition, the term “performance” progressively is considered as the word to express how well an employee does his job Experts define performance as “how well an employee is fulfilling the requirements of the job”1 Through this definition, we can see that if an employee wants to complete a job he needs to have not only a basic knowledge on this job but the more important is the attitude “To fulfill the requirements of the job” means the employee should find out the right ways to do this job So in general, performance is seen as the result of the combination by the three factors:

effort, ability and direction Effort refers to how hard a person works Ability is along with the person’s capability Direction refers to how well the person knows

the expectations on the job

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Figure 1.1 illustrates these relationships: (Rue and Byars, 1996)

People often confuse between performance and effort However, the core different, which helps us to distinguish effort and performance, is that performance stresses more on the result while effort refers to how hard we try to get that result Of course, the performance of a person somewhat depends on the effort but if the efforts were not use for a specific job, the performance will never be recognized

From the figure above, Rue and Byars also mentioned the Environmental Factors

Environmental Factors include work facilities and equipment, the relations among employees; the restrictive policies affect the job… The factors are not under the direct control of employee and can affect employee’s performance For example, let’s image about an artist working in the Creative department of an Advertising company, what will happened if he has to follow very strict rules, and his teammates have not cooperated or supported him well? In this situation, clearly, he cannot do anything to change the rules as well as make his teammates change their thinking about him He will feel disappointed, he doesn’t want to devote effort for the job even he likes it, he will work under his capability, and maybe he will go against the setting direction  this leads to a bad result both in his works and other’s

Additionally, through that figure we can see, if an employee wants to get to a certain level of performance, he has to present his effort, ability and direction to

Environmental factors

Performance

some extend If an employee puts forth a great deal of effort, has above average ability but does not have a good understanding about the job, the probable result would be unsatisfactory performance If an employee understands about the expectation of the job, works very hard but does not have any ability to do the job

 the result will be very poor Therefore, the key to obtain good performance is to encourage effort by employees, to develop their ability and to clear communication about the expectations on the job There are some several means using to enhance the employees direction, one of them is performance appraisal

1.1.2 Performance appraisal

The history of performance appraisal is quite brief Its roots in the early 20th century can be traced to Taylor's pioneering Time and Motion studies However, this is not very helpful, for the same may be said about almost everything in the field of modern human resources management

As a distinct and formal management procedure used in the evaluation of work performance, appraisal really dates from the time of the Second World War - not more than 60 years ago From that on, appraisals gradually began to be used as a tool for motivation

Yet in a broader sense, the practice of appraisal is a very ancient art In the scale of things historical, it might well lay claim to being the world's second oldest profession!1

Performance appraisal is a process by which a superior evaluates and judges the work performance of a subordinate Performance appraisal systems include the processes and procedures involved in implementing, managing, and communicating the events involved in performance appraisal In many cases, it is a formal process and is a part of the personnel management policy Numerous organizations employ

a formal or informal assessment system that measures employee performance and contribution (Carroll & Schneier, 1982) Coens and Jenkins (2000) suggest that

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performance appraisal is a mandated process in which, for a specified period of time, all or a group of an employee's work behaviors or traits are individually rated, judged, or described by a rater and the results are kept by the organization Karol (1996) considered performance appraisal to include a communication event scheduled between a manager and an employee expressly for the purposes of evaluating that employee's past job performance and discussing relevant areas for future job performance DeNisi, Cafferty, and Meglino (1984) indicated that performance appraisal is an exercise in social perception and cognition embedded in

an organizational context requiring both formal and implicit judgment

A variety of components may be included in the performance appraisal process Landy and Farr (1980) presented a model of performance appraisal that included 13 interacting factors: position characteristics, organization characteristics, and the purpose of the rating, the rating process, scale development, the rating instrument, rater and ratee characteristics, the observation and storage of performance data, the retrieval and judgment of that performance, analysis of this information, performance description and in the end, personnel action According to Mohrman, Resnick-West and Lawler (1989) there are four activities in the performance appraisal cycle in organizations: (i) defining what performance is or should be; (ii) measuring and evaluating performance; (iii) feeding information about that performance back to the individual; and (iv) providing information to other organizational systems that use it Latham and Wexley (1981) listed similar requisite components but added a review of legal requirements, development of an appraisal instrument, selection and training of observers, and praise or reward for performance Regardless of the definition or the specific components included, performance appraisal in most organizations is formal, structured, and required The process is generally defined to include an interview between the rater and the ratee

as well as performance documentation required by the formal evaluation system One descriptor left out of most definitions is that performance appraisal is often

dreaded by participants Folger and Lewis (1993) suggest that performance appraisals typically engender the same degree of enthusiasm as paying taxes

“Appraisal, it seems, is both inevitable and universal In the absence of a carefully

structured system of appraisal, people will tend to judge the work performance of others, including subordinates, naturally, informally and arbitrarily The human inclination to judge can create serious motivational, ethical and legal problems in the workplace Without a structured appraisal system, there is little chance of ensuring that the judgments made will be lawful, fair, defensible and accurate 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” 1

