Linkage of Performance Appraisal Rating to Rewards: A Study of Select Public and Private Sector Banks

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1 Linkage of Performance Appraisal Rating to Rewards: A Study of Select Public and Private Sector Banks Dr. K.Thulasi Krishna Andhra Pradesh, India ABSTRACT Banking services is one sector where a great degree of attention is being paid to Performance Appraisal Systems (PAS). Since banks play an active role in the economic development of a country, their ability to make a positive contribution in igniting the process of growth depends on the effective utilisation of human resources. In this case, the performance appraisal helps as a tool to gear up with changing trends. As there is heavy competition between public and private sector banks in India, the performance of the employees and their evaluation plays a crucial role. In this context, a comprehensive evaluation of linkage of performance appraisal rating to rewards is required and hence the present study is needed. The study concludes that both the public and private sector banks shall make use of appraisals effectively and shall link the results to rewards comprehensively which in turn enhances the employees satisfaction. Key words: Performance Appraisal, Public and Private Sector Banks, Rewards, Promotions INTRODUCTION Banking in India is the lifeline of the nation and its people. It has helped in developing the vital sectors of the economy and usher in a new dawn of progress on the Indian horizon. The sector has translated the hopes and aspirations of millions of people into reality. But the banking industry has undergone numerous changes over the past few years to be on par with international banking norms and standards. Thus the performance of the banks depends largely on the effective utilisation of their human resources. In this case, the performance appraisal helps as a tool to gear up with changing trends. As banking services is one sector where a great degree of attention is being paid to Performance Appraisal Systems (PAS), several public and private sector banks have changed their PAS or are in the process of changing them. REVIEW OF LITERATURE A study of performance appraisal system at the State Bank of India was conducted by Srivastava Shefali and Thankur Y.S. (2006) to find out the changes initiated in the system since Liberalisation. Critical analysis of the system has been done and certain suggestions were also offered by the authors. They felt that there is a need for revamping the reward system and performance evaluation systems in the public sector banks so as to develop the human resource. Shambhu Nath Chowdhury (2008) in his article Developing Performance Global Wisdom Research Publications All Rights Reserved. 1

2 Appraisal System for Performance Leadership in Banks opined that the performance appraisal system must lead to action. He also stated that the appraisal should be done on parameters which are important to the organisation and really needed, but not on the parameters which are easy to measure. He concluded that multiple feedback system including feedback from peers, sub-ordinates and customers may give vital clue for development. Shrivastava, A and Purang, P (2011) studied the differences between public and private sector banks with respect to perception of fairness of the performance appraisal system and performance appraisal satisfaction. Perception of fairness of the performance appraisal system has been studied through nine factors. The study used independent samples t-test and qualitative analysis to study the mean differences between the two banks. Results indicated that private sector bank employees perceive greater fairness and satisfaction with their performance appraisal system as compared to public sector bank employees. Shubhangi Sharma, Shalini Singh, Priyanka Singh and Prathibha Singh (2012) in their article on Performance Appraisal and Career Development made an attempt to understand how the performance appraisal is helpful for career development of employees. Vikas Mahalawat and Bharti Sharma (2012) made an attempt to know the perceptions of Indian Bank s employees towards performance appraisal. They studied the differences between public and private sector banks with respect to perception of fairness of the performance appraisal system and satisfaction regarding performance appraisal. Their results showed that private sector bank employees perceive greater fairness and satisfaction with their performance appraisal system as compared to public sector bank employees. NEED FOR THE STUDY Banking sector is a rapid growing sector of India. Due to the quick expansion in the number of branches and the new tasks assigned to them, banks are beginning to feel pressure on their organisational abilities, that is, the processes of recruitment, placement, training, promotion and appraisal, in order to ensure that the right number of staff with the right capacities are available at the right time and for the right places. Appraisal is one of the key factors of organisational ability which is the focus of this study. Since there is a serious competition between public and private sector banks in India, the performance of the employees and their evaluation plays a crucial role. In this context, a comprehensive evaluation of linkage of performance appraisal rating to rewards is required and hence the present study is needed. PRIME OBJECTIVE OF THE STUDY The prime objective of this study is to analyse the process of linkage of performance appraisal rating to the rewards in the select public and private banks in India. Global Wisdom Research Publications All Rights Reserved. 2

