Organizational Justice and Employee Satisfaction in Performance Appraisal

Organizational Justice and Employee Satisfaction in Performance Appraisal Dr. Venkatesh. J 1, Mr. Vivekanandan. K 2 and Mr. Balaji. D 3 1 Associate Professor School of Management Studies, Anna University of Technology Coimbatore, Jothipuram Post, Coimbatore - 641 047. Tamil Nadu, INDIA. 2 Part Time PhD Research Scholar, School of Management Studies, Anna University of Technology Coimbatore, Jothipuram Post, Coimbatore - 641 047. Tamil Nadu, INDIA. 3 Full Time PhD Research Scholar, School of Management Studies, Anna University of Technology Coimbatore, Jothipuram Post, Coimbatore - 641 047. Tamil Nadu, INDIA. Abstract: This paper aims to explore the performance appraisal (PA) aspects that are connected with organizational justice, and more specifically three kinds of justice, namely distributive, procedural and interactional justice. The main limitation is that the research provides information based only on one source, that of the appraisee. However, it highlights the role of employee satisfaction to organizational justice, linking different sources of satisfaction to different elements of justice. This paper has practical implications for HRD, as it provides HR practitioners with suggestions on how to increase the perceived justice of the PA system. The value of this paper is to HR practitioners who design PA systems, and also managers acting as appraisers of their subordinates. The results show that procedural, distributive and interactional justices are related with different elements of performance appraisal. Elements of satisfaction are strongly related to all aspects of organizational justice. The PA criteria are related to procedural justice. 1. Introduction: Performance appraisal (PA) forms the core of performance management systems. As per Swanepoel et al., PA is a formal and systematic process of identifying, observing, measuring, recording and developing the job-relevant strengths and weaknesses of employees. Chen and Kuo characterize PA as an indispensable process for an organization. Fletcher posits that the PA has a strategic approach and integrates organizational policies and human resource activities. However, reactions and conflicts on the employees side are often inevitable. Dissatisfaction and feelings of unfairness in process and inequity in evaluations can lead any appraisal system to failure. This paper aims to explore the PA aspects that are connected with organizational justice, and more specifically three kinds of justice, namely distributive, procedural and interactional justice. In particular, we take into account the perceived purposes of PA, the criteria used and the perceived satisfaction, which is satisfaction with ratings, rater and feedback. 2. Literature Review on Organizational Justice: A brief literature review of the concepts used in our research, which leads to the development of our hypotheses, is stated below. We begin with organizational justice, which is central to PA. Then we examine the criteria and purposes of PA as well as employee satisfaction. Greenberg was one of the first authors to apply organizational justice assumption to performance evaluation. Organizational justice may be defined as the learning of fairness at work. Furthermore, Greenberg explains that the term organizational justice implies that fairness is being considered in the organization. According to the literature, human beings are specifically interested in three kinds of justice. The first one is distributive justice, which deals not only with the supposed fairness of the allocations that individuals in organizations receive, but also with 288

what the decisions are at the end of the appraisal process, or the content of fairness. Erdogan contends that ratees compare their efforts with the PA rating they receive and the fairness of the rating establishes distributive justice perceptions in PA. Some studies found that employees expect ratings above average in relation to others. Subsequent to the previously mentioned is the second kind of justice, procedural justice, which refers to the fairness of the procedures used to decide outcomes and addresses fairness issues regarding the methods, mechanisms, and processes used to determine those outcomes. Procedural justice is related to the means used to achieve the ends (how decisions are made), or the process of fairness. Finally, the third kind of justice is interactional justice, which clearly establishes that people care about the fairness of the interpersonal treatment and communication that they receive. It is important to mention that interactional justice focuses on how recognized agents of the organization treat those who are subject to their authority, decisions and actions. 3. The Perceived Purposes of Performance Appraisal: Employee perceptions towards PA are a crucial element in determining the long-term effectiveness of the system. Not only do managers and subordinates generally differ in their perceptions of what should constitute an effective appraisal system, but they also differ in what causes appraisals to be ineffective. Longenecker and Nykodym found that subordinates believed appraisers were the key to the system s success with an emphasis on more effective planning, ongoing feedback, and better performance monitoring by supervisors. Managers, on the other hand, tended to focus on system design, operation, and support issues. According to Wright, appraisees found appraisals to be more useful when they were specific and focused, planned and well prepared, easy to understand and when they had more involvement and control over the process. On the other hand, appraisers were more concerned with strategic issues, describing their most preferred appraisal system as linked to business strategy, challenging, valueadding, with an objective setting process, well