In fact, conducting performance appraisals is often a frustrating human resource management task2 Edward Lawler, one management guru also stated in one of his paper that the performance appraisal systems are not the motivations of individuals

as well as the effective guiding to their development except the reason which initiated the conflicts between supervisors and employees If we focus on the traditional performance review we can withdraw that this way of reviewing will put power in supervisor’s hand, only they have the right to evaluate employees But today things have been changed; the sources of information that determines the employee’s performance will not only from supervisor’s opinion, it is also gathered from peers, customers …These information will provide the real picture about the performance of that employees However, performance appraisal often perceived as

a negative and disliked activity but still organization don’t stop doing it Because

most of organizations, after reviewing the process, are led to one conclusion: if they

want to develop and become a great organization, having a fair of performance appraisal system is needed For that reason, developing an effective performance

appraisal system has been and will continue to be a high priority of human resource

1 http://www.performance-appraisal.com

2 Mondy, R Wayne; Noe, Robert M & Premeaux, Shane R “ Human resource management”, Seventh edition 1998, p.336

management In this effort, performance appraisal must not be seen as an end in itself but rather the means to influence performance management

For many organizations, the primary goal of a performance system is to improve performance In fact, performance appraisal data are potentially valuable for use in virtually every human resource functional area such as:

 Human resource Planning: a well-designed appraisal system provides a profile of the organization’s human resource strengths and weaknesses to support the promotion process

 Recruitment and Selection: performance appraisal ratings maybe helpful in predicting the performance of job applicants These data may them provide benchmarks for evaluating applicants responses obtained through behavior description interviews Also, in validating selection against which test scores are compared

 Training and Development: a performance appraisal should point out an employee’s specific needs for training and development A performance system does not guarantee that employees will be properly trained and developed The task of determining training and development needs, however, is aided when appraisal data are available

 Career planning and Development: career planning and development may be viewed from either an individual or an organization viewpoint In either case, performance appraisal data are essential in assessing the person’s potential Managers may use such information to counsel subordinates and assist them in developing and implementing their career plans

 Compensation: performance appraisal results provide a basis for rational decisions regarding pay adjustments Most managers believe that outstanding job performance should be rewarded tangibly with pay increases They believe that what you reward is what you get To encourage performance, a firm should design and implement a fair performance

appraisal system and then reward the both most productive workers and team

 Internal employee relations: performance appraisal data are also frequently used for decisions in several areas of internal employee relations, including motivation, promotion, demotion, termination, layoff and transfer An employee performance in one job maybe useful for in determining his or her ability to perform another job on the same level, as required in the consideration of transfers

 Assessment of employee potential: some organizations attempt to assess employee potential as they appraise job performance The best predictors of future behaviors are said to be past behaviors However, an employee’s past performance in a job may not accurately indicate future performance in a higher level or different position

In conclusion, we can withdraw the purpose of performance appraisal: (i) to improve employee performance in the present job, (ii) to prepare employees for future opportunities that may arise in the organization, then (iii) to provide a record

of employee performance that can be used as a basic for future management decisions

1.1.3 Performance appraisal’s critiques

Few issues in management stir up more controversy than performance appraisal Many reputable sources - researchers, management commentators, and psychometricians - have expressed doubts about the validity and reliability of the performance appraisal process Some have even suggested that the process is so inherently flawed that it may be impossible to perfect it (see Derven, 19901, for example)

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At the other extreme, there are many strong advocates of performance appraisal Some view it as potentially " the most crucial aspect of organizational life" (Lawrie, 19901)

Between these two extremes lie various schools of belief While all endorse the use

of performance appraisal, there are many different opinions on how and when to apply

There are those, for instance, who believe that performance appraisal has many important employee development uses, but scorn any attempt to link the process to reward outcomes such as pay rises and promotions

This group believes that the linkage to reward outcomes reduces or eliminates the developmental value of appraisals Rather than an opportunity for constructive review and encouragement, the reward-linked process is perceived as judgmental, punitive and harrowing For example, how many people would gladly admit their work problems if, at the same time, they knew that their next pay rise or a much-wanted promotion was riding on an appraisal result? Very likely, in that situation,

many people would deny or downplay their weaknesses

Nor is the desire to distort or deny the truth confined to the person being appraised Many appraisers feel uncomfortable with the combined role of judge and executioner

Such reluctance is not difficult to understand Appraisers often know their appraisees well, and are typically in a direct subordinate-supervisor relationship They work together on a daily basis and may, at times, mix socially Suggesting that

a subordinate needs to brush up on certain work skills is one thing; giving an appraisal result that has the direct effect of negating a promotion is another

The result can be resentment and serious morale damage, leading to workplace disruption, soured relationships and productivity declines

On the other hand, there is a strong rival argument which claims that performance appraisal must unequivocally be linked to reward outcomes Matthew Effect

