Effectiveness of Performance Appraisal: Its Outcomes and Detriments in Pakistani Organizations

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1 Effectiveness of Performance Appraisal: Its Outcomes and Detriments in Pakistani Organizations Hafiz Muhammad Ishaq Federal Urdu University of Arts, Science and Technology, Islamabad, Pakistan Tel: Muhammad Zahid Iqbal COMSATS Institute of Information Technology, Islamabad, Pakistan Tel: Arshad Zaheer Foundation University, Islamabad, Pakistan Tel: Abstract This paper aims at studying outcomes of performance appraisal and exploring factors that can make harm to the PA effectiveness in the perspective of Pakistani public and private sector organizations. Data were collected through survey of 127 managers and employees. Overall results reveal that in Pakistani public and private sector organizations, awareness level about outcomes of effective performance appraisal is more than factors that can make harm to the effectiveness of performance appraisal. Managers have different views from employees regarding detriments to PA effectiveness whereas, regarding outcomes of PA effectiveness, male and female managers/operatives have different views. Keywords: Performance Appraisal, Effectiveness, Outcomes, Detriments, Pakistan 1. Introduction Effectiveness of performance appraisal has so far been studied in different contexts. However, exploring important areas like outcomes of effectiveness of performance appraisal and identification of factors that can make harm to the effectiveness of performance appraisal in perspective of Pakistani organizations was needed. Therefore, the researchers set objectives of this paper to study the outcomes of effectiveness of performance appraisal and to find key detriments to effectiveness of performance appraisal in Pakistani organizations. This paper aims at answering the following research questions: i. What are outcomes of effective performance appraisal in Pakistani organizations? ii. What are the factors that can harm effectiveness of performance appraisal in Pakistani organizations? 2. Literature Review Published literature concerning outcomes and detriments of effectiveness of performance appraisal are discussed separately as under: 479

2 2.1. Outcomes of Effective Performance Appraisal Common outcomes of an effective performance appraisal process are employees learning about themselves, employees knowledge about how they are doing, employees learning about what management values (Beer, 1981). According to Stephan and Dorfman (1989) outcomes of effective performance appraisal are improvement in the accuracy of employee performance and establishing relationship between performance on tasks and a clear potential for reward. Dobbins, Cardy and Platz- Vieno (1990) told five outcomes i.e. use of evaluations as feedback to improve performance, reduced employee turnover, increased motivation, existence of feelings of equity among employees, linkage between performance and rewards. Nurse (2005) viewed provision of information for the development of managerial strategies for training and development as an outcome. Teratanavat, Raitano and Kleiner (2006) found outcomes like reduced employee stress, review of overall progress, linkage between current performance and employee s goals, and development of specific action plans for future Detriments to Effectiveness of Performance Appraisal Literature uncovered following aspects that can make harm to the effectiveness of performance appraisal: exemptions to the highly visible employees, conduct of performance appraisal to punish the low performers, rewards on nonperformance, doubts in the mind of performers about appraisal s after effects, organization s politics that leads to disturb performance of targeted employee (Deluca, 1993); use of fundamentally flawed appraisals, focus on encouraging individual, which automatically discourages teamwork/collaboration, inconsistencies in setting and applying appraisal criteria, focus on extremes (exceptionally good or poor performance), appraisal s focus on achievement of short-term goals, support to autocrat supervisors, subjectivity of appraisal results and creation of emotional anguish in employees (Segal, 2000); use of vague qualities and irrelevant measurement criteria, use of useless checklists for evaluation, monologues instead of dialogues in feedback sessions, reluctance of appraisers to offer feedback, supervisor s misguidance to appraiser (Nurse, 2005); inaccuracies at supervisor/organization s end (Horvath & Andrews, 2007). 3. Procedure and Measures The researchers designed a survey questionnaire for managers and operatives working with public and private sector organizations of Pakistan. As suggested by Fink (1995b), only purposeful statements based upon research objective and hypotheses were included. All questions were closed to elicit standardized response. Medium of communication was English with focus on use of conventional language. Wording of survey questions/statements was kept simple and unbiased (McClelland, 1993) and questions of trivial nature were avoided (McClelland, 1994). Instructions/legends were also given at the start of every set of questions having same format (Cooper & Emory, 1995). For expeditious response, survey questionnaires were administered through referrals. The researchers maximized accuracy in the test scores by applying measurement scaling carefully. The research design of the study used five-point Likert scale for all survey questions (Fink, 1995a). Nominal scales were also used for few personal information questions. The researchers focused mainly on inferential statistics with the purpose to test the hypotheses, but for description of facts found in data, tools of descriptive statistics were also used. Data were prepared for application of statistical treatments for further descriptive and confirmatory analyses. Three hypotheses were developed and tested to find as to whether they had answered the research questions. Two independent samples t-tests were performed to analyze difference between mean values of two groups in the respective data set. Hypotheses were: H 1 : There is a significant difference of opinion between managers/employees working with public and private sector organizations regarding (a) outcomes of effective performance appraisal and (b) detriments to effectiveness of performance appraisal. 480