planned, compulsory and structured. The success of appraisal structures may well depend on ratees perceptions of fairness and their reactions to important aspects of the appraisal process. Consequently, with feelings of dissatisfaction, unfairness in process and inequity in evaluations, any appraisal system will be doomed to failure. Skarlicki and Folger suggest that the appraisal process can become a foundation of extreme dissatisfaction when employees consider the system is biased, political or irrelevant. Holbrook claims that PA is important to set performance goals, solve performance problems and administer rewards, disciplinary issues and dismissals. More specifically, PA can be used for numerous purposes including: reward; discipline; coaching; counseling; negotiating improvements in performance; improving the work environment; raising morale; clarifying expectations and duties; improving upward and downward communications; reinforcing management control; helping validate selection decisions; providing information to support HR activities; identifying development opportunities; improving perceptions of organizational goals; and selecting people for promotion and redundancy. According to Youngcourt et al., evaluation has three perceived purposes. The first two are individualfocused and consist of the Administrative and Developmental purpose. The third is positionfocused, namely the Role Definition purpose. In the Administrative purpose, enterprises evaluate the appraisal outcomes and decide about issues like pay increases, bonuses, promotions, hires and retires. The Developmental purpose focuses on both the improvement of employees competencies and their personal development. On the other hand, the Role Definition purpose is useful to the organization as a whole, as information gathered through PA may show how different positions are increasing or decreasing in role breadth, indicating where more or fewer resources should be allocated. Thus, PA decisions, along with their reference to individual incumbent effectiveness, are also relevant to the effectiveness of the position as a whole. More specifically, the Administrative purpose of PA concerns the link between PA another HR practices. This link increases the probability that PA is perceived as more fair in regard to both process and content. On the other hand the Developmental purpose, which aims at personal development, seems more related to Interactional Justice that requires good interpersonal relations. 4. Criteria of PA: According to Deborah and Brian, since PA systems are not general or easily passed from one corporation to another, their design and administration must be tailor-made to match employees and organizational characteristics and qualities. The author s support that organizations need to have a systematic 289

framework to make certain that performance appraisal is fair and constant, and that the system should provide a link between employee performance and organizational goals through individualized objectives and performance criteria. During the PA process, different criterion and elements are evaluated. Those include the achieved results and goals, skills and abilities, job-related behaviors, personal characteristics and things that are under the employees control. The more specialized these factors are, the more efficient the PA system is. Pooyan and Eberhardt found that a different set of criteria were significant predictors of appraisal satisfaction for supervisory and non-supervisory employees. According to Beer many of the problems in PA stem from the appraisal system itself: the objectives it is intended to serve, the administrative system in which it is embedded, and the forms and procedures that make up the system. In addition, the performance system can be blamed if the criterion for evaluation is poor, the technique used is burdensome, or the system is more form than substance. If the criteria used focus solely on activities rather than output (results), or on personality traits rather than performance, the evaluation may not be well received. Furthermore, raters evaluations are often subjectively biased by their cognitive and motivational states, and supervisors often apply different standards with different employees, which results in inconsistent, unreliable, and invalid evaluations. Concentration on goal attainment contributes to the fairness of the system by lending an air of rational objectivity to performance appraisal. Goal-setting theory suggests that appraisal criteria and performance goals should be clear and understandable so as to motivate the appraisee, otherwise the appraisee would not know what to work towards. This knowledge may well decrease job ambiguity, a source of stress for some individuals. On the other hand, appraisal based primarily on ends may produce overwhelming pressure on subordinates to attain the objectives. The lack of clarity and objectivity of the criteria used to measure the performance of the employees creates role ambiguity, confusion and frustration among the workers to undertake their job. Moreover, research on sales people suggests that organizational commitment is positively connected with the use of unambiguous evaluative criteria and openness to discussing the appraisal and negatively related to role ambiguity. 