3 HYPOTHESES Following are the hypotheses set for the study: i. There is no significant difference between the public and private sector bank respondents in respect of opinion on linkage of appraisal ratings to decide annual increments; ii. There is no significant difference between the public and private sector bank respondents in respect of opinion on promotion decisions based on appraisal ratings; and iii. There is no significant difference between the public and private sector bank respondents in respect of opinion on the use of appraisal ratings for transfer decisions. SAMPLE DESIGN Selection Criterion of the Public Sector Banks In the early 20 th Century ( ), there were 12 banks (Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Corporation Bank, Indian Bank, Punjab National Bank, Punjab-Sindh Bank, Syndicate Bank and Union Bank of India) operating in India out of which two banks (Andhra bank and Canara Bank) were selected randomly. Selection Criterion of the Private Sector Banks In the early 20 th Century ( ), there were six banks operating (Catholic Syrian Bank, City Union Bank, Karnataka Bank, KarurVysya Bank, Nainital Bank and Tamilnadu Mercantile Bank) in India out of which two banks (City Union Bank and Karnataka Bank) were selected randomly. Number of Officers Stratified Random Sampling method has been adopted for collecting the data from both public and private sector banks which consists of four banks, viz., Andhra Bank and Canara Bank from public sector and City Union Bank and Karnataka Bank from private sector. Since each bank has homogeneous performance appraisal methods throughout all its branches, 200 officers from each bank were randomly selected irrespective of the number of the officers. Hence the size of the sample is 800 representing 200 officers from each bank. Sample chosen was from all categories of the bank branches of Rural, Semi Urban, Urban, Metro, and Regional Office (RO)/Corporate Office (CO). DATA SOURCES The study is based on both primary and secondary data. The primary data was collected by the researcher through a structured questionnaire from 200 samples each from the public sector banks of Andhra Bank (AB), Canara Bank (CB) and private sector banks of City Union Bank (CUB) and Karnataka Bank (KB) totaling to the sample size of 800. The secondary data was gathered from journals, books, and records of the selected banks of the study. A few websites were also browsed to gather relevant information. Global Wisdom Research Publications All Rights Reserved. 3

4 LIMITATIONS OF THE STUDY The study has the following limitations- 1. The study is limited to two public and two private sector banks in India. 2. Only scale 1, scale 2 and scale 3 cadre officers are considered for the study. 3. The appraisals of officers of scale 4 to scale 6 are highly confidential and hence such categories of employees are not included. 4. Further, in other category of employees, that is, in clerical cadre, the appraisal does not take place and hence they are also not included. LINKAGE OF PERFORMANCE APPRAISAL RATING TO REWARDS/CAREER Appraisal Ratings to Decide Annual Increments Primarily the performance appraisal aims at improving the performance and, possibly, assessing potential. But the advocates of the appraisal-reward linkage claim that performance must be linked to rewards. It is argued that organisations must have a process by which rewards are openly and fairly distributed to those most deserving on the basis of merit, effort and results. However, whether such appraisal-reward linkage prevails in the selected banks of the study is analysed. The opinion on whether the appraisal ratings in bank are strictly lined to decide annual increment percentage has been elicited and presented in the table 1. Based on table 1, it can be concluded that majority of the respondents ( opined that occasionally the appraisal ratings in bank are strictly lined to decide annual increment percentage and of them, majority belong to private sector banks. It is clearly evident from the table that both the public and private sector banks have failed to decide annual increments based on the appraisal ratings on a regular basis. It's no secret that the key to retain top performing employees is recognising and compensating them appropriately. In fact, many organisations actually lose money by over-compensating the poor performers. Hence, due care shall be taken in this regard. Since χ2 calculated value is greater than the table value, it can be concluded that Table 1 - Appraisal Ratings to Decide Annual Increments Particulars Public Sector Banks Private Sector Banks Grand Appraisal Ratings to Decide Annual Increments AB CB CUB KB Always Frequently % 2.5% 3.8% 4.5% 4.5% 4.5% 4.125% % 14.5% 13.3% 12.0% 12.5% 12.3% 12.75% Global Wisdom Research Publications All Rights Reserved. 4