1 http://www.performance-appraisal.com

supposes that when an employee receives the same appraisal results year in and year out it will make them disappointed The advocates of this approach say that organizations must have a process by which rewards - which are not an unlimited resource - may be openly and fairly distributed to those most deserving on the basis

of merit, effort and results

There is a critical need for remunerative justice in organizations Performance appraisal - whatever its practical flaws - is the only process available to help achieve fair, decent and consistent reward outcomes

It has also been claimed that appraisees themselves are inclined to believe that appraisal results should be linked directly to reward outcomes - and are suspicious and disappointed when told this is not the case Rather than feeling relieved, appraisees may suspect that they are not being told the whole truth, or that the appraisal process is a sham and waste of time

Experts also say that In-group Out-group Theory-Managers tend to judge employees that they favor more positively and out-groupers in a less positive

manner According to this theory: (i) In-groupers: Exhibit Effort and Ability Sometimes have a bad day or things are done in bad timing; (ii) Out-groupers:

Exhibit Laziness and Incompetence

There is nothing perfect and the showing of the bad sides just gives us more ideas

on how to improve the performance appraisal In fact, performance appraisal has a

lot of benefits not only to organizations but also to supervisors and employees

1.1.4 Benefits of performance appraisal

According to Rue and Byars, appraising the performance does not only make benefit for the organization but also for managers and employees Here are some benefits:

1.1.4.1 Benefits to Organization

 Provides an evaluation of the organization’s human resources: clearly when

we see the appraisal system is used to evaluate performance of employees

and even managers  the results from the appraisal system reflect the capacity of human resource of an organization

 Gives the organization basic for making future human resource decisions: the data withdrawn from appraisal system can give managers a detail picture of employee’s capacity as well as potential of him The date can help the employee to get an exact reward or a higher position

 Increases the potential of the organization’s present human resources for meeting the present and future needs of the organization: the results of appraisal system shows the capability of each employee as well as the potential of them so human resource department can actively carry the promotion or rotation, selection actions

 Improve employee morale: with a transparent appraisal system, employee can see that they will be paid appropriately to their effort so they will work more effectively This system also points out the attitude and team-work

spirit so each staff will have to work follow ethic

1.1.4.2 Benefits to Supervisors

 Provides the supervisor with a clearer picture of the employee understands of what is expected to the job: at the beginning of a specific job, employee always receive the guidance and the requirements on the job that can help them to complete it But in fact, there will be something that make the employee go under the requirements or over expected When comparing the result of the job with the requirements through appraisal system, supervisor can see whether the employee understand the requirements of the job or not

 Gives the supervisor input into each employee’s development: because supervisor is the person who directly assesses the employee performance Supervisor observes the employee everyday in every assignment that why he can know what skill employee needs for development and he can help the employee drawing out an appropriate development plan

 Improves the productivity of morale of the supervisor’s employees: appraisal result can provide to employee with a fair assessment Employee will understand that the supervisor’s evaluation is fair and based on what they do, supervisor will never victimize anyone if they work morally

 Helps the supervisor identify capable replacements for higher-level jobs within the supervisor’s work unit: the mission of supervisor is not only evaluating the employees but also evaluating other supervisors The way they assess each other is not different with the way applied for employees, the result will appear on the appraisal system Off course, this data can be use in the supervisor’s work unit for replacements for higher-level

1.1.4.3 Benefits to Employee

 Allows the employee to present ideas for improvement: with each appraisal system their will be a bilateral communication, not only supervisor’s opinion about the employee’s performance but also they will receive feedback from employees about the accurate level of the system In each form of appraisal, there always be a part reserving for employee comment and the result which gives out by the appraisal system will have direct affect to incentives so employee will actively find out the ideas to improve both the system and themselves

 Provides the employees with an opportunity to change his or her behavior: the more important of appraisal system is the comment from the supervisor

as well as the advices for each employee if he wants to improve himself So

no matter the result, it’s only meaningful if it can show the employee how to increase his capability

 Lets the employee know how the supervisor feels about his or her performance: clearly in each appraisal form there is a part for supervisor to make comment At the end, this comment will give to the employee Each

employee will receive different comment from the supervisor so employee can know what their supervisor think about him honestly

From the analyses above, we can withdraw the important of having an appraisal system However, the more important thing is how to develop an appropriate system that can help organization to utilizing its human resource There are many appraisal practices that have been applied worldwide; the use of each method depends on the attributes of an organization as well as the purpose of the leaders of that organization So now, we come to study on appraisal practices

