THE ROLE OF PERFORMANCE MANAGEMENT IN THE MOTIVATION OF EMPLOYEES: A CASE STUDY

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1 THE ROLE OF PERFORMANCE MANAGEMENT IN THE MOTIVATION OF EMPLOYEES: A CASE STUDY A thesis submitted in Partial Fulfillment of the requirements for the Degree Of MASTER OF BUSINESS ADMINISTRATION (MBA) Of NELSON MANDELA METROPOLITAN UNIVERSITY NMMU NELSON MANDELA BUSINESS SCHOOL By Themba Lambert Zwane NOVEMBER

2 DECLARATION I, Themba Lambert Zwane, hereby declare that this research thesis is my own Original work, that all reference sources have been accurately reported and Acknowledged, and that this document has not previously, in its entirety or in part, or submitted to any University in order to obtain an academic qualification. TL Zwane 30 November

3 ABSTRACT After a review of the literature relevant to performance management systems both over time and across different types of organizations, this thesis confines its research To a case study of the Role of Performance Management in The Motivation of Employees in an organization. Important insight was gained into the relative importance of the performance management practices to promote desired employee outcomes. In view thereof that a discussion of performance in organizations is incomplete without reference to the construct of organizational culture, this study also provided propositions to prompt further research on the role of performance management in reinforcing a high performance organizational culture. Insightful conclusions were drawn from the results obtained and recommendations are made for future research. 3

4 ACKNOWLEDGEMENTS I would like to take this opportunity to thank the following people for their Contribution to the successful completion of this thesis: Verah, my wife, for her invaluable insights and professional comments, And for reminding me that you get out what you put in Mbali, Sibongile, my daughters, for putting up with my lengthy absences from their early years of their life. My Brothers and Sisters Mthunzi, Mzwandile, Nobentungwa and Sybil for the support (financial and otherwise) and encouragement My supervisor, Ian du Preez, for his time and commitment to my success, for His patience and understanding with my seemingly never ending list of Questions, and for his relevant advice on all aspects of the thesis My Mum Thandekile for her support and encouragement. To My Father Dumisa MacFarlane who taught me that anything is possible with the right attitude. 4

5 DECLARATION..2 ABSTRACT...3 ACKNOWLEDGEMENTS.4 TABLE OF CONTENTS.5 LIST OF FIGURES LIST OF TABLES..15 LIST OF APPENDICES.16 CHAPTER 1 :INTRODUCTION MAIN PROBLEM SUB PROBLEMS OBJECTIVES OF STUDY Main Objective Secondary Objectives DEMARCATION OF THE FIELD OF STUDY Primary Sources Secondary Sources RESEARCH METHODOLOGY Research Design The design of the Questionnaire The sampling Method Analysis of results Mail survey KEY ASSUMPTIONS

6 1.8. PROPOSED PROGRAMME OF STUDY CHAPTER 2: THE THEORY ON PERFOMANCE MANAGEMENT 2.1 PERFOMANCE CRITERIA Trait based criteria Behavior based criteria Outcome based criteria PERFOMANCE MANAGEMENT OBJECTIVES EVALUATIVE OBJECTIVE DEVELOPMENT OBJECTIVES TRADITIONAL PERFOMANCE MANAGEMENT SYSTEM ADVANTAGES OF AN OBJECTIVE SYSTEM DISADVANTAGES OBJECTIVE SYSTEM PAYOFF FOR USING PERFOMANCE MANAGEMENT Management benefits Employee benefits Organizational benefits CONCLUSION 6

7 CHAPTER 3: HOW PERFORMANCE MANAGEMENT IS PROCTISED 3 THE PERFORMANCE MANAGEMENT PROCESS ACTIVITIES Corporate strategies and objectives Performance agreements and plans Continues management of performance throughout the year Formal performance reviews Development and training Rating Performance related pay Performance management planning Performance measures The performance of Senior Managers The performance of managers/team leaders Administrative and support staff Production workers THE CAUSES OF INEFFECTIVENESS OF PERFORMANCE MANAGEMENT Knowledge domain The skills domain Motivate and Trait domain.37 7

