Solutions to enhance performance appraisal effectiveness at joint stock commercial bank for investment and development of vietnam sogiaodich 1 branch

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 HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

MỘT SỐ GIẢI PHÁP NÂNG CAO HIỆU QUẢ CỦA HOẠT

VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2020

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

ĐỖ THỊ BÍCH NGỌCSOLUTIONS TO ENHANCE PERFORMANCE APPRAISAL EFFECTIVENESS AT JOINT STOCK COMMERCIAL BANK FOR

INVESTMENT AND DEVELOPMENT OF

VIETNAM-SOGIAODICH 1 BRANCH

MỘT SỐ GIẢI PHÁP NÂNG CAO HIỆU QUẢ CỦA HOẠT

VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS LÊ ANH TUẤN

HÀ NỘI - 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………

TABLE OF CONTENTS

DECLARATION i

TABLE OF CONTENTS ii

LIST OF TABLE vi

LIST OF FIGURES vii

INTRODUCTION 1

CHAPTER 1 7

LITERATURE REVIEW AND THEORETICAL BACKGROUND ON PERFORMANCE APPRAISAL 7

1.1 Definition of key terms 7

1.2 Purposes of performance appraisal 8

1.3 Benefit of performance appraisal 11

1.4 Method of performance appraisal 13

1.4.1 Behavior Anchored Rating Scales (BARS) 13

1.4.2 Trait Scales 13

1.4.3 Management by Objectives (MBO) 14

1.4.4 Essay Method 14

1.4.5 Ranking 14

1.4.6 Paired Comparisons 14

1.4.7 Forced Distribution 15

1.5 Multi-source performance appraisal 15

1.5.1 Self appraisal 15

1.5.2 Peer appraisal 16

1.5.3 Subordinate appraisal 17

1.6 Bias in performance appraisal 18

1.6.1 Rater and ratees personal characteristics 19

1.6.2 Other rater biases in performance appraisal 24

1.6.3 Bias Effects on PA 29

1.7 Uses of Performance Appraisal 30

1.7.1 Linking performance appraisal with pay 30

1.7.2 Linking performance appraisal with career development 31

1.8 Factors determining PA effectiveness 35

1.8.1 Performance appraisal objective 35

1.8.2 Performance criteria 37

1.8.3 Period of PA 38

1.8.4 Fairness in P.A 39

1.8.5 Linking PA to compensation and reward 40

1.8.6 Rater accuracy 40

1.8.7 Performance Appraisal Feedback 41

1.9 The analysis framework for the thesis 44

CHAPTER 2: ASSESSING THE SITUATION OF PERFORMANCE APPRAISAL IN COMMERCIAL JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – SOGIAODICH I BRANCH 45

2.1 Introduction of the Commercial Joint Stock Bank for Investment and Development of Vietnam, Sogiaodich 1 branch 45

2.1.1 BIDV - History and Development 45

2.1.2 BIDV‘s Organization Structure 48

2.1.3 BIDV‘s Main Business Lines 51

2.2 Introduction about Sogiaodich 1 Branch 52

2.2.1 History and development 52

2.2.2 Organizational Structure 53

2.2.3 Situation of Workforce in BIDV SGD1 54

2.3 Human resource activities at BIDV SGD1 56

2.3.1 Human resource planning 56

2.3.2 Employment recruiment 59

2.3.3 Training and developing human resources: 61

2.4 Status of performance appraisal at BIDV SGD1 62

2.4.1 Period of performance appraisal 62

2.4.2 Performance criteria 63

2.4.3 Uses of performance appraisal 64

2.5 Survey results 66

2.5.1 Demographic characteristics of sample 66

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

2.5.1 Achievement 75

2.5.2 Drawbacks 76

CHAPTER 3: PROPOSAL ON SOLUTIONS TO ENHANCE PERFORMANCE APPRAISAL AT COMMERCIAL JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – SOGIAODICH I BRANCH 78