3 H 2 : H 3 : There is a significant difference of opinion between managers and employees working with public/private sector organizations regarding (a) outcomes of effective performance appraisal and (b) detriments to effectiveness of performance appraisal. There is a significant difference of opinion between male and female managers/employees working with public/private sector organizations regarding (a) outcomes of effective performance appraisal and (b) detriments to effectiveness of performance appraisal Respondents Characteristics Managers who appraised performance and employees whose performance was appraised in Pakistani public and private sector organizations were considered as elements of population for the study. The researchers contacted some 300 managers/employees working with public and private sector organizations of Pakistan through survey questionnaires. Overall response of survey questionnaires, ready for further analysis, was 42%. The researchers gave due importance to the issue of blank responses and straightaway excluded the questionnaires having less than 75% responses as suggested by Sekaran (2003). Before application of statistical treatments on data, it was analyzed that average response of survey questions was 99%. Minimum response to survey questions in a questionnaire was 95% whereas maximum response was 100%. In addition, table 1 displays aggregate profile of the respondents. Table 1: Respondents Characteristics Selected Dimensions % n Age 20 to 29 years to 39 years to 52 years Gender Male Female Education Masters or above Graduation Experience Less than 1 year to 3 years to 7 years years or above Job Position Managerial/Officer Employee/Operative Type of Organization Pubic Sector Organization Business/Private Sector Organization Own Business Instrument s Reliability Inter-item reliability coefficient i.e. Cronbach s alpha for overall questionnaire (33 items) was Thus, Cronbach s alphas for outcomes (14 items) and detriments (19 items) of effectiveness of performance appraisal were and respectively. To delete an item from questionnaire, Cronbach s alphas ranged between for outcomes and for detriments, which were good enough for further statistical analyses (Sekaran, 2003). Therefore no item was eliminated. 481