8 3.2.4 Self-image and social role domain Formal culture domain Informal culture domain CONCLUSION..40 CHAPTER 4: GUIDELINES FOR IMPLEMENTING AN EFFECTIVE PERFORMANCE PROGRAMME 4.1 Performance management is underpinned by a philosophy, Which is based on? Motivation Theory The Process of Motivation Goals Reinforcement theory Expectancy theory DESIGN AND IMPLEMENTATION OF A PERFOMANCE MANAGEMENT SYSTEM PHASE 1: Planning Gain top management commitment Gain top management commitment Review the past Clarify the objectives

9 4.2.6 Build new assumptions PHASE 2: DESIGN Communication and education process Feedback on proposed design from stakeholders Refine the design Top management PHASE Implementation Present the final design to senior management Design training material PHASE Follow up and alignment Realign other HR systems Conducting a performance appraisal Why have performance reviews Objectives of performance reviews

10 4.7 Performance appraisal interview process Allocate interview times Both employer and employee must prepare for the session Manager to prepare for the session Reach agreement on past and present performance Identify and agree on areas needing improvement CONCLUSION 53 CHAPTER 5: Analyzing and interpretation of results DATA SUMMARY PERFOMANCE MEASURE INTERNAL MANAGEMENT PRACTICES PEOPLE EMPOWERMENT : EMPLOYEE RELATIONS DIGNITY AND DIVERSITY REWARD AND RECOGNITION PROPENSITY TO LEAVE CONCLUSION.83 10

11 CHAPTER 6: INTRODUCTION Summary of key research findings and conclusions Internal management practices People empowerment Survey Findings Employee Relations Dignity and Diversity Reward and Recognition Propensity to leave Why do employees stay? What drives loyalty? THE PERFOMANCE MANAGEMENT MODEL Organizational philosophy Organizational mission Organizational Policy Organizational Objectives Organizational strategic operations and budget STRATEGIC PLANNING DEFINING THE OBJECTIVE

12 6.5 MEASUREMENT MANAGEMENT Phase 1 Defining the Strategy Phase II: Designing the Measures Phase III :Cascading the Measures Phase IV: Embedding the Measurement System TACTICAL PLANNING Work unit Objectives and Goals Work unit Function Statement Work Units Budgets Individual Job Assignments Establishing a Job Content Foundation CONCLUSION CHAPTER 7: Conclusions and recommendations 7 INTRODUCTION Summary of the Case Study Recommendations

13 7.2.1 What role does the leadership play in influencing the organizational culture when implementing a performance management system? What is the appropriate direction for the implementation of performance Management system? What are expectations of a good performance system? Defining Results CONCLUSION REFERENCES

14 LIST OF FIGURES Figure 1: Evaluative and Developmental objectives Figure 2: The Performance management process Figure 3: The contribution of the organization and the individual in performance management Figure 4: Focus for performance measures Figure 5: The process of motivation Figure 6: Supervisor Checklist Figure 7: The framework of a performance Appraisal System Figure 8: The four Phases for Developing a Measurement Managed Culture. Figure 9: Key Criteria for good measurement 14

15 LIST OF TABLES Table 1: Research Interview Questions, Internal Management Practices Table 2: Research Interview Questions, People Empowerment Table 4: Research Interview Questions, Employee Relations: Table 5: Research Interview Questions, Dignity and Diversity Table 6: Research Interview Questions, Reward and Recognition Table 7: Research Interview Questions, Propensity to leave: 15

