The Evaluation Of Performance Management Systems

Performance Management system is a system that specifies objectives and measures for performance and identifies opportunities for development. A performance management system should enable the organization to recognize the potential of the employees, develop and enhance their productivity, reward their good performance thus flourish a culture that supports superior performance. Performance appraisals form a vital part of the Performance management system. As elaborated by Banner and Graber (2007, p. 26-27), the simplistic objective of performance appraisals is to determine an employee’s performance levels during a specified period. On the other hand, from the perspective of an organization, a performance appraisal is about supervisors providing feedback and reviewing an individual employee’s performance during a set period of time. Developing efficient performance appraisal system is a difficult task. Henderson (1984, p. 54) argues that there is no generic standard for performance appraisals and their design and supervision differs from organization to organization based on the specific employee’s and organization’s needs, goals and objectives. A properly planned, designed and administered performance appraisal is organization’s greatest and valuable asset that leads to improved communication within organization resulting in greater employee loyalty and productivity (Wiese & Buckley, 1998).

Purpose, scope and limitations of the report

The purpose of this report is to explore the process of performance management system at ILA, Vietnam, and also determine its effectiveness based on the strengths and weaknesses. The report describes the individual steps involved in the performance management system with an emphasis on the way the appraisals are conducted. The report strives to identify, whether or not, the system focuses on a Best- Fit approach and provides recommendations for enhancing its effectiveness based on the review of the relevant literature, research evidence and organization’s Performance management system. The scope of the report is limited to the examination of the performance management system for the local full time staff only. However, the issues of expatriates’ rating errors will also be described in the later half part of the report. It should be noted that a limited access to the insight details about the organization and the reward policy serves as a limitation of my report.

Background and Description of Organisation

ILA is an abbreviation of ‘International Language Academy’. ILA is an established and renowned foreign organization in Vietnam that offers a variety of services and educational and training programs. It was established in 2000. The most notable ones are the training for teachers and professionals, English language training and foreign education consultancy and placement services. ILA has over 500 employees out of which approximately 250 are expatriates. In year 2010, ILA celebrated its first ten years of success and pledged to continue to provide world class education in Vietnam, the later being its vision. The organization enjoys a good ranking after British Council in Vietnam.

HR philosophy

ILA’s HR objectives and philosophy is derived from the overall strategic business goals of the organization. Its HR philosophy dictates a strong belief in the importance and significance of its people and considers them a valuable asset. And in this regard, it pledges to attract, retain and develop the best people. ILA’s HR philosophy states commitment to provide professional development, recognize and reward high performance.

PMS Policies and strategy

The research asserts that adoption of a single method, organization wide, for evaluating performance will not give accurate results; rather, the methods for performance evaluation should be designed around each job and its categories (Webb & Kleiner, 1992). At ILA, different criteria and methods have been designed for different departments and jobs. For example, performance appraisals for the teaching staff and admin are different. The ILA’s performance management system resembles the structure elaborated by Wiese and Buckley (1994, p. 3) having two purposes. Firstly, it determines the differences and relative worth of each employee to the department and overall organization. On its basis, HR makes important decisions regarding pay increments, rewards and employee promotion or transfer. Secondly, it provides an employee training and development and coaching mechanism on the basis of which the strengths and weaknesses of employees are brought into light considering the previous performance. New performance objectives and goals are defined and training needs and requirements are determined. The former purpose uses a competency based approach whereas the later focuses on the result- based approach and is known as Individual Work and Development Plan (IW&DP). In total there are 8 core wining competencies which are given below:

Leadership/Ownership

Problem solving

Creativity

Communication

Objective Following and Priority Setting

Co-operation

Capability Building

Professionalism

These competencies are outcomes and behavior based competencies that are not only used as criteria for recruitment, but also for performance management, training and development programs.

