Significance Of Performance Appraisal Systems In Enhancing Organizational Efficiency

Major Stakeholders involved and their perception about the existing performance appraisal system

Describe the significance of performance appraisal systems in enhancing employee performance and overall organisational efficiency.

In today’s organisations, performance appraisal has become a vital human resource practice and has considerable impact on employee motivation, commitment and overall performance (Armstrong, 2012). The effectiveness of a performance appraisal system depends on how well it is linked to organisational goals and performance objectives, and how well its purposes are accepted, understood and strived to be achieved by organisational members (Neely, 2007). A favourable and effective performance appraisal system will have a positive impact on employee workplace behaviour, attitude towards work and workmates and on overall organisational efficiency.

Stakeholders are individuals and groups that are interest in the business and are affected by activities of the business (Brown, et al., 2013). Stakeholders can have considerable impact on company’s objectives actions and policies. Key stakeholders within an organisation are owners, investors, managers, suppliers, partners, workers, customers, society and the environment (Paladino, 2011). Workers and Managers are the two main stakeholders identified in the case.

Workers who are being rated perceive the current performance appraisal system as unfair and forced. According to them they are not being rated as per their performance but based on the type of relationship they share with their managers. Workers perceive the current performance appraisal system as a source of conflict. Once they get to know each other’s ratings there is a considerable change in their behaviour towards their co-workers. It gives rise to feelings of envy and reluctance to communicate and cooperate. Workers who are rated 3 feel highly de-motivated as they feel they are average performers, and so most of them quit the company. Workers how are rated 5, express that managers should lenience while treating employees who belong to a union, when it comes to termination and salary hikes in comparison to employees who are non-union members. Thus, workers at Yarra Bank perceived its performance appraisal system as a system that is based on favouritism and not on performance evaluation.

Managers who are responsible for rating their employees perceive the performance appraisal system as unfair and a source of conflicts and ill feeling, as it forces them to divide their employees in five different ranks. Managers who are politically more powerful refuse to follow the system and rank anyone as a 4 or 5 as they feel their department is different and most of their workers deserve to be rated as stars or starlets. Managers who follow the performance appraisal system strictly feel their workers are disadvantaged as an outcome. Managers feel that owing to a lack of training, promotion and some loop holes in the performance appraisal system it is failing to deliver desired results and enhance employee motivation and performance; rather it has become the primary source of tension, conflicts and dissatisfaction among managers and workers of Yarra Bank.

Strengths

 A number of external and internal environmental factors affect the effectiveness of performance appraisal systems at Yarra Bank such as Union government, culture of the organisation and workers and managers attitude towards the system.

A performance appraisal system evaluates employees based on their performance over a specific period of time (Cooper & Burke, 2011). They help management differentiate between performers and non-performers and accordingly make important decisions regarding salary increments and promotions. It helps the management in designing improvement plans and relevant training and development programs for non-performers (Deeprose, 2006). Performance appraisal systems play a very vital role in enhancing overall organisational efficiency by increasing employee motivation and performance. Performance appraisal system at Yarra Bank is a five-level system that used a forced-ranking distribution. It presence somewhere motivates employees to deliver good performance as they would not like themselves to be ranked as 4 or 5. Also, as the rating allocated by the performance appraisal system has direct influence on salary hikes and bonuses employee make best efforts to deserve a rating of 1, 2 or 3. As it is a forced ranking distribution systems it require managers to evaluate their employees very closely and then provide relevant ratings to them (Truss, et al., 2013). It helps managers know their employees better and accordingly allocate tasks to them. It also facilitates development of a competitive organisational culture where employees continuously strive to deliver high performance to stay ahead of each other (Shields, 2007). The current performance appraisal system helped managers in monitoring the activities of workers and show them their weak points which would not have been possible otherwise.

As depicted in the case study the current performance appraisal was a forced ranking distribution system. No pre-performance appraisal meetings were conducted by managers to discuss performance criteria with workers and their performance over the last year (Saks, et al., 2010). Post-performance appraisal meetings were also not conducted to discuss ratings with individual employees, receive their feedbacks and plan further improvements

The company had not defined clear performance targets and expectations. Roles, responsibilities, work duties, accountabilities and activities related to performance appraisal systems were not clarified (Paladino, 2011). It became difficult for managers as well as employees to measure and deliver results when desired results were capricious or unclear.

The current performance appraisal system failed to establish effective ways in which results are to be measured and evaluated, thus making is appear as an unfair system where workers were rated based on manager’s favouritism (Zaffron & Logan, 2011).