4 3.3. Data Reduction Factor Analysis Factor analysis was applied to reduce data. Table 2 shows that overall no variable was eliminated. Thus, for 33 items of two variables of outcomes and detriments of effectiveness of performance appraisal, a total of 9 iterations were performed for communalities and rotated components matrices. The number of eliminated items came to 19. Therefore, 14 items with higher factor loadings carried forward for further statistical analysis. The coefficients of Kaiser-Meyer-Olkin (KMO) against all latent variables were more than 0.50 (i.e. Minimum = and Maximum = 0.759). Bartlett s Coefficient against all latent variables was found significant at p = Table2: Summary of Factor Analysis and Tests of Assumptions for Factor Analysis Kaiser-Meyer-Olkin (KMO) and Bartlett s Coefficients Variables Total Items Items Eliminate d Total (C a, RM b ) Items Remainin g Iterations Total (C a, RM b ) Outcomes of Effective PA Detriments to Effectiveness of PA Total Note: a C = Communalities b RM = Rotation Matrix c KMO = Kaiser-Meyer-Olkin Measure of Sampling Adequacy d Bartlett s Test of Sphericity * p < 0.01 Bartlett d KMO c χ 2 df Sig * * The factors having higher loads existed in the variables of outcomes and detriments of effectiveness of performance appraisal. Table 3 shows that these variables have 14 items with higher loads based on communalities and rotated component matrices. The estimates of the variance in each item accounted for by the components in the factor solution were above According to rotation sums of squared loadings, component/s collectively explained more than 60% of the variance. Regarding variable of outcomes of effectiveness of performance appraisal, items eliminated were Employees learning about themselves, Establishment of relationship between performance and reward, Use of evaluations as feedback to improve performance, Existence of feelings of equity among employees, Development of managerial strategies for training, Reduced employee stress, Review of overall progress and Development of specific action plans for future. For variable of detriments to effectiveness of performance appraisal, items eliminated were Exemptions to the highly visible employees, Conduct of performance appraisal to punish the low performers, Use of fundamentally flawed appraisals, Focus on encouragement of individual instead of teamwork, Focus on extremes (exceptionally good or poor performance), Support to autocrat (dictator type) supervisors, Use of vague qualities and irrelevant measurement criteria, Use of useless checklists for evaluation, Monologues instead of dialogues in feedback sessions, Supervisor s misguidance to rater and Inaccuracies at supervisor/organization s end. 482

5 Table 3: Factor Loadings Outcomes and Detriments of Effectiveness of Performance Appraisal Component Dominating Administrative Purposes and c Uses a Extraction b Outcomes of Effective PA Employees knowledge about how they are doing Improvement in the accuracy of employee performance Linkage between current performance and employee's goals Employees learning about what management values Reduced employee turnover Increased motivation Detriments to Effectiveness of PA Organizational politics that disturb performance of targeted employees Doubts in the mind of performers about appraisal's after effects Rewards on nonperformance Creation of emotional anguish in employees Reluctance of raters to offer feedback Appraisal's focus on achievement of short term goals Subjectivity of appraisal results Inconsistencies in setting and applying appraisal criteria Note: a Initial Value of all items is b Extraction Method: Principal Component Analysis c Rotation Method: Varimax with Kaiser Normalization Rotation Sums of Squared Loadings Cumulative % Result and Discussion Table 4 shows that minimum M was 3.29 against rewards on nonperformance (item studied under variable of detriments to effectiveness of performance appraisal). Maximum M was 4.27 against increased motivation (item studied under variable of outcomes of effectiveness performance appraisal). Thus, overall mean scores and relative standard deviations revealed respondents strong and general agreement to the outcomes and detriments of PA effectiveness respectively. 483

6 Table 4: Means and Standard Deviations Variables M SD Outcomes of Effective PA Employees knowledge about how they are doing Improvement in the accuracy of employee performance Linkage between current performance and employee's goals Employees learning about what management values Reduced employee turnover Increased motivation Detriments to Effectiveness of PA Organizational politics that disturb performance of targeted employees Doubts in the mind of performers about appraisal's after effects Rewards on nonperformance Creation of emotional anguish in employees Reluctance of raters to offer feedback Appraisal's focus on achievement of short term goals Subjectivity of appraisal results Inconsistencies in setting and applying appraisal criteria Table 5 displays the results of two independent samples t statistic, applied to test the hypotheses 1, 2 and 3. The average perceptions of managers/employees of public and private sector organizations of Pakistan were same in respect of variables of outcomes and detriments of effectiveness of performance appraisal. Results related to hypothesis 2, revealed that average perceptions of managers/officers and employees/operatives of public/private sector organizations of Pakistan were same in respect of outcomes but different in case of detriments of effectiveness of performance appraisal. Results of third hypothesis revealed that average perceptions of male and female managers/employees of public/private sector organizations of Pakistan were different in respect of outcomes but same regarding detriments of effectives of performance appraisal. Table 5: Independent Samples t-test With Respect To Sector, Position and Regarding Outcomes and Detriments of Effectiveness of Performance Appraisal Two independent samples t Variables Sector-wise (Public- Position-wise (Manager- Gender-wise (Male- Private) Operative) Female) t df Sig. t df Sig. t df Sig. Outcomes of Effective PA * Detriments to Effectiveness of PA * Note: *p < 0.05 (two tailed) These results overall support literature for outcomes of effectiveness of performance appraisal while corresponding with the previous studies (e.g. Beer, 1981; Stephan & Dorfman, 1989; Dobbins, Cardy & Platz-Vieno, 1990; Nurse, 2005; Teratanavat, Raitano & Kleiner, 2006) and also support literature (see Deluca, 1993; Segal, 2000; Nurse, 2005; Horvath & Andrews, 2007) while studying factors that can make harm to the effectiveness of performance appraisal. 5. Conclusion Conclusions substantiated the research objectives while answering the research questions that Pakistani public and private sector organizations do believe in the role of outcomes and detriments for effectiveness of performance appraisal. The respondents are more aware about outcomes of effective performance appraisal than factors that can make harm to the effectiveness of performance appraisal. 484