5 Sometimes Occasionally Never % 20.5% 17.8% 13.0% 11.5% 12.3% 15.00% % 45.0% 46.8% 51.5% 55.5% 53.5% % % 17.5% 18.5% 19.0% 16.0% 17.5% 18.00% % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% χ2 - calculated value χ2 α at 12df there is a significant difference between the public and private sector bank respondents in respect of opinion on linkage of appraisal ratings to decide annual increments. Rewards to Poor Performers If poor performers are rewarded, eventually the top performers will be de-motivated. If organisation wants to encourage and keep its top performers it has to focus on such programmes that satisfy their expectations to certain extent. But, sometimes the poor performers are also awarded equally. Whether such phenomenon prevails in the selected banks is analysed and the results are shown in table 2. Table 2 shows that more than 46 per cent of the respondents opined that frequently poor performers also equally get rewarded in the bank and majority of the respondents belong to public sector banks. Almost in both the banks the poor performers are rewarded considerably. It Table 2 - Rewards to Poor Performers Particulars Public Sector Banks Private Sector Banks Grand Rewards to Poor Performers AB CB CUB KB Always Frequently Sometimes % 19.5% 16.8% 9.5% 13.0% 11.3% 14.00% % 42.5% 48.5% 52.5% 35.0% 43.8% % % 17.0% 16.0% 16.0% 24.5% 20.3% % Global Wisdom Research Publications All Rights Reserved. 5

6 Occasionally Never % 14.0% 12.8% 14.5% 18.5% 16.5% % % 7.0% 6.0% 7.5% 9.0% 8.3% 7.125% % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% χ2 - calculated value χ2 α at 12df normally happens when the payments are fixed as per policy rather than on performance. Therefore, the poor performers can hide behind their inefficiency and can get their remuneration as usual. This tendency is clearly visible here as well. Since χ2 calculated value is less than the table value, it can be concluded that there is no significant difference between the public and private sector bank respondents in respect of opinion on rewarding poor performers. Promotion Decisions Based on Appraisal Ratings A significant part of managing employee performance involves recognising and rewarding good performance. It is important to recognise those who meet and exceed their performance objectives, and reinforce this positive behaviour. Reward and recognition can be in the form of increments, bonus, promotions and providing training and development opportunities. Thus, it is tried to know whether all promotion decisions in the selected banks are strictly based on appraisal ratings and the results are presented in the table 3. Above all, it is concluded that more than 51 per cent of the respondents opined that frequently all promotion decisions are strictly based on appraisal ratings and many of the respondents (54.8 belong to public sector banks. Performance data are often used for staffing decisions like, promotion, transfer, discharge, layoffs, and this is where the public sector banks are good enough as compared against private sector banks. Good performance appraisal system shall always reinforce with promotion to the better performers. Due to the tough competition in the banking industry, the public sector banks started adapting to changes taking place in the industry and thus started taking promotion decisions based on appraisal ratings which in turn Table 3 - Promotion Decisions Based on Appraisal Ratings Particulars Public Sector Banks Private Sector Banks Grand Promotion Decisions Based on Appraisal Ratings AB CB CUB KB Global Wisdom Research Publications All Rights Reserved. 6

7 Always Frequently Sometimes Occasionally Never % 17.5% 14.3% 18.0% 15.0% 16.5% % % 53.5% 54.8% 47.5% 48.0% 47.8% % % 9.0% 10.8% 9.5% 13.0% 11.3% 11.00% % 13.0% 12.0% 17.5% 16.5% 17.0% 14.50% % 7.0% 8.3% 7.5% 7.5% 7.5% 7.875% % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% χ2 - calculated value χ2 α at 12df enhances the productivity of employees. Since χ2 calculated value is less than the table value, it can be concluded that there is no significant difference between the public and private sector bank respondents in respect of opinion on promotion decisions based on appraisal ratings. Appraisal Ratings for Career Planning Career planning, essentially, means helping the employees to plan their career, keeping in mind their capacities and aspirations (Uday Kumar Haldar and Juthika Sarkar, 2012). i The best way to develop career planning is through superior performance and consistent results. A proven record of accomplishment and the right attitude is a sure guarantee of future employment even in a different or unrelated career. Hence, the appraisal system shall provide a base for career planning and development. In this connection, the respondents opinion on whether the appraisal ratings help in career planning has been elicited and presented in the table 4. Table 4 - Appraisal Ratings for Career Planning Particulars Public Sector Banks Private Sector Banks Grand Appraisal Ratings for Career Planning AB CB CUB KB Always Global Wisdom Research Publications All Rights Reserved. 7