5. Employee Satisfaction: Several researchers have asserted that appraisal reactions play a key role in the development of favorable job and organizational attitudes and enhance motivation to increase performance. Of every the appraisal reactions, contentment has been the most frequently studied. According to Lai Wan satisfaction is an important goal for organizations to attain, as it has been shown that profitability, productivity, employee retention and customer satisfaction are linked to employees satisfaction. Satisfied, motivated employees will generate higher customer fulfillment and in turn positively persuade organizational performance. For this reason satisfaction with aspects of the appraisal process is regarded as one of the most important reactions to PA. In addition, the appraisal system s effectiveness depends not only on its technical characteristics, but also on the general organizational and administrative framework, as the PA system is not just a distributive activity but it correlates with all the organization s other activities. There are three elements of satisfaction linked to PA. First is the Satisfaction with Ratings, according to which higher ratings elicit positive reactions toward the appraisal and are related to satisfaction with the appraisal process. The level of performance ratings is an important characteristic of the feedback message, and since it is often the basis for many important administrative decisions ratees are more likely to be satisfied with higher rather than lower ratings. The second element is Satisfaction with Rater. Here, the determinative role that supervisors have in order to reassure positive outcomes becomes distinct, as they are mainly the employees appraisers and provide feedback for their performance. According to Pooyan and Eberhardt, the most important PA item is the employeesupervisor relationship. Last but not least, another element of satisfaction is that of Satisfaction with Appraisal Feedback. Feedback is critical because of its potential influence on people s response to ratings. Commentators argue that performance feedback increases job satisfaction and motivation and many decision-making and career development models include a feedback loop emphasizing that individuals learn on the basis of receiving feedback on their performance. Thus, performance feedback plays an important role in numerous organizational activities such as career development, motivation, job satisfaction, and performance management. Based on the previous, we could say that perceived satisfaction with ratings, a procedural element of PA, could lead to increased procedural justice. Additionally, satisfaction with the rater and feedback are a 290

relationship aspect of PA, thus more relevant to interactional justice. 6. Elements of PA: The intention in this paper is to explore the PA elements that are related to organizational justice. As Jawahar supported, the success of appraisal systems may well depend on ratees observations of fairness and reactions to significant aspects of the appraisal process. Traditionally, research on PA focuses on the relationship between employee satisfaction and perceived purposes. For instance, according to Klein et al. and McEvoy et al., there is a relation between the developmental purpose and satisfaction with rater. Our findings support that the administrative purpose of PA is related to distributive justice and procedural justice. It seems that when organizations use the data that have been recorded during the PA process, in order to take decisions related to payroll, increases fringe benefits, promotion and employment termination they create a positive impression about both the fairness of the procedure an its outcomes. We also confirmed that the developmental purpose of PA is related to interactional justice, indicating a positive connection between employees personal development and good interpersonal relationships. The administrative and developmental purposes are individual-focused. By their nature, individualfocused purposes are more related to organizational justice. Issues such as hiring, firing, payroll, etc. are tangible and concern immediate employees, vitally affecting their everyday routine, their behavior as well as their general presence in the organization. Therefore, it is essential to have a sound evaluation system, characterized by justice in individual-focused purposes, resulting in the increase of employees efficiency and performance, decrease of potential turnover and absenteeism rate, while at the same time cultivating a sense of loyalty and commitment towards the organization. Moreover, our results revealed that employees perceptions of various criteria used for their PA are positively related to procedural justice, leading to the confirmation of H2. As previously noted, the criteria include the goals that employees must fulfill, their behavior during their duties, their competencies, their personal characteristics and their level of control on their work. It is obvious that companies PA is based on the criteria reinforcing their crucial role to the organizational justice. Furthermore, PA criteria are positively related to the three kinds of organizational justice, with more significant relationship to procedural justice. It seems that having clear-cut criteria of evaluation that are known and understood by employees, makes they feel that the PA process is fair. The present study is the first on exploring the relationship between procedural justice and the various criteria of PA. Therefore, more research should be conducted in order to verify the validity of these findings. As we continue, we observe significant relationships between the three kinds of justice and the three types of satisfaction. As was hypothesized, employee satisfaction with ratings is positively related to procedural justice. Our results confirm the hypothesis, as we found strong correlation between satisfaction with ratings and both distributive and procedural justice. Regarding satisfaction with ratings, we also found that is positively related to distributive justice. These findings contradict previous studies, showing that satisfaction with ratings is only related to distributive justice. It might be that a significant part of the population of our sample believes that if the procedure used for PA is fair, this will increase the probability of a fair, utilization of the PA results for organizational purposes, like compensations and promotions. Moreover, it is partly confirmed, as we only found positive relationship between interactional justice and satisfaction with rater. This result confirms previous research. The relationship between interactional justice and satisfaction with feedback was not confirmed. However we found a positive relationship between the procedural justice and satisfaction with feedback, confirming previous research. We also found a significant relationship between the distributive justice and satisfaction with feedback, which confirms previous findings. This indicates the importance of feedback and explaining the PA outcomes as well as its consequences of individuals in organizations. 