The performance management process at ILA is fully automated and pretty much follows the model by Pulakos (2009) with the exception of step 3 and 5. The whole process and system of Performance appraisals is discussed and a deadline for appraisals is set in a meeting between HR, board of directors and managing director. A meeting or a workshop is conducted to inform and guide the staff about the purpose, objectives expectations and timeline of performance appraisals. Employees submit online the perceptions regarding their own performance i.e. self-appraise. Managers then review these assessments and submit their evaluations and ratings. A formal meeting is then held between the manager and employees to discuss the performance review in detail. The results are then forwarded to the HR and the Board of directors for approving the process of promotions and pay increments or handling employee grievances. See Appendix B.

To elaborate it further, Performance Appraisals at ILA are conducted usually from 15th Oct to 15th Nov annually. The HR department is given the responsibility to address any questions that may arise regarding the process. Since the scope of this report is limited to the appraisals for local staff only; any member of the local staff, who has worked for over six months in the organization shall be considered for the appraisals. The raters are the managers or supervisors of the departments. Managers rate the employees for their IW&DP and core competencies based on a scale of 5 ranging from Weak to Far exceeded expectation. Managers use a consolidated rating matrix for rating each employee relative to his/her job specification (Refer to Appendix A). 60% weightage is given to the evaluations and appraisals of the Individual work and development plans, the IW&DP’s that are set in the beginning of the fiscal year by the employees. The remaining 40% weightage is given to the evaluation on 8 winning competencies. After individuals have set their work plans and goals in the system, the managers review and discuss them with the employees. This process of coaching is considered to be the most effective one in driving the employees to align their goals with the business goals of organization. Kleiner and Boice (1997) argue that in addition to policing, supervisors should play a role of coach to help and assist the employees in developing and attaining performance goals.

Evaluation of Performance management system at ILA

A lot has been written in favour of the performance management system. Research on efficient performance appraisal systems by Rugaas and Evans (1982) and McGregor (1960) reveals that better management and administration, enhanced productivity and motivation are its objectives. However, most of the research propagating the positive notions of such systems relies on conditional statements and probabilities pertaining to the fact that positive outcomes are realized only if the systems are efficient enough etc. (Pan & Li, 2006). For example, Grote (2002, p.15) states that if implemented the right way, performance appraisals can prove to be an effective and powerful tool. Baldwin (2003, p.87) argues that some employees find performance appraisal systems erroneous, offensive and counterproductive. Below is the detailed analysis of the effectiveness of PMS at ILA based on validity, reliability, cost effectiveness and felt fairness.

Validity

Currently, the measures and ratings of performance management are consistent with the ILA’s goals. A 360 degree feedback may, however, be very helpful in bringing more consistency and accuracy to the system. However, the implementation of such appraisals may not be practical in the case of Vietnam, as the power distance is very high which is approx. 70, as established by Hofstede’s cultural dimensions.  

Reliability

The performance management system at ILA can be considered moderately reliable. As Montague (2007) states that supervisors may have different notions of an acceptable or a good performance, there is a high need to help them and train them to develop and maintain consistency in standards among different departments. So, in case of ILA, such training is provided to them. Secondly, as Taylor and Smith (1987) argue that for performance improvements, there has to be clear performance criteria to be aware of what is and should be expected from the employees. The standards for performance measures are clear and consistent in ILA and the criterion on which performance is measured is objective and weightage are assigned in order to maintain the objectivity. And as Myers, Johnston and Pearce (2001, p.28) describe that the process of Performance appraisal encompassing a series of organized steps ranging from creating criteria for job performance to communicating them to employees to evaluating their respective performance relative to the set criteria and lastly, discussing the results of the performance reviews with the employees. The same process takes in ILA as well, which has been described earlier in the report. This process makes the system highly reliable.

ILA uses web-based performance management tools for appraisals. Research indicates that web-based and intranet performance systems can provide a much better workflow which is discussed later on in this report under the heading of Cost effectiveness. Furthermore, the ILA’s performance management system is clearly linked with the rewards and employee development. And the system mandates a two way communication which again makes it reliable. This helps to foster trust and respect in the relationships between supervisors and subordinates as has also been pointed out by Vasset, Marnburg and Furunes (2010). And in this regard, they quote various researchers to point to the fact that a major responsibility lies on the shoulders of the supervisors to ensure that a positive constructive discussion takes place between them and the ratees. They consider it an important variable of performance appraisal system. However, Evaluation by a single manager may lead to biased and erroneous ratingsand results. This is probably the only point which lowers the reliability.