7 As regards detriments to PA effectiveness, Managers have different view from employees. Likewise, regarding outcomes of PA effectiveness, male and female managers/operatives have different views. References [1] Beer, M. (1981, Winter). Performance appraisal: dilemmas and possibilities. Organizational Dynamics, 9(3), Retrieved August 24, 2007, from Business Source Premier Database, [2] Cooper, D. R., & Emory, C. W. (1995). Business research methods (5 th ed.). Irwin, USA: Mc- Graw Hills Companies Inc. [3] Deluca, M. J. (1993). Handbook of compensation management. Englewood Cliffs: Prentice Hall. [4] Dobbins, G. H., Cardy, R. L., & Platz-Vieno, S. J. (1990, September). A contingency approach to appraisal satisfaction: an initial investigation of the joint effects of organizational variables and appraisal characteristics. Journal of Management, 16(3), Retrieved August 21, 2007, from Business Source Premier Database, [5] Fink, A. (1995a). How to analyze survey data. London: Sage Publications. [6] Fink, A. (1995b). How to ask survey questions. London: Sage Publications. [7] Horvath, M., & Andrews, S. (2007, March). The Role of Fairness Perceptions and Accountability Attributions in Predicting Reactions to Organizational Events. Journal of Psychology, 141(2), Retrieved July 26, 2007, from Academic Search Premier Database, [8] McClelland, S. B. (1993, July/August). A systematic approach to determining productivity improvement training needs. Industrial Management, 35(4), Retrieved May 04, 2005, from Business Source Premier database, [9] McClelland, S. B. (1994). Training needs assessment data-gathering methods: Part 2, individual interviews. Journal of European Industrial Training, 18(2), Retrieved May 04, 2005, from Business Source Premier database, [10] Nurse, L. (2005, July). Performance appraisal, employee development and organizational justice: exploring the linkages. The International Journal of Human Resource Management, 16(7), Retrieved July 31, 2007 from Taylor & Francis Journals Database, [11] Segal, J. (2000, October). 86 Your Appraisal Process?. HR Magazine, 45(10), 199. Retrieved July 26, 2007, from Business Source Premier Database, [12] Sekaran, U. (2003). Research methods for business: A skill-building approach. (4 th ed.). USA: John Willey & Sons. [13] Stephan, W., & Dorfman, P. (1989, March). Administrative and Developmental Functions in Performance Appraisals: Conflict or Synergy? Basic & Applied Social Psychology, 10(1), Retrieved July 26, 2007, from Academic Search Premier Database, [14] Teratanavat, R., Raitano, R., & Kleiner, B. (2006, May). How to Reduce Employee Stress. Nonprofit World, 24(3), Retrieved July 26, 2007, from Business Source Premier Database, 485

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