16 LIST OF APPENDICES Appendix 1: Research Interview Questions: 16

17 CHAPTER 1 1. INTRODUCTION Performance management is a set of practices through which work is defined, reviewed and rewarded, and employee s capabilities are developed. (Butteries, 2000:229) The business climate has changed during the past few years. It seems that no industry is immune to a shake up as a direct or indirect consequence of deregulation or competition from aboard. For many organizations, one result of this trend is a justifiable obsession with quality and productivity. It s therefore more important than ever to accurately measure job performance so rewards can be distributed fairly and performance problems can be solved quickly. (Swan & Margulies, 1991:3) A few decades ago the performance appraisal was a procedure of very limited utility, used to pinpoint coarse distinctions between good and bad performers. Today many more job types and levels are subject to performance appraisals, and the performance appraisal is used for decisions about salaries, promotions and placements, to pinpoint performance problems improve employee performance for career counseling and to help implement the strategies and instill the values of the organization. The conventional approach, unless handled with consummate skill and delicacy, constitutes something dangerously close to violation of the integrity of the personality. Managers are uncomfortable when they are put in the position of playing god the respect we hold for the inherent value of the individual leaves us distressed when we must take responsibility for judging the personal worth of a fellow man. Yet the conventional approach to performance appraisal forces managers, not to only to make such judgments and to see them acted upon, but also to communicate them to those who had been judged. (McGregor, 1957:37) 17

18 The conventional approach McGregor worried about is the practice of periodically determined whether and to what extent a given person has lived up to certain predetermined requirements. It is the playing god aspect that concerns managers the fear that what gets put on a piece of paper might spell the end of a man s career, or the dashing of his hopes and aspirations (McGregor, 1957:38). (McGregor, 1957:40) saw what so many managers have reported about performance appraisal: that it is tricky, often subjective, and in many ways dangerous thing to do. These managers feel that there is something inherently wrong with judging a man or woman. There are dreadfully afraid of making a once-and-for-all judgment which turns out to be wrong, and they are as much or more afraid of having to tell someone they are going to give him or her a low rating (McGregor, 1957:38). Not surprisingly, managers who feel this way are inclined to get through performance appraisals as quickly as they can; so quickly sometimes that the people being appraised are not quite sure they ve been told where stand. The whole process is perceived as so painful that both parties skim across its surface (Dartnell Management Guide, 1981). A comprehensive literature study will be performed to determine the views on performance, and on performance management programmes. The study will also include the investigation into the extent to which the performance management programmes should be aligned with organizational and individual goals. 18

19 1.2 MAIN PROBLEM The role of performance management in the motivation of employees 1.3 SUB PROBLEMS In order to develop thorough research and solve the main problem, the following subproblems have been identified: (a) What is performance management? (b) Why does performance management fail? (c) What is performance management suppose to accomplish? (d) Is there a downside to performance management? 1.4 OBJECTIVES OF STUDY Main Objective The main objective of this study is to evaluate and establish the factors that have an impact on the performance management system Secondary Objectives In order to achieve the main objective of the study, as stated in paragraph 4.1 above the secondary objectives are: (a) To provide a literature overview of the role of management in general. (b) To provide an overview of the role of employees in establishing or negotiating individual objectives. (c) To analyse the effects of communication within the system. (d) To statistically evaluate the results of the research and interpret them. (e) To provide recommendations. 19

20 1.5 DEMARCATION OF THE FIELD OF STUDY Information will be collected from both primary and secondary sources Primary Sources The empirical study will be used to gather information and consists of the following parts: (a) A structured questionnaire with a five point Likert scale will be used during interviews. (b) A questionnaire based on information gained from the literature study will be developed and used by the researcher. (c) A survey will be carried out at general management, human resources and employees at certain selected organisations. (d) A mail survey will be used Secondary Sources A literature will be gathered from libraries of the Nelson Mandela Metropolitan University and Rhodes University. Published and unpublished sources will be used. Journals, periodicals, dissertations, theses and textbooks will be used and library reference services will be consulted. Information not available from publications, but relevant to the research will be gathered from the Internet. 20

