Chapter 3: Literature Review
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1 Chapter 3: Literature Review 3.0 Introduction Performance evaluation reflects an employees actual job performance levels, but in order to get a true picture, the rating must be accurate. Accuracy is the primary goal of any appraisal system. Employment decisions that are based on inaccurate ratings are not valid and would be difficult to justify if legally challenged. Moreover, employees tend to lose their trust in the system when ratings do not accurately reflect their performance levels, and this cause morale and turnover problems, it also hinders on their opportunity for advancement. In many instances, accurate rating seems to be rare. Inaccuracy is most often attributable to the presence of rater errors such as halo, recency, and leniency errors. Rater errors are errors in judgment that occur in a systematic manner when an individual observes and evaluates another. Rater errors may be defined technically as a difference between the output of a human judgment process and that of an objective, accurate assessment uncolored by bias, prejudice, or other subjective, extraneous influences (Feldman, 1979). Another element that can cause inaccuracy in rating is that of raters who lack the necessary training in how to conduct performance evaluations. Training can help to educate a rater not only on the system itself, but how to deal with other issues such as consistency in rating and also the sensitization to appropriate rating strategies and behavior. 13
2 Even though these issues are some of the causes for inaccuracy, there is a main factor that should be considered at the initial stage of the performance appraisal which is fitting practice to purpose. Setting performance goals that are in sync with organizational goals are essential. It would help employees to be aware of the organization s objectives hence allowing them to be aware of the level of performance expected of them so that the organization s objective can be achieved. Hence linking employees goals with that of the organization will not only help to improve employees performance, but also the overall performance of the organization. This chapter sets out to look at the factors that hinder the accuracy of performance appraisal and the issues that can help to improve performance appraisal outcomes. This literature review includes writings, research and scholarly opinions supporting the research. 3.1 Ongoing Performance Evaluation Performance appraisals are only effective if it is ongoing. Periodic observations, monitoring, coaching, counseling, feedback and record keeping by rater are crucial. Hence in this way performance problems are caught early and corrected before they have costly consequences. The results of performance appraisal must be given frequently to an employee if they are to bring about a change in an employee s behaviour or maintain a high standard of excellence. Employees need feedback on how well they are doing. They must accurately perceive the consequences of their efforts and be able to set goals on the basis of this feedback (Latham and Wexley, 1981). 14
3 Performance appraisals are most commonly undertaken to let an employee know how his/her performance compares with the supervisor s expectations, whether they are working toward organizational objectives/goals, and to identify areas that require training or development. Without adequate communication between the employee and supervisor, undesirable work habits may be formed or good work habits may be modified. Therefore lack of communication may be viewed by the employee as approval of their current work habits and performance. Even though ongoing appraisal has been said to improve performance due to feedback and the issue of identifying training needs, there are other important areas that impacts such as the accuracy of appraisals. In order to properly monitor an employee, reviews should be performed on a frequent and ongoing basis. Frequency of evaluation is associated with perceptions of fairness and accuracy. Frequent appraisals are needed to give an accurate account of an individual s performance and make improvements in the future. However, Fisher (1994) believes that frequency of performance evaluation is a difficult dimension to describe due to the ambiguity of distinction between an appraisal meeting and an everyday discussion about work between a supervisor and a member of staff. Fisher (1994) agrees that the modal frequency of appraisal interviewing is annual however, six-monthly or quarterly are also possible. The most recent evidence suggest that actual time period may vary in different organizations and with different aims but a typical frequency would be bi-monthly or quarterly (Boice and Kleiner, 1997). This practice would help to eliminate selective memory by the supervisor or the employee and also surprises on the part of the employee at an annual review. It is natural that a person remembers what happened within the last month or high 15
4 profile situations (good or bad); therefore it is best to have frequent reviews to eliminate this behavior or tendency of unconscious, selective memory. Such practice by a supervisor when doing an appraisal would result in recency bias. Recency bias is the tendency to assess people based on most recent behavior and ignoring behavior that is older. Recent performance of a worker can significantly influence the appraisal. If recent performance takes precedent in the mind of the appraiser over performance during the entire appraisal period it may bias his/her judgment. Therefore, appraisers need to guard against good, average or poor recent performance influencing the appraisal disproportionately. Collecting and evaluating demonstrated behavior over the entire course of the appraisal period may minimize the recency error. Most supervisors do not have the time or recourses to closely monitor an employee s performance over a year or make detailed notes. In this case, the appraiser is forced to consult memory, which is clearer and more dependable in the months leading up to the appraisal as opposed to the earlier part of the rating period. This practice can be positive or negative for an employee because if an employee had a good year except for immediately before the appraisal and was rated on the most recent events alone, it would be unfair and vice versa. Both the supervisor and the employee need to know that there is a performance problem prior to the major annual review in order to eliminate surprises. The longer a problem is allowed to continue, the more difficult it is to take corrective action. Hence frequent performance appraisals should eliminate the surprise element and help to modify performance prior to 16