7. Conclusion: The present research examines the important role of three elements of organizational justice, namely interactional, procedural and distributive for the satisfaction from PA. Since PA is often accompanied by feelings of unfairness and dissatisfaction, its implementation is important for both HR departments and line managers. Our results lead to some recommendations for practitioners that can be summarized in the following paragraphs. First, it is important for new hires to become aware of the PA procedure early in their organizational life. Therefore they should be thoroughly informed about the PA by the HR staff, during the orientation process. This will 291

help them be better prepared for their evaluation, in terms of the procedure followed and the criteria expected from them. The criteria by which performance appraisal takes place in the organization should be made clear early on. These criteria may be the particular goals, attitudes, competencies and abilities, behaviors and any other relevant to the job. Taking into consideration all the previous, the goal should be to increase process transparency so that perceived justice of the PA system is maximized. This can lay the ground for more satisfied employees that will have a positive contribution to their evaluation process. Ensuring both procedural and interactional justice can lead to increased employee satisfaction for all satisfaction elements. More specifically, a continuous implementation of appraisal standards can be enabled by the use of standardized appraisal procedures. In order to ensure interactional justice, there should not be a clash between the appraiser s and the appraisee s role. The appraisees should be free and comfortable to express emotions and their input during the appraisal interview should be encouraged. Finally, the significant relation found between interactional justice and satisfaction with rater supports the importance of the supervisor s role in the employees satisfaction. Apparently, the appraisers role in the interactional justice is fundamental, as they seem to be the basis of the satisfaction that employees receive through the PA system. Our results once again highlight the importance of training for PA. Organizations should invest in training appraisers to act in a just way regarding interactional justice, but also encourage employees to receive everyday informal feedback, relevant to the nature of their job. Our research indicates a positive link between organizational justice and satisfaction with various elements of PA. A limitation of the study is the use of perceptual data only from one source, that of the appraisees. Future research could include and compare data both from appraisers and their appraisees in order to examine the gap in perception among those two parts, and its possible impact on organizational justice and satisfaction. References Ambrose, M.L. (2002), Contemporary justice research: a new look at familiar questions, Organizational Behavior & Human Decision Processes, Vol. 89 No. 1, pp. 803-12. Babakus, E., Cravens, D.W., Johnston, M. and Moncrief, W.C. (1996), Examining the role of organizational variables in the salesperson job satisfaction model, Journal of Personal Selling and Sales Management, Vol. 16 No. 3, pp. 33-46. Bartol, K.M., Smith, R.H., Durham, C.C. and Poon, J.M.L. (2001), Influence of performance evaluation rating segmentation on motivation and fairness perceptions, Journal of Applied Psychology, Vol. 86 No. 6, pp. 1106-19. Beer, M. (1987), Performance appraisal, in Lorch, J. (Ed.), Handbook of Organizational Behavior, Prentice Hall, Englewood Cliffs, NJ, pp. 286-99. Bernardin, H.J., Hagan, C.M., Kane, J.S. and Villanova, P. (1998), Effective performance management: a focus on precision, customers and situational constraints, in Smither, J.W. (Ed.), Performance Appraisal: State of the Art in Practice, Jossey-Bass, San Francisco, CA, pp. 3-48. Bies, R.J. (2001), Interactional in( justice): the sacred and the profane, in Greenberg, J. and Cropanzano, R. (Eds), Advances in Organizational Justice, Stanford University Press, Stanford, CA, pp. 89-118. Boice, D.F. and Kleiner, B.H. (1997), Designing effective performance appraisal systems, Work Study, Vol. 46 No. 6, pp. 197-201. Byrne, Z.S. and Cropanzano, R. (2001), The history of organizational justice: the founders speak, in Cropanzano, R. (Ed.), Justice in the Workplace: From Theory to Practice, Lawrence Erlbaum Associates, Mahwah, NJ, pp. 3-26. Colquitt, J.A., Conlon, D.E., Wesson, M.J., Porter, C. and Ng, K.Y. (2001), Justice at the millennium: a meta-analytic review of 25 years of organizational justice research, Journal of Applied Psychology, Vol. 86 No. 3, pp. 425-45. DeNisi, A.S. (2000), Performance appraisal and performance management, in Klein, K.J. and Kozlowski, S.W.J. (Eds), Multilevel Theory, Research and Methods in Organizations, Jossey-Bass, San Francisco, CA, pp. 121-56. DeNisi, A.S. and Williams, K.J. (1988), Cognitive approaches to performance appraisal, in Ferris, G.R. and Rowland, K.M. (Eds), Research in Personnel and 292

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