21 1.6 RESEARCH METHODOLOGY The following procedures were adopted to solve the Main and Sub problems Research Design A questionnaire will be designed to establish the effects of performance management in the chosen organisations The design of the Questionnaire A five-point Likert scale questionnaire will be used during the empirical study. The questionnaire will consist of two sections. The first section, section A, will focus on the respondents views about the effects of performance management systems in general. The second section, section B, will provide biographical data of the respondents The sampling Method. The sampling procedure will be based on the principle of randomness. The respondents, which will be included in the survey, will be chosen randomly, and the structure of each section within the departments will be scrutinised, so as to ensure that all grades or levels within the organisation are covered Analysis of results The results of the survey will be analysed and integrated with the literature findings. The researcher will do the data capturing manually. 21

22 1.6.5 Mail survey Postal surveys will be utilised because to the fact that Welman and Kruger (1999:153) cite the advantages of utilising postal surveys as being associated low costs, the respondent anonymity, and the fact that the respondents may complete the survey at their leisure. 1.7 KEY ASSUMPTIONS The literature that will be used is mostly originated from countries other than South Africa. It is assumed that the findings from those countries will be applicable in South Africa. 1.8 PROPOSED PROGRAMME OF STUDY Chapter 1 The problem statement, the motivation for the research, methodology and the outline of the research project. Chapter 2 Chapter 3 Chapter 4 The theory of performance management. How performance management is practised. Guidelines for implementing an effective performance management programme. Chapter 5 Chapter 6 Analyzing and interpretation of results. Integration of the findings from the survey with the literature study in order to develop a model. Chapter 7 Conclusions and recommendations. 22

23 CHAPTER 2 2 THE THEORY ON PERFOMANCE MANAGEMENT Performance management may be defined as a formal and systematic process, by means of which the job-relevant strengths and weaknesses of employees are identified, observed, measured, recorded and developed. Performance management provides the opportunity for the organization to evaluate and take stock of its human resources. It also provides information so that important decisions can be taken and gives feedback for further development of staff (Doris, 1994:160). It gives management the opportunity for communication with staff, to clarify expectations and to take part in the development of each staff member. For the employer, it gives the opportunity to discuss with employees their performance and career goals for the future (Doris, 1994:161). Performance management is an ongoing communication process, undertaken in partnership, between an employee and his or her immediate supervisor that involves establishing clear expectations and understanding about: The essential job functions the employee is expected to do. How the employee s job contributes to the goals of the organization. What doing the job well means in concrete terms. How employee and supervisor will work together to sustain, improve, or build on existing employee performance. How job performance will be measured. Identifying barriers to performance and removing them. (Doris, 1994:163). 23

24 2.1 PERFORMANCE CRITERIA Three types can be found: Trait based criteria: Focus on the personal characteristics of an employee, for example; loyalty, dependability, creativity and communication skills. The focus is on what a person is and not on what he or she does or accomplish on the job Behaviour based criteria: These are concerned with specific behaviours that lead to job success Outcome based criteria: focus on what was accomplished or produced rather than how it was accomplished or produced. This type of criterion is not appropriate for every job and that often it is criticized for missing important aspects of the job, such as quality. 2.2 PERFOMANCE MANAGEMENT OBJECTIVES It is the view of Grobler et al (2002:263) that performance management systems are a key element in the use and development of an organization s most vital resource, its employees. Performance management systems are used for a wide range of administrative purposes, such as making decisions about pay, promotion and retention. Effective systems can significantly contribute to the satisfaction and motivation of employees- if they are correctly used. The objectives of the system fall into two categories: evaluative and developmental as displayed in figure 1 24

25 Figure 1: Evaluative and developmental objectives Objectives of performance appraisal Evaluative Developmental Source: Adapted from Grobler et al (2002:266) Compensation decisions Staffing decisions Evaluate selection system Performance feedback Direction for future performance Identify training and development needs 2.3 Evaluative objective The most common decisions based on evaluative objectives concern compensation, which includes merit increases, employee bonuses and other increases in pay. The performance appraisal normally has two-part effect on future pay. In the short run, it may determine merit increases for the following year; in the long run, it may determine which employees are promoted into higher paying jobs. 2.4 Development objectives This objective encompasses employee skills and motivation for future performance. Performance feedback is a primary developmental need because all employees want to know how their superior feels about their performance (Grobler et al, 2002:266). 25

