Literature Review of Performance Appraisal and Its Effects on Organisational Activities

Abstract

The purpose of this report is to review the available literature on the antecedents of performance appraisal (PA) and how it influenced organisational activities and perceptions. Academic textbooks and journals were used as main research forms in assessing trends of PA. There will be a brief description of Bridging Growing Careers (BGC) Group and two different sets of interview questions for two BGC’s employees; one with a managerial position and the other with a non-managerial position to find out ways that PA is conducted in the real world.

For a better guideline towards the accomplishment of this report, a working timeline is formulated to outline all the necessary planning and execution of tasks. A contingency plan is also constructed to anticipate and prepare for unexpected events that may be detrimental to this report successful completion.

The literature review will be divided into 4 main categories with sub headers as 1) history of PA, 2) criteria for effective PA with sub headers of 2a) administrative function, 2b) focus on ratee reactions with the emphasis on 2bi) effective performance feedbacks and 2c) knowledge on being observed, 3) social contextual factors of PA sub headed by 3a) employee perceived justice on PA and 3b) perceived managerial leadership on PA and lastly 4) manipulations of PA divided into 4a) interjecting employee perceptions and 4b) abiding to KPI.

Introduction

Performance appraisal is an effective improvement management tool in ensuring that organisational objectives are met through the contribution and effort of each employee (Stone 2013, p. 309). PA acts as a precursor or also known as a subset for performance management. Performance management consists of processes such as human resource planning, employee recruitment and selection, training and development, career planning as well as compensation (). PA only takes a part of the PM role in reviewing and assessing employee performances and potential by providing feedbacks for their improvement measures (Mondy and Noe 2007). It has a crucial role in aiding the organisational strategic plan in managing its employees (Mondy and Noe 2007).

Literature Review

There have been ongoing researches on PA among academic communities as their interest peaked in finding out the most ideal way in conducting performance appraisal. Collectively, researchers have been trying to project the trajectory of performance appraisal systems in various types of companies through their research(,,,,,). Significant achievements have been made in recent decades in terms of the number of studies published but the topic remains comparatively underachieved in terms of finding out the best way of conducting performance appraisals closing the gaps between research and practice.

In the former years where PA was introduced, research focused on measuring employee performance levels() through feedbacks() and discovering the best tools to evaluate output qualities (), where their contributions was not linked to organisational performance(). Later, the attention shifted to social-psychological aspects(Arvey and Murfey 1998, Landy and Farr 1980) where researchers began to gather precise impression-reading tools (Arvey and Murfey 1998). However, there were controversies on the unfairness of manager judgements arising from attributional errors(). As a result, PA was deduced as a universal topic() where its effectiveness is attainable only when contextual setting is set as an independent variable and PA approaches constitute as dependent variables().

The primary role of PA is to boost employee performance in their jobs (DeNisi and Pritchard, 2006) and finding out the best ways to sustain employee satisfaction(). There are three ways in conducting PA effectively: through the use of its administrative function(), focusing on ratee reactions() with effective feedbacks () and as a process to inform employee that they are constantly being observed ().

PA are used as a platform to reward or punish employees with performance-based benefits and disbenefits to notify employee the results of their achievements and behaviours. Rewards such as salary increments or promotions() are commonly used to motivate employees() to sustain their achievements() or change their behaviours to obtain a favourable outcome. This is supported by Vroom’s expectancy theory() and B. F. Skinner reinforcement theory(Skinner et al. ) where when they are treated according to the nature and degree of their contributions(). While rewards has increasingly gain popularity in encouraging and meeting employee esteem needs to be recognized under the Maslow’s theory of human motivation(Maslow 1943), the latter are considered obsolete.

Literature reviews has identified employee weaknesses as a necessity to send employees for trainings(). When employees become vulnerable because their shortcomings are being outlined(), companies reversed this emotion to prevent withdrawal behaviours such as absenteeism and turnover(). Training programmes enhance employee perceived competence of themselves() as they are not neglected and instead, supported by the organization to train and develop underperforming employees().

PA has shifted from one-way evaluations to face-to-face discussions(). By focusing on employee reactions(Erdogan 2002) and encouraging them to provide feedbacks(), it triggers employee engagement() and intrinsic motivation() to work together with their managers to contribute to their performances. Supported by the exchange ideology(), employees develop willingness to adjust their inputs to match the desired outcomes() when they feel that the organization values their contributions and cares about their well-being(). This is also defined by the organizational support theory() where such perceived organizational support (POS) increases employee commitment and felt obligation to help the organization reach its objectives().