Weaknesses

No training was provided to managers or workers on how the performance appraisal system actually functioned (Zaffron & Logan, 2011). Managers were not trained in their responsibilities for completing performance appraisal and employees were not trained to clarify work expectations. No efforts were made to communicate the benefits of having a performance appraisal system to workers and managers and how it can influence performance of the organisation as a whole.

Also, the current performance appraisal system, failed to maintain the confidentiality of ratings allotted to different employees, which resulted in conflicts among workers and managers.

In order to make the performance appraisal system more effective and derive desired results, it is important to make considerable improvements in it. Firstly, it is needed to design specialised training program for both managers and workers, in order to provide them complete knowledge about the functionality of the system (Barrows & Powers, 2008). Secondly, it is important to link the performance appraisal system to desired organisational goals and objectives. During this step performance criteria should be finalised and it must be different for different departments. Performance targets must be clearly defined for all five ratings and it is important to ensure that these performance targets do not overlap. Thirdly, performance criteria must be made transparent to all managers and employees and they must be well trained to enquire about the performance criteria (Armstrong & Stephens, 2005). In this step it is also important to effectively communicate the benefits of using performance appraisal systems to workers and managers. The purpose of using a performance appraisal system should be clearly defined and communicated showing how it will be beneficial for the workers and managers as well as for the organisation as a whole. Fourthly, it is important to define strict deadlines for each step in the performance appraisal system. For example, employees and managers must be informed at least 30 days before the beginning of performance appraisal process. This will give both workers and managers to prepare point they want to discuss and consider while reviewing worker performance. On the first day of the performance appraisal process a self-evaluation form must be provided to employees, which they have to fill and submit to their manager at least 15 days before the evaluation meeting. Evaluation meeting with workers must be completed before fifteen days the final ratings are shared with employees. The performance appraisal process should end with the post evaluation meeting where employees’ feedback must be collected, along with their level of satisfaction with their ratings and how they will be planning improvements in the coming year.

Recommendations for improving the performance appraisal system

Maintaining the confidentiality of ratings allocated to different employees is the most important element of any performance appraisal system. Any violation to confidentiality of rating should be considered a violation of ethical code of conduct leading to termination of the employee. Employee and managers must ensure that they do not share any information related to rating provided to individual employees. Consequences of violating this ethical code of conducts should be clearly communicated to employees during training sessions.

Conclusion

Workers and managers should be motivated and encouraged to develop a positive attitude towards the performance appraisal process, rather than viewing it as an unfair process which lacks transparency. Managers must ensure that they follow the performance evaluation process ethically and do not show any form of favouritism towards specific employees. It is important to inform workers and managers that they can achieve their career objectives only when the desired goals of the organisation are achieved. Performance appraisal system not only help managers in differentiating between performers and non-performers but also help workers in identifying their skill gaps which when reduced will help them achieve desired career goals.

References

Armstrong, M., (2012) Armstrong’s Handbook of Reward Management Practice: Improving Performance Through Reward. London: Kogan Page Publishers.

Armstrong, M. & Stephens, T., (2005) A Handbook of Management and Leadership: A Guide to Managing for Results. London: Kogan Page Publishers.

Barrows, C. W. & Powers, T., (2008) Introduction to Management in the Hospitality Industry. New Jersey: John Wiley & Sons.

Brown, S., Blackmon, K., Cousins, P. & Maylor, H., (2013) Operations Management: Policy, Practice and Performance Improvement. New Jersey: Routledge.

Cooper, C. L. & Burke, R. J., (2011) Human Resource Management in Small Business: Achieving Peak Performance. Cheltenham: Edward Elgar Publishing.

Deeprose, D., (2006) How to Recognize and Reward Employees: 150 Ways to Inspire Peak Performance. New York: AMACOM Div American Mgmt Assn.

Neely, A., (2007) Business Performance Measurement: Unifying Theory and Integrating Practice. Cambridge: Cambridge University Press.

Paladino, B., (2011) Five Key Principles of Corporate Performance Management. New Jersey: John Wiley & Sons.

Saks, Saks, A. M., Haccoun, R. R. & Belcourt, M., (2010) Managing Performance Through Training and Development. New York: Cengage Learning.

Shields, J., (2007) Managing Employee Performance and Reward: Concepts, Practices, Strategies. Cambridge: Cambridge University Press.

Truss, C. et al., (2013) Employee engagement, organisational performance and individual well-being: exploring the evidence, developing the theory. The International Journal of Human Resource Management, 24(14), pp. 2657-2669.

Zaffron, S. & Logan, D., (2011) The Three Laws of Performance: Rewriting the Future of Your Organization and Your Life. New Jersey: John Wiley & Sons.