26 2.5 Traditional Performance Management Systems Performance management can be described as absolutely logical. The assumptions underlying it that relate to organization effectiveness, are somewhat flawed and contains many excellent notions. Its approaches are generally described within the context of a managing by objectives framework (MBO). An MBO system includes the following components: Development of role and mission statement. Establishing strategic goals. Defining results. Establishing indicators or effectiveness, goals, or organizational objectives. Establishing performance standards for each objective. Action planning for each employee. Coaching/training to remediate deficits. Some form of evaluation or assessment done formally and included in an employees record. MBO is a process in which manager and subordinate sit down at the beginning of each performance period and agree upon individual job goals that subsequently serve as a basis for personal performance assessment (Lynch and Cross, 1991:42). Within an MBO system, the performance management process to the management of the individuals begins with the assignment of individuals objectives, through to the final, formal assessment process. In addition, the MBO is a system that begins with the hoped for outputs and measures the quality of effort and the effectiveness of resource utilization, against these hoped for outputs (Ordione, 1979:36) 26

27 Lynch and Cross (1991: 203) have identified five major problems with MBO: Fosters internal competition rather than teamwork because it is a mechanism for assessing individual or departmental contributions at review time; Goals are set by senior management that may or may not be strategy related. MBO goals often ignore the customer and are based on past performance. Focuses on the manager, subordinate, or departmental structure within the company s vertical structure, rather than on the horizontal work flow independent of organizational boundaries. Objectives once set, tend to become fixed throughout the organization. adapting to changes in external environment is often difficult. Measures tend to be one dimensional, often financially oriented. 2.6 Advantages of an Objective System It allows easy linking of individual objectives to work unit objectives. It allows the likelihood of disagreement during appraisal meetings- if standards and targets were written well during the performance planning process. It is probably the most legally defensible approach to appraisal (Bacal, 1999:106). 2.7 Disadvantages objective System It takes more time because of the need to invest in up front performance planning. It requires managers and employees to develop skills in writing objectives and standards that are meaningful and measurable. It may result in more paperwork. It can be misused or used in a superficial way by managers who lose track of why they are doing it (Bacal, 1999:106). 2.8 Payoff for using Performance Management. When performance management is used properly, there are clear benefits to everyone; managers, employees and the organization. 27

28 2.8.1 Management benefits. While performance management cannot solve every problem, it has the potential to address many common management concerns. If it is properly used, with invested time on it, and a cooperative relationship, performance management can: Reduce the need to be involved in everything that goes on. Save time by helping employees make decisions on their own by ensuring they have the necessary knowledge and understanding to make decisions properly. Reduce time-consuming misunderstanding among staff about who is responsible for what. Reduce the frequency of situations where you do not have the information you need when you need it. Reduce mistakes and errors (and their repetition) by helping you and your staff identify the causes of errors or inefficiencies. Identify individual training and development needs. Build closer working relationships based on mutual trust and respect. Provide better feedback to individuals about their performance and progress based on mutual understanding of needs. (Armstrong, 1994:237). Performance management is an investment up front so that managers can just let employees do their jobs. They will know what they are expected to do, what decisions they can make on their own and how well they have to do their jobs. 28

29 2.8.2 Employee benefits. It can provide scheduled forums for discussion of work progress, so employees receive the feedback they need to help assess their accomplishments and to know where they stand. That regular communication ensures there are no surprises at the end of the year. Since performance helps employees understand what they should be doing and why, it gives them a degree of empowerment-ability to make day-to-day decisions. It helps in figuring out how to improve performance, even if there are no current performance problems. This provides an opportunity to help employees develop new skills and is more likely to identify barriers to better performance, such as inadequate resources. Employees benefit from better understanding their jobs and their job responsibilities. If they know their limits, they can act more freely within those parameters Organizational benefits. When people in the organization understand how their work contributes to the success of the company, morale and productivity usually improve. A company can have all of its parts aimed at the same bull s- eye. Performance management is the key to making these links clear to everyone. 29