3.1 Strategic orientation of BIDV 78

3.2 New challenges for HRM at BIDV 79

3.2.1 Higher demand for quality of human resources 79

3.2.2 Change in corporate cultural values 80

3.2.3 Change in workers' perceptions 81

3.2.4 Training and career development activities are changing 82

2.3.5 Higher complexity of Compensation and Benefit system 83

3.3 Requirement for performance appraisal at BIDV and SGD1 84

3.4 Solutions to improve Performance Appraisal Effectivenes at BIDV SGD1 85

3.4.1 Raising awareness on job performance evaluation 85

3.4.2 Perform job analysis to standardize job titles 85

3.4.3 Determine the evaluation objectives 88

3.4.4 Clarify performance criteria 89

3.4.5 Adjustment of PA cycle 91

3.4.6 Selection and training of raters 92

3.4.7 Building effective PA feedback channels 93

3.5 Some recommendations 93

3.5.1 Paying attention to developing human resources of 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 95

REFERENCE 97 APPENDIX

LIST OF TABLE

Table 2.1: Workforce at BIDV SGD1 54

Table 2.2: Workforce in BIDV SGD1 by gender 55

Table 2.3: Workforce in BIDV SGD1 by age group 55

Table: 2.4: Workforce by education level 56

Table 2.5: Gender survey result 67

Table 2.6: Ages survey result 67

Table 2.7: Working experience survey result 68

Table 2.8: Working position survey result 68

Table 2.9: Educational background survey result 69

Table 2.10: Understanding about the purposes of PA 69

Table 2.11: Perception about the period of PA 70

Table 2.12: Perception about evaluation criteria 71

Table 2.13: Fairness in performance appraisal 72

Table 2.14: Raters knowledge and skills in performance appraisal 73

Table 2.15: Perception about the use of PA 74

Table 2.16: Perception about PA feedback 75

LIST OF FIGURES

Figure 1.1: Analysis Framework 44 Figure 2-1: BIDV‘s Organizational Structure 49 Figure 2-2: BIDV‘s Governance Structure 51

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 indicated that these three organizations in Vietnam faced a number of challenges in relation to their performance management systems These included poor links between performance results and rewards, perception of unfairness, confrontation with senior employees 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 system For example, if the employees perceive 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 (Boachie-Mensah & Seidu, 2012) The thesis, therefore, investigate the employees perception towards performance appraisal at Transaction Center 1 (SGD1), Bank for Investment and Development of Vietnam (BIDV)

2 Review of previous research

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

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

January 2011 The article has recompiled five evaluation stages perform work, start from agreeing on objectives, monitoring public performance work, guidance and assistance, provide feedback and evaluation at 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 management practices such as: training and development, transfer and relocate 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

Doctoral thesis of PhD student Hoang Minh Quang belongs to the school Da Nang University in 2012 with the theme: "Evaluating staff achievements at Asian joint-stock commercial bank ‖, has shown the drawbacks in evaluation method, selection of assessment objects, methods of evaluation The 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 at this unit and 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) in the thesis with the title "Completing the evaluation of staff performance at Central Hydropower Joint Stock Company‖ also systematized the theoretical basis of staff performance assessment and analysis of the elements 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 "Evaluating staff performance

at Quang Nam Rubber One-member Co., Ltd." to point out the remaining problems in the staff evaluation system at this unit and propose some solutions to complete this work such as perfect assessment methods, identify suitable audiences, etc

It can be seen that the above works approach assessment activities 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 at a specific bank like BIDV 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 literarure on performance appraisal

- Systematize 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 performance appraisal system at BIDV SGD1

- Scope of space: at BIDV SGD1

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

2022

6 Research Method

* Secondary Data Collection: Secondary data will be collected through the Human Resources Department of BIDV SGD1 In addition, the thesis will use some documents as well as information about organizational commitment from books, dissertations, magazines 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 times as much as the total number of observation variables in 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: n =50 + 8*m (m: independent variable) The number of independent variables, in this research, is 4 so the minimum sample size is 82

Therefore, in this research, the author chooses the sample size of 150 The respondents will be chosen randomly

 Sampling objects: The staffs at 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, the questionnaire will be designed according 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 each 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 content of the dissertation 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 Investment and Development of Vietnam – Sogiaodich1 Branch

- Chapter 3: Proposal on solutions to enhance performance appraisal effectiveness at Joint stock commercial Bank for Investment and Development of Viet Nam – Sogiaodich1 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 Quoc 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 Trần 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 been found to have impacts on the performance appraisal processes and outcomes (Bernardin and Beatty, 1984; Ostroff, 1993; Williams, Denisi, Blencoe and Cafferty, 1985; Zedeck& 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 affects the attitude of the employees towards appraisal process and supervisors Employees‘ perception of performance appraisal uses would have a dominant influence on their attitudes Perception of evaluative use of PA can have positive impact on employees‘ attitude

if it clarifies the link between performance and rewards (Cleveland, Murphy, and William, 1989) Prince and Lawler, (1986) found that the integration of salary discussion into performance appraisal interviews even enhance 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 positive because of its futuristic and helpful focus (Milkovich and Boudreau, 1997) Boswell and Boudreau (2000) studied 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 both appraisals and appraisers However, no significant relationship between perception of evaluative PA and satisfaction has been found Youngcourt, 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 They found a positive relationship between perception of developmental PA and affective commitment They also found that perception of evaluative PA was significantly related to job 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 satisfaction, however, are not significant

Kuvaas (2007) studied the relationship between perception of developmental PA and job performance He found the connections between perception of developmental goal setting 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 and job performance only among employees with low autonomy orientation

Researchers contend that although performance appraisal is conducted for multiple purposes, these purposes are often conflict (Cleveland, Murphy, and Williams, 1989; Ostroff, 1993; Meyer et al., 1965) They 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 employees cannot get accurate feedback about their strengths, weaknesses and development needs if two PA purposes are combined As a result, researchers and managers have proposed separate uses of performance appraisal

Boswell and Boudreau (2002) conduct a study about the impacts of separating evaluative and developmental uses of performance appraisal on employees PA satisfaction and satisfaction with supervisors They hypothesized that employees in separated use PA systems have higher level of PA satisfaction and satisfaction with supervisors than those in the traditional unseparated 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