1.2 PERFORMANCE APPRAISAL APPROACHES

Ideally, performance appraisal should be directly related to job success However, locating or creating the satisfactory measures of job success can be difficult There are many jobs for which performance measures can be developed with a greater degree of difficulty In addition, job performance is often influenced by factors outside the employee’s control For example, the performance of a machine operator is partially influenced by the age and condition of the equipment For these reasons and others, performance appraisals are often based on personal characteristics and other subjective factors In practice, the most common set of personal characteristics of appraisal criteria are traits, behaviors and task outcomes Correctively to this set of appraisal criteria, experts have developed three approaches: trait approaches, behavioral approaches and result approaches We will

go through these approaches orderly

1.2.1 Trait approaches

The trait approaches are used to mainly measure important characteristics that an employee may possess that are vital for job performance Many employees in organization are evaluated on the basis of certain traits such as attitude, appearance, initiative, and so on However, many of the traits commonly used are subjective and may be either unrelated to job performance or virtually impossible to define According to this approach, many appraisal methods have been stated out and the

most commonly used methods are: graphic rating scale, essay method, distribution, ranking, pair-comparison

forced-1.2.1.1 Graphic rating scale method

Graphic rating scale method was defined as a widely used performance appraisal method that rates employees according to defined factors Using this approach, judgments about performance are recorded on a scale The scale is divided into categories, normally 5 to 7 in number, that are often defined by a adjectives, such

as outstanding, average or unsatisfactory Although an overall rating maybe provided, the method generally allows for the use of more than one performance criteria The factors chosen for evaluation are typically of two types: job-related and personal characteristics Traits are taken and are put in scale form which the rater marks a corresponding box that signifies the degree to which that characteristic is possessed

The advantages of this method are:

(i) simple to use: from the requirements of the job, you can draw all the traits and criteria that need for the job

(ii) provides a quantitative rating for each employee: you have a detail range for evaluation so the result will be illustrated through numbers

However, there are also some disadvantages:

(i) standards are may be unclear (see the detail at section 1.5)

(ii) halo effect; central tendency; leniency and bias can also be problems (see

the detail at section 1.5)

Figure 1.2: an example of Rating scales form

In that Figure, job-related factors include quality and quantity of work, whereas personal factors include such attributes as initiative, application

1.2.1.2 Essay method

In the essay method, the rater simply writes a brief narrative describing the employee’s performance This method tends to focus on extreme behavior on the employee’s work rather than routine day to day performance Ratings of this type depend heavily on the evaluator’s writing ability Some supervisors, because of their excellent writing skills, can make even a marginal worker sound like a top

performance1 Comparing essay evaluations might be difficult because no common criteria exist But some managers believe that the essay method is not only the most simple but also best approach to employee evaluation because through the essay the strengths and weakness are described in sentence form and along with theses descriptions, suggestions for improvement measures are also written out And the essay can help to provides opportunity to point out unique characteristics of employee as well as provide a set-back due to it being unstructured and totally dependent on the appraisers writing ability

1.2.2 Behavioral approaches

When an individual’s task outcome is difficult to determine, a common procedure is

to evaluate the person’s task-related behavior For example, if you want to evaluate the individual in teamwork you can evaluate some appropriate behaviors like developing others, teamwork and cooperation or customer service orientation Desired behaviors may be appropriate as evaluation criteria because of the belief that if recognized and rewarded, they will be repeated Behavioral approaches are more so action based and are an excellent source of information for employee development There are some commonly used methods such as: Critical incident, Behaviorally anchored rating scale, Behavioral observation scale

1.2.2.1 Critical incident method

Critical incident method is a performance appraisal technique that requires a written record of highly favorable and highly unfavorable employee work behavior When such an action affects the department’s effectiveness significantly, positively or negatively, the manager will write it down It is called a critical incident In another way we can say that critical incident is the record of behaviors of the employer that gives an example of effective as well as ineffective job performance

1 Mondy, R Wayne; Noe, Robert M & Premeaux, Shane R “ Human resource management”, Seventh edition 1998, p.348

At the end of the appraisal period, the rater uses these records along with other data,

to evaluate employee performance With this method, the appraisal is more likely to cover the entire evaluation period

The advantages of this method are:

(i) helps specify what is “right” and “wrong” about the employee’s performance: because the critical incident provides employees with the example of effective and ineffective job’s performance so employees can understand what they should do and what they should avoid

(ii) forces supervisor to evaluate subordinates on an ongoing basis: because this method helps to record all the actions so it require the continuous in recording, that why supervisor has to keep recording everything in every assignment, everyday

The only one disadvantage is: this method is very difficult to rate or rank employees relative to one another Because each employee has to complete a different assignment so the actions they take will be very different from each other So the record of actions of each employee will be varied  it’s hard to compare employees

1.2.2.2 Behaviorally anchored rating scale method (BARS)

Behaviorally anchored rating scale method is a performance appraisal method that combines elements of the tradition rating scale and critical incident method through anchoring a qualified scale with specific narrative examples of good and poor performance

Developing a BARS can be more time-consuming than developing other appraisal tools, such as graphic rating scales But BARS can also have some important advantages:

(i) a more accurate gauge People who know the job and its requirement better than anyone else develop BARS The result should therefore be a good gauge of performance on that job

(ii) clearer standards The critical incident along the scale help to clarify what

is mean by extremely good performance, average performance, and so forth (iii) feedback The critical incident may be more useful in providing feedback to appraisees than simply informing them to their performance rating and not providing specific behavioral examples

