Employee performance appraisal is one of the most commonly used management tools especially in the United States and it has started being used in Malaysia about a couple of decades ago. As such performance appraisal is also one of the most widely discussed and researched areas in industrial/organizational psychology (DeNisi, 1997; Murphy & Cleveland, 1995). The purpose of this study was to investigate the factors that contribute or affect the effectiveness of performance appraisal in the private education industry in Malaysia. Specifically, this study focused on the positive influence of these determining factors to the organization and the competitive advantage that the organization can achieve. This study also aimed to determine the factors of concern about the effective implementation of performance appraisal system. An integral part of this research was to develop and empirically test a model of effectiveness of performance appraisal in the context of the private education industry in Malaysia. Based on the concepts of Longenecker’s and Fink’s (1999) System Perspective and Greenberg’s (1986) Organizational Justice Theory, this research used a questionnaire to assess Malaysian private education industry in terms of their cognition and perspective of the effective system design, managerial systems practices and system support toward effectiveness of performance appraisal, as well as to assess their perceived fairness toward achieving an effective performance appraisal system. A questionnaire survey method was used to collect primary data from emails which have been sent out to the participants. The survey yielded 171 usable questionnaires, with a response rate of 36.08 percent. Statistical analysis methods and structural equation modeling with IBM AMOS version 18.0 were used to analyze the data. The research findings revealed that the system design, managerial systems practices and system support were significantly and positively related with the effectiveness of performance appraisal. Based on the research results, managerial implications and opportunities for future research are discussed.
The world of Human Resources is changing rapidly. Human Resource Development is increasingly driven by customer demands, technology, intense competition and employee needs. It is obvious that, the production technology, financing, and marketing can all be copied but not on the human resource aspect such as unique ways to attract, retain, and motivate employees and this strategy is very much harder to imitate. As the business environment is becoming more competitive and uncertain, organizations in the twenty-first century need to deploy better coordination and more effective use of human resources. Before organization can proceed to do this, it must be able to measure and to identify and to reward performing employees with appropriate tools and most often than not employee performance appraisal is one of such tools that organization can consider. In other words, it is the identification, allocation and integration of these resources that provide a company with a competitive advantage. Therefore, a critical factor related to an organization’s long-term success is its ability to measure how well employees perform and then use that information to ensure that performance meets present standards and improves over time. In order to improve performance, employees need information or feedback about their performance, along with guidance in reaching the next level of results. Without frequent feedback, employees are unlikely to know that behavior is out of synchronization with relevant goals or what to do about it. Therefore, in order to achieve the purpose, it is important to ensure that the performance appraisal measurement tool is valid, reliable, free of bias, practical and acceptable to user. When employees possess a meaningful role in the appraisal process, employee acceptance and satisfaction with that process is strongly enhanced (Roberts, 2002). Hence, the general problem that inspired this research was to investigate the factors that influence the effectiveness of performance appraisal as well as barriers to the effectiveness of performance appraisal in the private education industry in Malaysia.
2. LITERATURE REVIEW
This section provides an overview of literature on what is performance appraisal, why use performance appraisal, performance appraisal techniques & methods, controversy of performance appraisal, performance appraisal in Malaysia, the private education industry in Malaysia, keys to effective performance appraisal systems, fairness in performance appraisal, organizational justice theory and applying organizational justice theory to performance appraisal.
2.1 What is Performance Appraisal
The Performance appraisal is a method of evaluating the behavior of employees in the workplace; it includes both the quantitative and qualitative aspects of employee job performance. It is a process that involves determining and communicating to an employee how he or she is performing the job and ideally, establishing a plan of improvement. The success of performance appraisal depends on firstly how effectively it is implemented that can affect the performance of the employees and secondly how that performance in turn contribute to the success of the organization. It has been argued that performance management should be an ongoing, interactive process that is designed to enhance employee capability and facilitate productivity instead of the usual perception of doing it once a year. Most organizations throughout the world regardless of whether they are large or small, public or private, service or manufacturing, use performance appraisal as a tool to achieve a variety of human resource management objectives such as for legal documentation, feedback about performance, employee development, corporate planning, salary administration, and more (Longenecker, 1997). According to Carroll and Schneier (1982) in which they developed the theme that performance appraisal and review comprised a management system that consist of performance identification, goal setting, evaluation, feedback, and performance improvement and that the performance rating process is itself a system consisting of complex activities, roles, and responsibilities of raters and ratees. Whereas Cardy & Dobbins (1994) mentioned that a performance appraisal system is typically described as a tool for organizations to motivate their employees to improve performance and productivity. Denisi & Pritchard (2006) defined performance appraisal as a discrete, formal, organizationally sanctioned event, usually not occurring more frequently than once or twice a year, which has clearly stated performance dimensions and/or criteria that are used in the evaluation process. Ideally, the performance appraisal provides information to help managers manage in such a way that employee performance improves. Thus, performance appraisal is a systematic and objective way of judging the relative worth or ability of an employee in performing his job. It emphasizes on two aspects: systematic and objective. The appraisal is systematic when it evaluates all performances in the same manner, utilizing the same approaches so that appraisal of different persons is comparable. Such as appraisal is taken periodically according to plan; it is not left to chance. Thus, both raters and ratees know the system of performance appraisal and its timing. Appraisal has objectivity also. Its essential feature is that it attempts at accurate measurement by trying to eliminate human biases and prejudices. Therefore, based on the various definitions mentioned above, the performance appraisal can be summarized as a formal management system that provides for the evaluation of the quality of an individual’s performance in an organization. The appraisal is usually prepared by the employee’s immediate supervisor. The procedure typically requires the supervisor to ﬁll out a standardized assessment form that evaluates the individual on several different dimensions and then discusses the results of the evaluation with the employee.