5 annual review. Informal performance reviews may be done continually if a good relationship exists between the supervisor and the employee. Poor performance should not remain unchallenged because a performance review is not due, it should be dealt with and at the same time objectives can be clarified and revised. This practice would lead to better informed employees who are better equipped to perform their job satisfactorily. Crane (1991) also believes that as a part of ongoing performance evaluation, and to ensure the effective use or performance appraisal scheme, it is necessary to keep and maintain accurate records of employees performance. Careful reviews of these records at the time of the appraisal would help to eliminate selective memory. According to Sahi (1990), frequent reviews give supervisors more opportunity to assure that progress is being made in developmental objectives. Job demands can frequently prevent employees from achieving specified objectives. Supervisors in these instances must re-assign work to allow the completion of this objective or modify the objective to reflect the changing conditions of the job. However these shortcomings can only be identified if supervisors are constantly monitoring employees. There is evidence in literature that annual appraisal does not meet all the objectives of employees and curtails effectiveness. It does not allow employees to prepare themselves for responsibilities and goals are not completed (Lee, 1996). Alternatively, they are poorly completed and the appraisal results in ineffectiveness, poor communication and feedback (Day, 1989). As a result we will examine the following research question: 17
6 Research Question 1: Are supervisors who fail to conduct ongoing appraisal periodically (i.e. quarterly, monthly ) more prone to making assessment errors? 3.2 Halo / Horns Effect Whether to determine pay or to set goals through performance management, job evaluations are the foundation for decision-making. Unfortunately, the process has potential for errors. One of such errors is the halo/horn effect. This occurs when the rating of a position on one compensable factor unduly influences the rating of other compensable factors for the same position. This can be observed as a higher than warranted rating of a particular factor (halo effect) or a lower rating of a particular factor (horn effect). According to Nisbett and Wilson (1997), halo error is the longest recognized, most pervasive and yet leased understood form of rating error. They believe that the implication is that an overall impression causes or forces the rating of separate dimensions to be consistent with a global evaluation, even when the rater has sufficient information to render independent judgment of the dimensions. Newcomb (1993) views halo as arising from the rater s implicit assumption about covariance among dimension as opposed to Nisbet and Wilson (1997) view that it s a direct influence of a global assessment of the individual being rated. 18
7 There is empirical evidence to support these suggestions. Bretz, Mikovich and Read (1992) defines halo effects as group of ratings, or appraisals, that are generally inflated and correlated with each other due to a general perception of the rater that is not tied to the specific characteristics being rated. A halo appears when, instead of differentiating between levels of performance on different dimensions, the rater assigns ratings on the basis of a global impression of the ratee (Borman, 1975). The halo effect causes individuals to be rated as consistently good or consistently poor performers (Nathan and Lord, 1983). This halo effect is omnipresent in nature and represents a substantial hurdle in conducting performance appraisal. Researchers (Borman, 1978; Cooper, 1981; Pulakos, Schmitt, and Ostroff, 1986). Pulakos, Schmitt, and Ostroff (1986) believe that in order to solve the issue, the goal is to partial out "true" interdimension scores from halo effects. Another method to reduce halo error is to increase observation of performance -relevant ratee behaviour (Bernardin and Walter, 1977; Latham and Wexley, 1981; Spool, 1978). This can be done when ongoing performance reviews are conducted so that reviews are not done based on one overall impression or a recent event. Global impressions are likely to be stronger sources of judgments on performance dimensions when the rater lacks performance relevant information on the ratee. Raters who have differential or limited opportunities to observe ratee performance are likely to rely on more general expectations when providing judgment of dimensions for which they lack specific information (Freidson and Rhea, 1965). This simply helps us to understand and reiterate the importance of ongoing appraisal so as not to have a global opinion on any specific dimension. Therefore not only does ongoing appraisal help to remove the issue of recency, but it also help in trying to lessen halo error. 19