(iv) independent dimension Systematically clustering the critical incidents into five or six performance dimensions (such as knowledge and judgment”) should help to make the dimensions more independent of one another For example, a rater should be less likely to rate an employee high on all dimensions simply because he or she was rated high in “conscientiousness” (v) consistency BARS evaluation also seems to be relatively consistent and reliable in that different rates’ appraisals of the same person tend to be similar

1.2.2.3 Behavioral observation scale

Behavioral observation scale method is similar to the BARS method in the approach with the use of the scale It differs by asking the rater not what most represented behavior but the frequency of each behavior

Figure 1.4: Example of Behavioral observation scale method:

1.2.3 Result approaches

If ends are considered more important than means, task outcomes become the most appropriate factor to evaluate This approach, also called Management by Objectives, is encouraged when a goals-oriented process is used Many organizations choose not to look at an employee traits or behaviors on the job; instead they choose to use a more solid a measurable method The result approaches use employee accomplishments to appraise employees with The result approaches focus on results such as sales figures or output

This method was first introduced in 1954 by Peter Drucker In an objective-oriented system, the superior and the subordinate jointly agree on objectives for the next appraisal period and at the end of that period the employee will be evaluated based

on how well he fulfill that objective Creamer and Janosik1 note that there are both advantages and disadvantages to results-based performance appraisal approaches

On the positive side, they produce short and long-term results in the context of original performance and organizational objectives, are generally perceived as fair, tend to generate high levels of commitment to the organization, and they encourage

a high level of participation and are thus defensible On the negative side, they can

be overly results oriented - especially in educational organizations, and they may be inflexible

If supervisors determine that the advantages outweigh disadvantages, focused approaches may be incorporated There are two general techniques of enacting results-focused approaches: Management by Objectives (MBO) and Accountabilities and Measures (Grote2, 1996)

results-MBO emphasizes participation by all organization members Grote identifies the following core elements in MBO:

 Formation of trusting and open communication throughout the organization

 Mutual problem solving and negotiations in the establishment of objectives

1 http://filebox.vt.edu/users/dgc2/staffinghandbook/references.htm#creamer

2 http://filebox.vt.edu/users/dgc2/staffinghandbook/references.htm#creamer

 Creation of win-win relationships

 Organizational rewards and punishments based on job-related performance and achievement

 Minimal uses of political games, forces, and fear

 Development of a positive, proactive, and challenging organizational climate Additionally, Grote defines eight steps in the MBO Process:

 Formulate long-range goals and strategic plans

 Develop overall organizational objectives

 Establish derivative objectives for major operating units

 Set realistic and challenging objectives and standards of performance for members of the organization

 Formulate action plans for achieving the stated objectives

 Implement the action plans and take corrective action when required to ensure the attainment of objectives

 Periodically review performance against established goals and objectives

 Appraise overall performance, reinforce behavior, and strengthen motivation Begin the cycle again

Supervisors need to ensure that appraisal processes are congruent with objectives and goals An MBO rating form needs to provide space to list staff member objectives in order of importance, as well as space for the evaluator to describe staff member performance using a mutually agreed upon scale Categories of performance can include distinguished performance, competent performance, provisional performance, and inadequate performance

Accountabilities and Measures approaches involve the supervisor and staff member agreeing on accountability and performance factors and including them in the job description Performance is then forecasted for each factor to enable quantifiable measures for each factor An Accountabilities and Measures form can be created,

with performance factor categories

1.3 RESPONSIBILITY FOR PERFORMANCE

In most organizations, the human resource department is responsible for the coordinating the design and implementation of performance appraisal programs However, the assignments of the individuals are interrelated and sometimes affect customer relationship So in fact, all the people who are involved with the job of the employee should be take part in the appraisal process They are:

 Immediate supervisor: an employee’s immediate supervisor has

traditionally been the most common choice for evaluating performance because: (i) supervisor usually observes the employee’s job performance closely; (ii) the supervisor main responsibility is to managing a specific unit However, on the negative side, the immediate supervisor may emphasize certain aspects of employee and neglects others

 Subordinates: with some firms they appreciate the evaluation of

subordinates to their managers and they think that evaluation is feasible Advocates to this approach believe that supervisors appraised in such a manner will become especially conscious of the work group’s needs and will

do a better job of managing Critics are concerned that the managers will be caught up in a popularity contest or that employees will be fearful or reprisal

If this approach has a chance for success, one thing is clear is that the information of evaluators must be guaranteed

 Peers: peer appraisal has long had proponents who believed that such an

approach is reliable if the work group is stable over a reasonably long period

of time and perform tasks that require considerable interaction The rationale for evaluations conducted by team members includes: (i) the evaluation is more accurate because team members know each other’s performance better; (ii) peer pressure is a powerful motivator for team members; (iii) members who recognizes that peers within their team will evaluate their work show increase commitment and productivity; (iv) peer review involves numerous opinions and is not dependent on one individual The negative side of peer

evaluation includes: (i) it makes people who work closely together especially

in teams feel hesitate in criticizing others; (ii) lacking of training in appraisal among many team members will reduce the accurate of evaluation result This appraisal method can be effective in predicting future management success A study shows that involved more than 200 industrial managers, peer ratings were similarly useful in predicting who would be promoted1