8 Frequently Sometimes Occasionally Never 14.0% 20.5% 17.3% 20.0% 16.0% 18.0% % % 49.0% 50.5% 61.5% 64.5% 63.0% % % 9.0% 10.0% 4.0% 8.5% 6.3% 8.125% % 16.0% 15.5% 11.5% 10.5% 11.0% % % 5.5% 6.8% 3.0% 0.5% 1.8% 4.250% % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% χ2 - calculated value χ2 α at 12df Above all, it is concluded that around 57 per cent of the respondents opined that the appraisal ratings frequently help in career planning. Moreover, majority of the respondents of private sector banks (63 as compared to public sector banks (50.5 opined that the appraisal ratings frequently helpful in career planning. Performance appraisal plays the role of the link between the organisation and the employees personal career goals. The appraisal system of private banks is able to identify the hidden talents and potential of individuals. Identifying these potential talents can help in preparing the individuals for higher responsibilities and positions in future. The private banks are reasonably successful in this respect and hence there is an earnest response from the respondents. Since χ2 calculated value is greater than the table value, it can be concluded that there is a significant difference between the public and private sector bank respondents in respect of opinion on the usefulness of appraisal ratings for career planning. Use of Appraisal Ratings in Employee Transfer Decisions In organisations having a wide geographic coverage, transfer of employees from one place to another becomes very necessary. Employees normally have their own geographical preferences. For example, most employees prefer jobs in well-developed cities and towns or their own home town if they want to be nearer to their families. Such preferences of employees are met when their performance is good. There are some organisations that give priority to the transfer requests of high performing employees. When such preferences are met, the employee concerned may feel happy and motivated. A transfer decision may also be taken to ensure a better matching of the person with the job. By giving the high performing employees more Global Wisdom Research Publications All Rights Reserved. 8

9 Table 5 - Use of Appraisal Ratings in Employee Transfer Decisions Particulars Public Sector Banks Private Sector Banks Grand Use of Appraisal Ratings in Employee Transfer Decisions AB CB CUB KB Always Frequently Sometimes Occasionally Never % 11.5% 8.5% 11.0% 8.0% 9.5% 9.00% % 39.0% 30.3% 29.5% 34.0% 31.8% 31.00% % 12.0% 17.5% 18.5% 20.0% 19.3% % % 29.0% 30.3% 28.0% 35.0% 31.5% % % 8.5% 13.5% 13.0% 3.0% 8.0% % % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% χ2 - calculated value χ2 α at 12df challenging jobs in different locations through transfers may also serve to motivate the employees and promote their professional development. So, the respondents were asked to state their opinion on whether the appraisal ratings are used in all employee transfer decisions and presented in the table 5. It is concluded that almost equal percentage of the respondents majority of whom belong to private sector banks opined that the appraisal ratings are used frequently and occasionally in all employee transfer decisions. To motivate the high performing employees, the private banks are able to follow appraisal ratings as a base for employee transfers. Since χ2 calculated value is greater than the table value, it can be concluded that there is a significant difference between the public and private sector bank respondents in respect of opinion on the use of appraisal ratings for transfer decisions. Global Wisdom Research Publications All Rights Reserved. 9

10 Overall Opinion on Linkage of Performance Appraisal to Rewards/Career The overall opinion on linkage of performance appraisal to rewards/career is presented in the following table 6. Exactly half of the respondents stated that the linkage process of performance appraisal to rewards/career is good. This kind of response is more in case of private bank respondents. A good number of respondents (221) opined that the linkage process of appraisal to rewards is excellent. Among those who opined that the linkage process is average, majority are from public sector banks. With the effective appraisal policies and practices, the private banks are able to link the appraisal results to rewards suitably. This in turn encourages the employees loyalty towards the organisation. Since χ2 calculated value is greater than the table value, it can be concluded that there is a significant difference between the public and private sector bank respondents in respect of overall opinion on linkage of performance appraisal to rewards/career. Table 6 - Overall Opinion on Linkage of Performance Appraisal to Rewards/Career Chi-square value p-value Public Sector Banks Type of the bank Private Sector Banks AB CB CUB KB Level of Linkage of PA to Rewards/car eer Averag e Good Excelle nt 61 ( ( ( ( ( (35.50) 101 ( ( ( ( ( ( ( ( ( ( ( (29.00 Grand total 179 ( ( ( % % % % % % Global Wisdom Research Publications All Rights Reserved. 10