8 The halo effect acts as a barrier to accurate appraisal because those guilty of it fail to identify the specific strengths and weakness of their employees. The point is that people have both strength and weaknesses and each need to be evaluated independently. As a result, the following research question will be examined: Research Question 2: Are supervisor allowing the grading of one the grading of one category to influence the grade of another? 3.3 Leniency / Severity Bias Leniency bias is another form of rating error in performance appraisals. Like halo, it gives employees unfair ratings. Leniency error occurs when individuals are given ratings that are higher than actual performance warrants. Leniency errors most often occur when performance standards are vaguely defined. That is, an individual who has not earned an excellent rating is most likely to receive one when excellent is not clearly defined. There are many reasons why raters distort their rating in an upward or downward direction. Some people do it due to political reasons, that is, they manipulate the ratings to enhance or protect their self-interests. This can be backed up by Longenecker (1989), who believes that Organizations are political entities and few, if any, important decisions are made without the key actors attempting to protect their own interests. However political distortions become possible because raters are not held responsible for inaccurate ratings (Mero and Motowidlo, 20
9 1995). If they are held accountable, they would become less lenient in rating. In other instances it is done because of rater allows their personal feelings to affect their judgment. Sometimes a lenient rating may be given because the rater likes the employee. According to Longenecker (1987), managers feel the need to manipulate ratings for the best interest of themselves, the employees and the institution. Because performance appraisals exist in the context of an organization, the process often becomes a means of supporting personal or departmental agendas. Executives admit that rating accuracy is not always a goal; however, the main goal is exercising discretion (Gioia and Longenecker, 1994) as well as ensuring effectiveness and survival of the organization (Longenecker, 1989). Managers may increase performance appraisal ratings to increase subordinate loyalty (Gioia and Longenecker, 1994) or to avoid airing the department's dirty laundry if ratings are made public (Longenecker, 1989). When performance appraisal ratings are assigned to achieve personal or departmental goals, the goal of organizational effectiveness may be compromised (Gioia and Longenecker, 1994), as this does not give a true picture of how the employee is actually performing. Although politically motivated rating distortions are usually toward leniency, they may also be geared toward severity to make cases for termination. Severity error occurs when some raters tend to give ratings that are lower than actual performance warrants. In many organizations, the practice is to dismiss the employee if they perform below a certain standard. The rater may over a period of time, rate the employee lower than the actual performance in order to make a case for termination (Ilgen and Feldman, 1983). This occurs in some cases 21
10 due to dislike for an individual, such as personal bias, or it may be due to a very high standard of a rater, or a rater sending a message to an employee to improve his/her performance. According to Ramsey (1998), raters are required to appraise officers who perform the task better than themselves, resulting in envy and jealousy. The ratee is then given poorer rating than he/she deserves. There are many other reasons why ratings are distorted, besides enhancing personal agenda. According to Longenecker, Sims, and Gioia (1987), they discovered that the reasons why ratings are distorted are usually to protect employees from the consequences of negative ratings, the fear of damaging working relationships and avoiding conflict. When performance appraisal results are linked to pay, managers hesitate to rate negatively because of the severity of the consequences. Managers seek to avoid creating permanent negative records and may feel the need to protect employees whose performance has suffered because of personal problems (Longenecker, 1989). In cases of this nature being lenient in grading will not solve the issue of the employee s personal problem. Management should seek to assist the employee by enrolling them in an Employee Assistant Program that would help them to deal with their problems hence improving their work performance. Avoiding the imposition of financial harm on an employee is not the only hesitation on the part of the supervisor, but also the issue of negative interpersonal feedback. Individuals generally attempt to avoid conveying negative information to others (Blumberg, 1972; Katz and Kahn, 1978; Tessor and Rosen, 1975). In such instances where negative feedback is necessary, managers generally tend to procrastinate, or distort the feedback. However 22
11 because performance appraisal ratings are normally mandatory, procrastination is not an option, hence rating distortion is seen as the only viable alternative for the supervisor who is hesitant to convey negative feedback. This also links back to the issue of ongoing assessment. If there is ongoing assessment and feedback, the employee would be aware of problems affecting their performance throughout the year giving them the opportunity to improve performance. Therefore, there might not be a need to give negative feedback at the final assessment period. Many supervisors choose the inflated route in rating their subordinate because of the fact that they want to avoid conflict. In the case where there is a full-circle feedback system in place, it may be the supervisor s best interest to rate leniently so as not to upset subordinates who may retaliate. Many times supervisors have found the issue of discussing a rating with an employee to be very traumatic experience. This is due to the fact that some employees who receive negative feedback are typically not motivated to do better and often do worse after the interview. As a result supervisors avoid giving negative ratings when the ratings have to be shown to employees. When this type of leniency/severity bias occurs, the organization will be unable to provide its employees with useful feedback regarding their performance. This could result in an employee who receives a lenient rating lulled into thinking that performance improvement is unnecessary and gives them a false sense of security. On the other hand, Severity errors can create motivational and morale problems. Based on previous research, question will be examined: 23