 Self-evaluation: if employees understand the objectives they are expected to

achieve and the standards by which they are to be evaluated, they are in good position to appraise their own performance Self evaluation benefits to employees because: (i) many people know what they do well on the job and what they need to improve, so if they are given the opportunity, they will criticize their own performance objectively and take action needed to improve it2; (ii) because employee development is self-development, employees who appraise their own performance may become more highly

motivated However, the basic problem with self-rating is that employees

often rate themselves higher than they are rated by their supervisors or peers In some study, for example, it was found that when asked to rated their own job performance, 40% of the employees in jobs of all types placed themselves in the top 10% (means “one of the best”), while virtually all remaining themselves either in the top 25% (means “ well above average”),

or at least top 50% (means “above average”) Usually no more than 1% to 2% will placed themselves in a below average category, and them almost invariably in the top below average 3

 Customer appraisal: the behavior of customers determines the degree of

success a firm achieves Therefore, some organizations believe it is important to obtain performance input from this critical source There are more and more companies focus on getting their customers involving in

1 Kraut, Allan “Prediction of Managerial Success by Peer and Training Staff Ratings”

2 Goodale, James G “ Seven ways to improve Performance Appraisal”, HR Magazine 40 (May 1995)

3

appraisal process However, the important thing is how to combination between the evaluation of customers with other evaluation sources in order to

give out an accurate result

1.4 MODERN APPROACHES

1.4.1 360-degree feedback

The approaches above just described are not mutually exclusive In fact, 360-degree

feedback, or multi-rater evaluation, is an increasingly popular appraisal method that

involves input from multiple levels within the firm and external sources as well 360-degree feedback, unlike traditional approaches, focuses on skills needed across organizational boundaries In addition, by shifting the responsibility for evaluation from one person, many of the common appraisal errors can be reduced or eliminated Having multiple raters also make the process more legally defensible

1.4.2 Appraisals of team performance

Creamer and Janosik (in press) acknowledge that much of today's work is done in collaborative arrangements The successful performance of such teams can be critical to achieving organizational objectives and goals Thus, appraisal of team and team member performance should be integrated into team-based activities Appraising teams and team members can, however, be problematic Creamer and Janosik suggest a team appraisal matrix in which team members are listed on a vertical dimension, and specific tasks on the horizontal Such an arrangement reelects individual performance, and collectively reflects the overall team performance

Team appraisal approaches assume, of course, that specific team performance objectives have been agreed upon, as well as individual expectations within the team Ideally, the process of team performance evaluation will identify not only

team performance, but individual deficiencies and paths of corrective action

1.5 PROBLEMS OF APPRAISAL APPROACHES

Many performance appraisal methods have been severely criticized The rating scales method seems to have received the greatest attention In all fairness, many of the problems commonly mentioned are not inherent in the method; rather, they reflect improper usage Five main problems can undermine appraisal tools are unclear standards), halo effect/error, central tendency, leniency or strictness, and bias

 Unclear standards: used to define an appraisal scale that is too open to

interpretation; instead include descriptive phrases that define each trait and what is meant by standards like “good” or “unsatisfactory”1

Although the graphic rating scale seems objective, it would probably result in unfair appraisals because traits and degrees of merit are easy to understand in different ways depend on the definition of each person about the trait There are several ways to rectify this problem The best way is to develop and

include descriptive phrases that define each trait

 Halo effect: the halo effect means that your rating of a subordinate on one

trait biases the way you rate that person on other traits This problem often occurs with employees who are especially friendly or unfriendly toward 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” If the supervisor is well trained, this effect will not happen

 Central tendency: many supervisors have central tendency when filling in

rating scale For example, if the rating scale ranges from 1 to 7, they tend to avoid the highs (6 or 7) and lows (1 or 2) and rate most of their employee between 3 and 5 If we use a graphic rating scale, this central tendency could mean that all employees are simply rated “average” Such restriction can distort the evaluations, making them less useful for promotion, salary, or

1

counseling purposes Experts say that if you don’t use the rating scale

method, your company will avoid this error

 Leniency or Strictness: the problem that occurs when a supervisor has a

tendency to rate all subordinates either high or low This problem is especially serious with graphic rating scales since supervisors are not necessarily required to avoid giving all their employees high or low ratings

In fact, if a graphic rating scales must be used, experts suggest that you should assume a distribution of performance- that, say only about 10% of your employees should be rated “excellent”, 20% “good” and so forth Try

to spread the range

 Bias: Individual differences among ratees in terms of characteristics like

age, race, and sex can affect their ratings, often quite apart from each ratees actual performance1 In one study, for instance, researchers found a systematic tendency to evaluate older rate (over 60 years of age) lower on