11 Graph 1 - Overall Opinion on Linkage of Performance Appraisal to Rewards/Career SUMMARY OF ANALYSIS Only half of the respondents opined that occasionally the appraisal ratings in bank are strictly lined to decide annual increment percentage and of them, majority belongs to private sector banks. The χ2 test result indicates that there is a significant difference between the public sector bank and private sector bank respondents in this case. Almost in both the banks the poor performers are rewarded considerably. As the payments are fixed as per policy rather than on performance, this response is slightly high in case of public sector bank respondents. This will de-motivate the better performers and results in poor productivity. Due to the competition in the banking sector, frequently all promotion decisions are strictly based on appraisal ratings in public sector banks as compared to private sector banks. The appraisal system of private sector banks is able to identify the hidden talents and potential of individuals. Further, to motivate the high performing employees, the private banks are able to follow appraisal ratings as a base for employee transfers. The χ2 test result suggests that there is a significant difference between the public sector bank and private sector bank respondents in respect of opinion on the use of appraisal ratings for transfer decisions. Exactly half of the respondents stated that the linkage process of performance appraisal to rewards/career is good. This kind of response is more in case of private sector bank respondents. SUGGESTIONS The public sector banks shall revise their policies to strengthen the linkage process of appraisals to rewards as there is a tendency that the poor performers are also benefitted. Both public and private sector banks shall provide promotions in accordance with the performance of the job. It is suggested that employee potential should be evaluated Global Wisdom Research Publications All Rights Reserved. 11

12 based on objective assessment but not on favoritism. Transparency in evaluation and promotion policy is also suggested. Pay increases and promotions based on appraisal ratings send powerful messages to employees. If these messages don't match up with the appraisal results, employees are quick to dismiss the whole process as a farce. Efforts shall be made by both the public and private sector banks to provide fair increases and promotions to the employees or otherwise, it may lead to negative impression over the entire appraisal process. High performers should be appreciated for their efforts through verbal praise, letters of recognition, plaques of honour and certificates. Thus, it motivates employee commitment towards the organisation. A transfer can be a great way for an employee to advance his career and undergo a significant growth experience. The public sector banks may think of providing transfers based on the appraisal ratings as many of the respondents are not satisfied in this regard. CONCLUSION Performance appraisals play a key role in several administrative areas such as promotions, job transfers, and legal protection. With the data generated from employee appraisals, the banks are better able to make good decisions about a wide range of matters that directly affect the employees and the organisation at large. Therefore, both the public and private sector banks shall make use of appraisals effectively and shall link the results to rewards comprehensively which in turn enhances the employees satisfaction. REFERENCE 1. Srivastava Shefali and Thankur Y.S. (2006), Performance Appraisal in Public Sector Banks, A Case of the State Bank of India, Mangalmay Journal of Management & Technology, Volume 1, Issue 1, pp Shambhu Nath Chowdhury (2008), Developing Performance Appraisal System for Performance Leadership in Banks, CAB CALLING, July-September, pp Shrivastava, A. and Purang, P. (2011) Employee Perceptions of Performance Appraisals: A Comparative Study on Indian Banks, The International Journal of Human Resource Management, Volume 22, Issue 3, pp Shubhangi Sharma, Shalini Singh, Priyanka Singh and Prathibha Singh (2012), Performance Appraisal and Career Development, VSRD International Journal of Business and Management Research, Volume 2, Number 1, pp Vikas Mahalawat and Bharti Sharma (2012), Indian Bank s Employees Perception towards Performance appraisal: A Comparative Study, Research Journal of Social Science and Management, Volume 2, Number 4, pp Uday Kumar Haldar and Juthika Sarkar (2012), Human Resource Management, New Delhi, Oxford University Press, p.266. Global Wisdom Research Publications All Rights Reserved. 12