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 Mohrman et al (1989) identified the following:

• increase staff self-esteem

• increase motivation to 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

• distribute rewards on a fair and credible 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; the work that must be done, the criteria by which achievement will be judged, the objectives of the exercise, the process for giving the appraise feedback

on achievement

Bandura (1977) stated that ‗‗self appraisal of performance set the occasion for self-produced consequences‘‘ Favourable judgments give rise to rewarding self - reactions, whereas unfavourable appraisals activate punishing self-responses‘ Appraisal has the following as advantages:

• 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 exact status

• 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)

1.4.3 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

1.4.5 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 et 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

1.4.7 Forced Distribution

Erasmus et 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 raters have 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),

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

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

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 horn 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

1.6.1 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 Furnham 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 Emswiller (1974) found that when women perform as well as men on male related tasks, their performance was attributed to external factors such as luck while the same performance

of males was attributed to skills which are an internal factor Other studies 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 men 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 difference 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 Gutek (1984) indicated no difference in the attitude of supervisors towards male and female subordinates Griffeth and Bedeian (1989) provide a possible explanation for this 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 Effertz (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 Furnham 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 that females have significantly higher score than 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 that female ratees received significantly higher ratings than did male ratees 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 leniency effect Using student sample, Dobbins, Cardy and Truxillo (1988), found that female professors 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 They 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 exists Appraisal based on past performance is subject to less bias because it requires minimum level of inference On the other hand, when appraisal is based on judgment about the individual‘s ability, about causes and value

of performance which require high level of inference, bias are more likely to occur They also argued that when performance criteria are clear or when specific and concrete information are 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 external 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 rated more favorably when they fail rather when they succeed 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 Race 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) However, the results are inconsistent Mobey (1982) studied 1035 employees 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 The 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 ratings 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 employees of their own race Other studies also provided supports for this finding (Schmitt and Hill, 1977; Schmitt and Lappin, 1980; Bass and Turner, 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 Mccauley (1989) studied managers sample and found evidences in support of their hypothesis

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

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 Hall and Hall (1976) used student subjects and reported that

no differences were found when sex and race were examined alone They attributed 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 own race

Regarding the inconsistent results about race effect on performance appraisal, McKinney and Collins (1991) advocated that race bias is a complex matter and that other contextual variables may have influenced the relationships 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 raters rated more harshly than older raters (Griffeth and Bedeian, 1989) Yet some other researchers reported no effect of raters‘ age on performance ratings (Klores, 1956, Schwab and Heneman, 1978; McKinney and Collins, 1981)

Regarding the age of the ratees, 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 number of studies indicated that younger employees are rated more favorably than older employees (Rosen, Jerdee, Lunn, 1981; Ferris 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 ratees‘ 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 words, expectations of performance

Hogan (1987) argued that prior expectation of a ratee‘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 are less than perfect She also point out four perspective that affect performance ratings The first was the information processing perspective which suggests that individual prefer to search for, perceive and recall information consistent with their prior expectation than information that is inconsistent Second, she recalled Hedonic relevance perspective which suggested that disconfirmation- a mismatch between a prior expectation and later perception

of actual performance- affects evaluations Specifically, she hypothesized that disconfirmation of prior expectation would diminish ratings The third perspective was attribution perspective which proposes that 1) when disconfirmation occurred the individual would try to find causation to it and attribute this to external 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 attribute any poor performance to external factors and good performance to internal factors Using data from 49 supervisor-subordinate dyads in a longitudinal study, she found that supervisors gave lower ratings than actual performance warrants when there was disconfirmation of prior expectations no matter what actual performance disappoints or exceeds expectations She also found supports for 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 more accurate but also more lenient and biasing

Some other studies also examined the effect of performance knowledge or past ratings on current performance ratings Huber et al., (1987) found that past ratings 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, Balzer, Lockhart and Eiseman, 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 that overall performance varied depending on whether good or poor performance occurred 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

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 acquaintance and personal acquaintance in which task acquaintance refers to the 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 that previous studies on rater-ratee acquaintance focus mainly on task acquaintance but failed to consider personal relationship between rater and ratee When rater became more familiar with the ratee, they are likely to develop some degree of positive or negative affect towards the ratee The 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 rater‘s task and personal acquaintance with ratee and halo error However, they did found evidence that rating favorability was associated with both task and personal acquaintance Ratees with higher task or personal acquaintance with rater received higher ratings

Vanscotter et al (2006) studied 104 Airforce officers enrolled in a Master degree course in an attempt to examine the impact of rater acquaintance with ratee on rating 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 acquainted ratings delivered 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 concern 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 the managers‘ reactions to the filing and processing of grievance If the managers react negatively to it, they may show discrimination against the employees who 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 grievance received lower ratings than those who did not in the following year and that those who won grievance received lower ratings than those who lost Klaas, Heneman and Olson (1988) suggested that the negative effect of filing grievance 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 grievances activities were adversely correlated with performance ratings On 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 research was that the employees who filed grievances only received 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 concluded from the previous studies on the effect of grievance on performance ratings than the employees who filed grievances against

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 horns 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 Điem & 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

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