30 2.9 Conclusion. The effective management of individual performance is the central requirement for the attainment of organizational goals. If line managers are to achieve strategic objectives, accurate information regarding the performance levels of their members is essential. This is the reason why most organizations insist on a formal and systematic process whereby such information may be gathered and recorded (Swanepoel et al, 2nd 2000:431). Performance management is, in some ways, very simple and, in other ways, very complex. It consists of lots of parts and it requires some skills. But if it is approached with proper mindset, it can work and pay great benefits. Performance management is a vital component of the process of managing human resources with the aim of achieving employee and organizational goals and will remain a key concern of HR practitioners and mangers alike (Bacal, 1999:199). 30

31 CHAPTER 3 Performance management is mostly developed by organizations based on its needs. They develop a conceptual framework within which their process can be operated. This framework will help in deciding the approach to be adopted and, when the decision has been made, it will provide guidance to managers and the individuals and the teams they manage on what performance management activities they will be expected to carry out (Armstrong, 1994:41). The framework is illustrated in Figure 2 Performance management process Performance Related Pay Performance Rating Mission and Value Statements Objectives Performance Agreement Continuous Performance Management Preparation For Review Performance Review Feedback Feedback Development And Training Figure 2 The performance management process 31

32 3 The performance management process activities: Corporate strategies and objectives Preparation of mission and value statements linked to business strategy. Definition of corporate and functional or departmental objectives Performance agreements and plans Agreements of accountabilities, tasks, objectives, knowledge, skill and competence requirements and performance measures- the performance agreement or contract. Agreement of work plans and personal development and performance improvement action plans Continues management of performance throughout the year Regular feedback Interim progress review Formal performance reviews Preparation by the manager and the individual for the formal review. The annual performance review, which leads to a new performance agreement Development and training Formal development and training programmers prompted by the performance review. Less formal development thought out the year will be taking place in shape coaching, on the job training and self-development activities Rating Rating or ranking performance Performance related pay Performance related pay. 32

33 (Source: Armstrong, 1994:43) Performance management it isn t a linear, straight-line process. It s a dynamic process between two people that changes over time. These activities are broadly sequential, but they can overlap and there is scope for feedback during the year from the formal performance review, which can lead to a revised or new performance agreement. Performance management operates as a partnership between the organization and the individual as shown in figure 3: ORGANIZATION DEFINES MISSION, VALUES STRATEGIES AND OBJECTIVES INDIVIDUAL UNDERSTANDS AND AGREES OBJECTIVES DEFINES TASKS, STANDARDS AND PERFOMANCE MEASURES UNDERSTANDS AND AGREES TASKS, STANDARDS AND PERFOMANCE MEASURES MONITORS ORGANIZATIONAL, TEAM AND INDIVIDUAL PERFOMANCE MONITORS OWN PERFOMANCE DEVELOPS TEAM AND INDIVIDUAL PERFOMANCE DEVELOPS OWN PERFOMANCE Figure 3: The contribution of the organization and the individual in performance management (Source: Armstrong, 1994:44) 33

34 Both parties contribute to the definition of objectives, tasks, standards, and performance measures, monitoring progress and developing performance Performance management planning Performance planning is the usual starting point for an employee and manager to begin the performance management process. Manager and employee work together to identify what the employee should be doing for the period being planned, how well the work should be done, level of authority and decision making for the employee. The performance planning for the employee is usually done for one-year period. (Bacal, 1999:27) By the end of the performance planning process, both manager and employee should be able to answer the following questions in the same way: What are employee s major responsibilities for the year? How will I know whether the employee is succeeding? What level of authority does the employee have with respect to job tasks? Which job responsibilities are most important and which are list important? Why is the employee doing what he or she is doing? How can the manager help the employee accomplish the tasks? While performance planning is mostly about clarifying job tasks for individual employees, it can provide a forum for discussing general issues with all employees. (Bacal, 1999:28). What comes out of performance planning is common understanding and answers the above questions which will be written down to form part objectives, goals and standards. This constitutes the employees plan for the year, which will then be used in 34

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