“performance capacity” and “potential for development” than younger employees The ratee’s race and sex can also affect the person’s rating However, here the 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 rates significantly higher than were high-performing males Similarly, low-performing blacks were often rated significantly higher than were low-performing whites An employee’s previous performance can also affect the evaluation of his or her current

performance

1 Dessler, Gary “ Human Resource Management”, Seventh Edition 1997, p.361

1.6 SUM UP OF THE APPROACHES

- Easy to use and

organizational goals

- High level of

commitment and involvement among the organization

- Very time

consuming

- Mainly looks at short-term rather than long term

- Can create ethical issues if goals aren’t balance

- Inflexible

Modern

approaches

- 360 degree feedback

- Team appraisal approach

- More accurate and

organization

1.7 PERFORMANCE APPRAISAL IN PRACTICES

There are many research on the use of performance appraisal system have been taken out and the figures below are withdrawal from the researches on American Organizations

A survey on the using of performance appraisal methods had been taken placed in American in 1988 by Allan Locher and Kenneth Teel and the result was published

in Personnel Journal ( September 1988) According to this survey, all most all the responding companies do have the formal appraisal programs About 93% of smaller organizations (those with fewer than 500 employees) have such programs About 97% of large organizations have them Rating scales are by far the most widely used appraisal technique About 62% of small organizations use rating scales, 20% use essays, and about 19% use MBO Among large organizations, 51% use rating scales, just over 23% use essays, and about 17% use MBO However, those using rating as the main appraisal technique typically also require narrative comments to justify ratings and to describe employees’ strengths and weakness and document development plans Those using essays ass the main appraisal technique usually require an overall quantitative performance rating to facilitate employees’ comparisons for compensation decisions 92% of appraisals are made by the employee’s immediate supervisor These appraisals are in turn reviewed by the appraiser’s supervisor in 74% of the responding organizations Only about 7% of the organizations use self-appraisal in any part of the overall appraisal process Virtually all employees (99%) are informed of the results of their appraisals Overall, about 77% are given a chance to respond with written comments on their appraisals In 69% of companies, appraisals are done annually Instructions are important: 82% of employers provide written instructions for appraisers, and 60% provide training

The importance of the performance appraisal process or system is underscored by the sheer number of U.S organizations utilizing the process in one form or another The number of businesses conducting formal performance appraisal has steadily

increased throughout this century Surveys indicate that between 74 to 89% of firms conduct formal performance appraisals (Murphy & Cleveland, 1991) A 1987 survey of more than 300 organizations belonging to the Personnel and Industrial Relations Association of Southern California examined appraisal trends in private industry and compared the results with those of a similar survey conducted in 1977 Results showed that 94 percent of organizations had formal appraisal systems, as compared with 89 percent in 1977 In both years, appraisals were most often used to make salary decisions, to improve individual performance, and to provide feedback

to employees (Locker & Teel, 1988)

This percentage is similar for public organizations as well A recent survey of human resource professionals in state governments indicated that over 75% of the state employment systems required an annual formal appraisal Eleven states actually required supervisors to evaluate their staff twice a year and several utilized

a process, which includes a series of planned meetings (Roberts, 1995) Only Rhode Island reported no required performance appraisal system (Seldon, Ingraham, & Jacobson, 2001)

Another study by England and Pearle (1987) of non-managerial performance appraisal systems in the municipal public sectors found that 86 percent of 142 municipal governments appraised their employee's performance on an annual basis The results of a major survey distributed in 1998 to members of the International Personnel Management Association (IPMA) and American Society for Public Administration suggested that the current and future importance of performance appraisal in the public sector would not diminish The intent of the survey, conducted in 1998, was to gauge the respondent's perceptions on the relative importance of various personnel techniques, activities and values Respondents predicted that the widespread use of performance appraisal will continue, ranking it first in importance among human resource management issues at the time of the survey and in future years (Hays and Kearny, 2001)

In 1998, a statistic shows that 90% companies in Fortune 1,000 have been using the 360-degree feedback Generally, almost service companies involve customers in their appraisal chain Multinational companies often use the mixing appraisal systems, for example with managers, they use the MBO, for the sale department every sale man will be evaluate by MBO and customer’s feedback while in production department employees will be evaluated through BARS With consulting firms or auditing firms, they encourage their employees use the individual development plan and will evaluate base on this plan

Performance appraisal in power engineering industry

There are 235 power engineering consulting companies worldwide Those companies mostly established in North America, EU, Japan and India 130 companies among those specialized in electricity, hydro power plants, and thermal plant The performance appraisal system that have been commonly used by those companies are MBO in combination with team assessment method This method not only helpful in assessing their employees but also can create cooperation among teams towarding company’s goals There are some very famous company and the assessment system that they are applying:

 Indo Canadian Consultancy Services Ltd (ICCS) (Canada) - one of the biggest and has a long time in operation company that has created 5 international standards in engineering consulting: MBO and team assessment

 Citec Engineering - Multi-Discipline Engineering and Consulting Services for the Power Industry (Finland) the most experienced company in hydro power plan building: combination between MBO and 360 degree - feedback

 Frazer-Nash Consultancy - Power Generation Design and Assessment Services (English): MBO and team assessment