Cost effectiveness

ILA’s performance management system ranking is high with regards to cost effectiveness. The use of intranet and web based performance management system makes the whole process of appraisal, easy, timely efficient and reliable. Research study by Payne, Horner, Boswell, Schroeder and Stine-Cheyne (2008) and Denton (2006) also talks about the cost-effectiveness, speed, and better workflow and accuracy benefits of such systems. The system allows the employees to set a maximum of five performance objectives along with the measurements. In addition to that, employees have to develop a list of strengths and improvement areas. The system assists the employees to appraise themselves on a set date and also build up their individual plans for work and development. The managers than review the employees’ self-appraisals and give their comments and ratings. They then review the individual work and development plans and approve them. In a nutshell, the much time consuming and tedious tasks of appraisals are made easy, interesting, consistent and less costly through the use of company’s intranet and information system.

Fairness

Lazer and Wikstrom (1979) argue that a well- designed and developed performance management system may be susceptible to fail if the organization’s personnel and management does not support it. The extent of willingness and enthusiasm the employees show for meeting the set goals and targets actually depict their perceptions of fairness regarding the performance systems. Therefore, assessing employees’ attitude towards the organizations performance management system is vital (Carroll& Schneier, 1981; Harris, 1988). ILA’s performance management system allows the employees to discuss their performance issues with their managers before, during or after their appraisals. Managers are asked as part of their responsibility and duty to get the employees perspective. If the employees feel that they are allowed to control the performance evaluation processes that determine the results, they would have favourable perceptions for it (Kavanagh, Benson, & Brown, 2007). The system also supports the mechanism for handling employee grievances if the employees disagree with the assessment ratings and results. Moreover, with the use of the organization intranet page for individual work and development and performance appraisal system employees are fully encouraged to set their own performance objectives and measurement criteria, as has been discussed earlier. As Harris (1998) states that a system that assists the employees to develop their own standards on the basis of which they can keep up with their performance, really serves as a motivating factor and enhances their enthusiasm for it. The jointly discussed and approved performance objectives and targets between the ILA’s manager and employees enhance the perception of fairness and impartiality.

However, the issues of “Recency Effect” may decline the perceptions of fairness. As mentioned earlier, formal appraisals at ILA are conducted once in a year. The managers are prone to remember the recent high profile performance issues that can be either good or bad. Hence, performance ratings may be highly influenced due to this effect and may lead to erroneous results and de-motivation of the employees.

Furthermore, expatriates tend to give higher performance ratings as compared to the local managers. This can also be a de-motivating factor and will lead to a seizure in the employees’ development and creativity as average performance will also be marked as exceptional. Wong and Kwong (2007) state that observing differential among the ratees based on the set performance attributes is important. According to them, overstating or understating these differences may lead to inaccuracies in the HR decisions regarding promotion, increments and bonuses etc. Based on their research, we might consider the expatriate managers pursuing a “Harmony Goal” for promoting equality and avoiding employee hostility towards them. Furthermore, such inaccurate ratings by expatriate managers may also be the result of limited information and awareness of the organizations culture and performance appraisal objectives. Finally, Fairness issues may arise due to following a calendar year instead of an employment year for appraisals. Generally, new and old employees are appraised on the declared date. There is a high possibility of rating a newly hired employee higher that the old one considering the recency effect.