12 Research Question 3: Are supervisors who are too concerned about employees perception when poor performance is detected more likely to have leniency bias? 3.4 Performance Management/Appraisal training Effectiveness in undertaking performance appraisal depends on the skills of the raters. Effective performance evaluation requires many skills in the areas of communication, counseling, problem solving and planning. In order for managers to acquire these skills, training is important. In most instances, raters are given an orientation on the system that includes a brief review of the design steps, procedures, review procedures, deadlines for completion of forms and thorough instructions in form completion. However, training for users is far more complex. Carroll and Schneier (1982) draws on the work of Baird, Beatty and Schneier (1982) in emphasizing that the training helps raters to develop skills in areas such as communication and coaching, so that the performance appraisal can be used effectively. Other important areas of focus that would help to enhance appraisals are training on techniques of appraisal and ways to evaluate employees and it is essential that raters acquire these skills. Training can create a better understanding of what the organization hopes to accomplish with the performance appraisal system. It can also create a better understanding of the system, forms and terminology to be employed. By training raters, it may convince the participants 24
13 that the organization is serious about obtaining useful ratings and also it may also contribute to consistency among raters. In that case all raters would be using the same standards to measure performance and they would be able to use appropriate rating strategies and behaviours, which would result in more accuracy (Carroll and Schneier, 1982). As long as there is consistency among raters, the ratee would show higher level of acceptance of the system. In many instances raters have low self confidence about their rating skills; therefore by engaging in training there self confidence can be built leading to them conducting better performance evaluations. Although managerial awareness of the importance of training to organizational success seems to be increasing, many managers still fail to appreciate the value of performance evaluation in the training process. Roberts (1996), draws on the work of Woehr and Huffcutt (1994) stating that very often organizations do not invest the required time and energy to training. Few organizations incorporate training that will reduce rater errors in their performance appraisal system. It is assumed that the careful construction of the appraisal instrument will obviate the need for training raters. However, it has been proven time and time again, no matter how hard you try to find an appropriate appraisal instrument, training will still be necessary because without training the same problems will surface regardless of the instrument used. According to Driver (1942) training of those who are to rate employees is one of the fundamental steps in the rating process. Those required to rate employees are skeptical of the procedure and this may be demonstrated by lack of interest, antagonism, leniency and lack of confidence in ratings. There is ample evidence to claim that supervisors lack confidence in 25
14 ratings (Carroll and Schneier, 1982) cause them to be overtly lenient in performance ratings as they are not armed to deal with ratees defensive reactions (Bernardin and Buckle, 1981; cited in Neck et al, 1995). In order to build their confidence they must get a clear understanding on the purpose of the appraisal system, how to use and the necessary techniques required to get the best results. Even though there is so much value placed on performance appraisal, it remains one of the most neglected, least-like and least-rewarded activities a manager is asked to perform. Rater-training research has focused on increasing observational accuracy (e.g., Thornton and Zorich, 1980), reducing rating errors (e.g., Latham, Wexley, and Pursell, 1975), increasing rating accuracy (e.g., Woehr and Huffcutt, 1994), and providing raters with a common frame of reference (e.g., Sulsky and Day, 1992). These programs are designed to educate raters about the key cognitive and observational demands of the rating process. Effective rater training would involve a program where raters would acquire the necessary skills to both observe and evaluate subordinates performance objectively and accurately and provide feedback and cope with emotional reactions. Therefore the training would not only eliminate the issue of rating error, but it will increase the probability of getting more accurate results from appraisals. Hence the rater training program increases validity, fairness and accuracy of ratings. There have been several attempts made to identify a reliable training method to improve accuracy of performance ratings. According to Bernardin and Buckley (1981), the most promising methods to emerge for improving the accuracy of performance ratings is Frame of 26
15 Reference (FOR) training. It sets out to establish a common conceptualization of performance among raters that would serve as a basis for observing and evaluating performance, which reduces idiosyncratic rating tendencies. FOR attempts to give raters a common frame of reference as to what constitutes desired job behaviour, they use a formal diary-keeping system to standardize behaviour observation and training designed to enable the rater to cope with the many interpersonal problems that may emerge as a result of making accurate ratings. FOR training imparts shared understanding of performance dimension and standards for evaluating behaviour relevant to these standards hence improving accuracy. Empirical studies on rater training by Latham and Wexley (1981) showed that intensive workshop focusing observational skills (including training in the recognition and avoidance of several rating errors) led to increased accuracy. Base on all the literature it is clearly stated that in order to remove or lessen problems associated with performance evaluation and accuracy, it is essential to train raters. As a result we will examine the following research question: Research Question 4: Are supervisors who lack adequate performance management/ appraisal training are more likely to make assessment errors? 3.5 Setting Performance Criteria to Organizational Goals The main purpose of a performance management system is to align employee and departmental goals to organizational goals and objectives and ensure that employees 27