Dissatisfaction with performance appraisal

In spite of the current ubiquitous use of performance appraisal systems and its perceived importance in the future, there is considerable contention over its efficacy and usefulness Surveys through the years have indicated relative lack of

satisfaction towards the effectiveness of performance appraisal systems in both private and public organizations

Bricker (1992) reported survey results indicating that just 20 percent of American companies were very satisfied with their performance review process A 1990 Industry Week survey of readers indicated that only 18 percent responding that their reviews were very effective This was down from 20 percent in 1987 Thirty-one percent of the respondents found reviews to be not very effective or a waste of time (Verespej, 1990) A Wyatt Company survey of 900 companies found that only ten percent of companies indicated satisfaction with their employee evaluation programs (Small Business Report, 1993) Thirty percent were dissatisfied and 60 percent were not convinced one way or another A 1997 nationwide survey of human resource professionals by the Society for Human Resource Management found that only five percent of the respondents were very satisfied with their organization’s performance evaluation system and that 42 percent were dissatisfied

to some extent (Barrier, 1998)

It should be noted that most of these figures were obtained from surveys often completed by human resource professionals and other organizational managers and

do not reflect any rigorous evaluation of performance appraisal processes or systems

1.8 METHODOLOGY

This method of research used in this study was the creation of a survey questionnaire This questionnaire was provided to seventeen (17) departments in Power Engineering Consulting Company 1 Each department was noticed about this survey and along with ten (10) hard copies The survey did not involved the 4 Shops because these Shops are operating as holding companies of PECC 1 with a quite different management , they also locate in far areas The author also eliminated the Inspecting Board, Auditing Board because they locate in PECC 1 but the staffs are shifting voted, and the nature of their work is different

The survey questionnaire was tested by having Power Engineering Consulting Company 2 employees (Geology Department), five (5) non managerial/supervisory employees and three (3) managerial/supervisory employees complete the survey The survey was modified for clarity

It was requested that each department randomly provide this questionnaire to two (4) managerial employees and three (6) non-managerial/supervisor employees totaling to one hundred and seventy (170) participants However, the goal was to have at least two (2) managerial employee and four (4) non-managerial/supervisory employees respond This would have provided one hundred and two (102) responses to the survey However, the overall amount returned was eighty-three (83) responses or forty-eight percent (48%) of the surveys sent out

The second method of obtaining research was the analysis on the procedures and all the regulations and decrees that relate to the appraisal process at Power Engineering Consulting Company 1

Lastly, a literature review was conducted to evaluate the most common evaluation practices used commonly and used by similar organizations Finding literature on employee performance management was not a difficult task The research included findings such as: the performance appraisal approaches, the advantages and disadvantages of each method, the innovation trend etc

However, finding information on power engineering consulting specific employee performance practices was not so easily achieved Hence, the reason for disseminating a questionnaire was to acquire information from the employees of Power Engineering Consulting Company 1 about: (i) their understanding on current appraisal system; (ii) their knowledge about some appraisal methods; and (iii) their suggestions for PECC 1 in order to improve the current appraisal system

Unfortunately, the response rate was less than anticipated, but the questionnaires received were very informative

The expected findings are relating to:

 The effectiveness level of the current performance appraisal practices

 The relationship between performance and the increase in salary

 The awareness of both employees and managers on the benefit of having an performance appraisal system

 The current standards of evaluation

The given questions are:

 What will be the most effective ways in obtaining information?

 Whether PECC 1 can take advantages of appraisal result for other purposes?

 Whether there will be the applicants for new performance appraisal practices?

CHAPTER 2: FINDINGS

2.1 OVERVIEW OF PECC 1

2.1.1 An overview

The Power Engineering Consulting Company 1 (PECC1) was established in 1981

as a state own company that belonging to EVN Currently, PECC 1 locates at Thanh

Xuan district, Hanoi

PECC1 is specializing in:

 Specialist power system designing and evaluation

 Power source and system designing, planning

 Technical surveys (field research, topography, hydrograph, testing,…) for electric projects

 Environmental study and evaluation on electric system building projects

 Hydroelectric power plant and Thermal power plant surveying, designing, building, operation, maintenance

 Power projects quality verifying, status evaluation, causes defining, solutions suggestion, improvement and upgrade

PECC 1 has participated in many big projects like: Hoa Binh Hydroelectric Power Plant, Yaly Hydroelectric Power Plant, and North –South 500 KV Power line And the next project that has PECC 1 participation is Son La Hydroelectric Power Plant, the biggest hydroelectric power plant of Vietnam

At the time, company only had over 300 hundred staffs, one third of them are bachelors Currently, PECC1 has more than 1300 staffs, 600 staffs out of that are graduated, post-graduated, masters and doctors These staffs have been graduated from specialist fields such as technique, language, administration, project management…Generally, the common qualifications of staffs in PECC1 is quite high in comparison with the PECC 2 or PECC 3 Additional, PECC 1 has many modern machines and quite good facilities that can help staffs do their practices and encourage them to find the innovative ways to carry their tasks