Performance linked to rewards

An organization’s performance management system can be effective in terms of enhancing the motivation levels of employees, if the rewards are linked with the appraisals and evaluations (Lawler, 2003). Similarly, Schweiger and Sumners (1994) state that rewards if linked with appraisals, can assist employees in achieving high performance. ILA rewards it employees achieving 4 or more points by the managers in appraisals with bonuses. The amount of this bonus actually depends on the profit gained by the organization during the whole year before appraisal. This imply to the fact raised by Migliore (1982) that there will be no bonus if the profit is not gained. When asked about the tackling with the poor performance, the respondents at ILA only revealed that the low performers are given necessary training or are transferred to other departments.

Based on the above facts I summarise them in the following table:

Low

Moderate

High

Low

Moderate

Fairness

Encouraging employee participation

Recency effects

Higher ratings by Expatraiate managers

Follows one calender year rather than employment year- subject to bias and inaccuracies

High

Reliability

Clearperformance measurementstandards

Linked with rewards and employee development

Good workflow

One managers Assessment

Validity

Best Fit Approach

Measurable ratings consistent with business goals

Cost Effectiveness

Automated and computerized systems for performance appraisals save time.

Cost effectiveness of the performance management system at ILA is high.

Validity of the system is high as well

Fairness is moderate, because a few issues of recency effects, following calendar year for appraisals and higher ratings by expatriates lowers the perceived fairness.

Reliability of the system is moderately high because apart of the good standards of performance measurement, it’s objectives and workflow, the evaluation carried by one single manager may introduce inaccurate outcomes of the appraisals.

Recommendations

Based on the research by Boice and Kliener (1997, p.198), employee performance appraisals or reviews should be conducted frequently rather than conducting them once a year. Typically, they view bi- monthly or quarterly appraisals as valuable depending on the nature and goals of the organizations. They argue that by doing so, two issues regarding the selective memory of the employees and managers resulting in the recency effect and limited awareness of the performance issues on both the sides may be reduced and in some cases eliminated. In addition to frequent reviews, to ensure that recency effects do not affect the performance appraisals, recording critical incidents by supervisors and employees on a regular basis can really be useful and helpful (Corcoran, 2006).

The supervisors or managers should be provided training with regards to developing a common awareness and realization of any factor causing performance appraisal results to be erroneous. Sims(1998, p.26) argues that even a perfect performance appraisal in place , may not guarantee error free results and often the causes of such errors are related to the actions of the supervisors. Fink and Longenecker (1998) assert that the role of a ‘rater’ is quite challenging and requires a lot of skills and motivation, which, many of the supervisors and managers do not possess. Schweiger and Sumnors (1994, p.4) suggest that the appraiser training should also include an awareness of the Psychometric Errors and biases. The study by Fink and Longenecker (1998) proposes ten skills or competencies for the raters to conduct efficient formal performance appraisals. Out of them, knowledge of organization’s performance rating forms and procedures, counselling or coaching and knowledge of legal or compliance issues are notable ones and should be more directed to the expatriate raters.

Finally, the issue of ‘one manager’s assessment’ at ILA has to be resolved by introducing an alternative source of evaluation. Much of the research proposes that instead of one manager’s or supervisor’s assessment, a combination of reviews by peers, clients, subordinates, supervisors must be used (Banner & Graber, 2007).As already discussed earlier in the report, 360 degree feedback may not be a good option for evaluations due to the cultural aspects of Vietnam, feedbacks from peers, or end users (the students) may be used. Cotton (1993) views peer appraisals as a mechanism for cultivating a more ‘participative culture’ in an organisation, that helps in building employee confidence and trust in it. Coates (1996) also argues that multisource feedback is not only administered for self-awareness but also to diagnose strengths and weaknesses. Therefore, feedback from peers and end users at ILA should be used, but care should be taken that these are conducted solely for the development and training purposes of the employees and not linked with the rewards.

Conclusion

Overall, considering the nature of the business, the performance management system used in ILA is good enough. The performance standards, measurements and ratings are consistent with the ILA’s business goals. Most importantly, the employees are encouraged to actively participate in developing the performance objectives along with their respective managers which clearly results in the higher perceptions of system fairness among the employees. However, there is always a room for improvement, as continuous innovation and creativity leads to a persistent success in getting the achievements.