16 performance is consistent with those goals. However, little attention has been paid to the goals that are likely to be pursued by ratees in performance appraisal (Fisher, 1989). Goals affect performance for several reasons. Primarily, the setting of goals has a direct effect on what people think and do, it activates behaviour. Goals focus activity in one particular direction rather than other. At the same time, goals regulate energy expenditure, since people typically put forth effort in proportion to the difficulty of the goal, given that the goal is accepted. Goals that are specific lead to higher productivity levels than a generalized goal, such as do your best. Hence, hard goals lead to higher employee performance than easy goals (Ferris et al, 1990). There exist an obvious relationship among individual, unit and organizational performance. Not only does the performance of each person and unit contribute to an organization s overall performance, but there must be direct links from organizational level objectives to unit, department, or work-group objectives and to criteria against which individuals are to be evaluated. The knowledge and values laid out for employees to aspire toward have to correspond to what their organizations need in order to be successful and this must be done when setting performance goals. When employees are aware of and accepts the organizational goals, this helps to boosts the individual performance which in turns results in improved and higher organizational performance. In order to have such end results, it must be ensured that the raters, who will help in setting the ratees goals in sync with that of the organizations goal, are properly trained. This ties in to the fact that raters must be trained in order to get accurate results from performance appraisal. 28
17 As a means of attaining desired results of performance, supervisors need to communicate organizational goals to individual and link them to performance in order to energize employees. The goals must not only be communicated to employees, but they must be also be accepted by employees. This will help in increasing individuals persistence as well as transfer effort into commitment and motivation. Employees who have accepted organizational goals would strive toward achieving them, hence their performance would improve. By coordinating the work of the employee with that of the organization, everyone will be going into the same direction, hence it would lead to a success, not only in employee performance but overall output of the organization. This is possible because the goals of the organization are broken down into smaller chunks that are then assigned or delegated to employees. The organization achieves their overall goals to the extent that each employee does his or her part in completing the right job tasks in effective ways. The notion of having employees participate in the accomplishment of corporate goals can be described as participatory management or collaborative leadership style (Nash, 1984). Only by tying individual performance planning to the corporate performance planning process can a company be sure that individual performance goals are integrated and consistent with one another. Also, by helping employees understand how their individual work contributes to the overall goals of the organization, it enable them to make their own decisions about how to spend their 29
18 work time so that their work is consistent with the priorities of the organization. This result in employees knowing what they must do, how well they must do it, and why they are doing it. By ensuring that employees are aware of organizational goals and also by letting them feel that they contribute to the overall success of the organization, the performance appraisal/review becomes much easier, causes far less anxiety, and goes much faster when there are clear performance goals. In fact, the better the performance goals, the clearer they are and the more measurable they are the less managers and employees have to venture into the realm of vague opinions about performance during the appraisal process which is the case of recency bias. In addition to the fact that performance goals allow employees to monitor their efforts and the results throughout the year we get an appraisal process that is much more effective and yields no surprises for the employee. It also give positive results as it free the rater from the tendency of setting standards that are based on their own implicit standards.. In order for Performance goals to result in better performance they must be derived from the goals and priorities of the individual, work unit and the organization. This is because goal setting alone does not work if individual goals are not linked to corporate goals so they can become shared and become ours (Nash, 1984). If management does not ensure that goals are set in the like manner, it could result with having hostile or indifferent employees who see performance standards and goals as pressure and punishment. There is little literature on linking corporate strategy and employees goal setting, thus confirmed by Wilkens (1972). However the literature that does exist clearly states that setting 30
19 goals in sync with organizational goals is important for the employee as well as the organization wellbeing. Therefore the following question will be examined: Research Question 5: Do organizations that fits performance criteria to purpose (business strategies or goals) more likely to achieve effective performance appraisal or management? 31
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