However, employees often use PA discussions as an opportunity to share their personal feelings() or focus on the complexity of their tasks(). An extensive research and meta-analysis on performance feedbacks literature was conducted on 131 articles and 607 feedback reactions as it concluded that feedback does not always achieve its desired results (Kluger and DeNisi 1996).

Their review stated that there is no correlation between the degree of positivity or negativity of feedbacks to employee satisfaction. There have been studies that brought the gap closer between the relationship of using promotional and prevention tasks or goals contrastingly and the effectiveness of performance feedbacks (Van Dijk and Kluger 2004, 2011). However, feedbacks are only effective when specifically tailored to individual (Higgins 1997, 1998) and no one approach can fit all. Comparatively, alternative factors have been studied to promote effectiveness of feedbacks(Bouskila-Yam and Kugler 2011; Kluger and Van Dijk 2010).

It is only natural that employee seeks ways to provide better contributions when they know that they are being constantly observed. Under the Hawthorne researches, an aphorism of “what gets measured gets done”() derived that employee keep their focus better and cultivates cooperative behaviour() in their daily work life. The administrative function and focus on ratee reactions have been widely researched on in PA but the literature on finding effective feedbacks or alternatives of effective feedbacks have not been extensively covered.

Context in which PA were carried out were often overlooked according to the assumptions that cognitive attributes are universal (Ilgen et al. 1993). Cognitive process models also have failed to address the gap between the theory and practicality (Bretz et al. 1992; Ilgen et al. 1993; Murphy & Cleveland 1991) of cognitive researches as it corresponds to organizational goals, culture and strategies (Levy & Williams 2004). Two essential factors that contributes to the effectiveness of PA includes employee perceived justice and perceived managerial leadership on PA.

Job commitment(), satisfaction() and performances() have positive correlations with employee perceived justice on PA(Organ et al. 2006; Whiting et al. 2008). There have been growing number of positive reactions to PA(Erdogan et al. 2001; Poon 2004) after the introduction of the due process (Folger et al. 1992). Fair hearing, adequate notice and evidence-based measurements have increased employee trust in management() and employee retention rate ().

However, perceived procedural justice () are questionable when PA is linked to managers’ personality and perceptions (Mayer et al. 2007; Heslin & VandeWalle 2011). Negative reactions are supported by managers’ exhibition of low levels of agreeableness() and high levels of neuroticism() under The Big Five model of personality (Goldberg 1990). This controversy further developed with the suspicions of managers’ prejudices() that is affected by halo or horn error(), recent behaviour bias() and personal relationship bias().

Leadership credibility () and the exchange relationship between managers and employees() have significant impacts on the outcomes of PA discussions. Graen’s leader-member exchange (LMX) theory (Graen and Uhl-Bien, 1995) expressed that employee with high LMX have higher confidence and willingness () to voice their opinions out in PA discussions (). The quality of their exchange relationship strengthens the trust they have in their managers as they engaged in a dyadic social exchange process that is unique to the manager-subordinate pair (). There are also other types of leaderships such as McGregor’s Theory X and Theory Y ().

The leadership styles are in line with Burn’s transactional leadership theory () and Burn’s transformational leadership theory that was further developed by Bass () respectively. Due to the belief that employees are capable of change (Heslin and VandeWalle 2011), the former leadership style promotes employee satisfaction of PA as compared to the latter. Although procedural justice and trust in leadership have considerable effects on PA, both still have not received much coverage in the literature.

Manipulations of PA

As PA discussions provide an opportunity for employee interventions to communicate their different perceptions, managers also seek to serve their own purpose. While some are interventions from managerial levels, others are on the organizational level. These efforts include interjecting employee perceptions (Roberts 2003) and abiding to KPI().

While most managers find filling in paper work tedious, some of them decide to do what it takes to avoid those burdens. A complex line of tasks usually awaits after an extreme rating is given during a PA process. Thus, to evade from the responsibility, they falsify the employee ratings. By doing so, they manipulate underperforming employees into thinking that they are good enough and thus, impeding their chances for self-improvements(). For accomplished employees, they lower their ratings into higher-moderate levels to avoid the series of clarifications required by their superiors(). This unethical behaviour is defined by the central tendency error () as it violates the fair PA process(Poon 2004) and breaches equal employment opportunity(EEO) standards().

Managers have individual KPIs when conducting PA. This comes both systematically through a pre-set forced distribution method() or manually when only a certain number of employees are allowed for to be sent for trainings and promotions in the current PA period. Both of these practices often results to modifying employee original rankings to a higher or lower region of the distribution(). This hinders their initial opportunity to receive trainings or promotions from the organization if they were reorganised into another region. The same analogy goes for employees who receive these organizational efforts when they are not supposed to in the first place. Both manipulation techniques, however, have not received much attention in the PA literature.