2.2 Why Use Performance Appraisal
Too often, performance appraisal is seen merely as a once-a-year drill mandated by the personnel department. But in organizations that take performance appraisal seriously and use the system well, it is used as an ongoing process and not merely as an annual event. With legal and economic pressures growing, organizations increasingly are turning their attention toward the measurement and upgrading of individual performance. In addition to that, performance appraisal is considered as important as managing financial resources and program outcomes because employee performance or the lack thereof, has a profound effect on both the financial and program components of any organization. The performance appraisal process allows an organization to measure and evaluate an individual employee’s behavior and accomplishments over a specific period of time (Wiese and Buckley, 1998). Hence, performance appraisal is a vital component of a broader set of human resource practices; it is the mechanism for evaluating the extent to which each employee’s day-to-day performance is linked to the goals established by the organization (Coutts and Schneider, 2004). Benefits of an objective Performance Appraisal process include provides objective analysis for promotion or compensation considerations, asset allocation that is making sure the right people are in the right jobs, identification of training/development needs to reach maximum effectiveness, identification of employees who have the potential for advancement or who might be better suited in other areas of the organization, and reduced turnover costs that is identifying problem areas before it is too late. However, at its core, the performance appraisal process allows an organization to measure and evaluate an individual employee’s behavior and accomplishments over a specific period of time (DeVries et al., 1981).
2.3 Performance Appraisal Techniques & Methods
Despite that there are some commonly use method but then there is no overall dominant of one method over the other.
2.3.1 Traditional Approach
Performance appraisal began only as a simple method of income justification. The process was firmly linked to the material outcome an employee will enjoy for good performance. If the employee’s performance was less than expected, then a cut in the pay would follow. If the employee’s performance was better than expected, a rise in pay would follow. This process did not give any consideration to the developmental possibilities of the employee. A pay cut was the only impetus for an employee to either improve or continue to perform well. In many instances, this basic system of performance appraisal failed to achieve the intended results. The traditional approach of performance appraisal also known as traits approach can be categorized as a) essay appraisal method which involves a description of the performance of an employee by his superior, b) straight ranking method in which the appraiser ranks the employees from the best to the poorest on the basis of their overall performance, c) paired comparison where it compares each employee with all others in the group, one at a time according to efficiency aspect, d) critical incidents method in which the evaluator rates the employee on the basis of critical events and how the employee behaved during those incidents, e) field review is a method where a senior member of the HR department or a training officer discusses and interviews the supervisors to evaluate and rate their respective subordinates, f) checklist method is a method where t he rater is given a checklist of the descriptions of the behavior of the employees on job, g) graphic rating scale is a method where an employee’s quality and quantity of work is assessed in a graphic scale indicating different degrees of a particular trait, and h) forced distribution is a method to eliminate the element of bias from the rater’s ratings, the evaluator is asked to distribute the employees in some fixed categories of ratings like on a normal distribution curve.
2.3.2 Modern Approach
Modern Performance appraisal is a structured formal interaction or a periodic interview between the two subsequent levels, superior (interviewer) and subordinate (interviewee), that usually takes the form of a periodic interview. The extensive conversation deals with the Strengths, Weaknesses, Opportunities and Threats analysis of the employee based on the annual or semi-annual performance. Modern performance appraisals systems tend to define the criterion concept of ‘performance’ and what actually ‘measurement of the performance of an individual’ implies in true sense in organizational practices such as ‘high performance work systems’ (Ichniowski et al, 1996; Mueller, 1999; Murray et al, 2002). The modern approach to performance appraisals includes a feedback process that helps to strengthen the relationships between superiors and subordinates and improve communication throughout the organization. It is a future oriented approach and is developmental in nature. This recognizes employees as individuals and focuses on their development. in which the major competencies that are judged are interpersonal skills, intellectual capability, planning and organizing capabilities, motivation, career orientation and so forth, erformance appraisal of the employees is judged in terms of cost and contribution of the employeeswhich combines the graphic rating scale and critical incidents methodthe feedback about the employees’ performance comes from all the sources that come in contact with the employee on his jobis a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of the results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members
2.4 Controversy of Performance Appraisal
Corporations use different tools and have a number of goals for performance appraisals, often resulting in some confusion as to the true purpose of performance appraisal systems. In the traditional performance appraisal, it is always as being described that the supervisor acts more as a judge of employee performance than as a coach. By so doing, unfortunately, the focus is on blame rather than on helping the employee assume responsibility for improvement. Pulakos (2004), a recent survey indicates that only one in ten employees believe that their firm’s appraisal system helps them to improve performance. A survey of 50,000 respondents reveals that only 13 percent of employees and supervisors and only 6 percent of executives consider their firm’s performance appraisal process useful (People IQ, 2005). Research indicates that employees are three times more likely to sue their employers then they have been in the past. Many wrongful termination lawsuits are made possible or are based upon the employer’s failure to have in place an adequate performance appraisal procedure (Eyres, 1989). Watrous, Huffman & Pritchard (2006) argued that even when multiple units are doing exactly same work with the same measures of performance, variations across units in factors such as employee abilities, quality of supervision, equipment used, and workload make direct comparisons of performance measures problematic. Although most businesses, managers, and employees believe in the need to have ratings of individual level job performance, often they do not have confidence in the performance measurement process in place. Employees express concern that managers are biased or fail to differentiate between high, average, and low performers (Grote & Grote, 2002). However, Grote (2002) argued that, performance appraisal is here to stay as performance appraisals serve too many crucial functions such as it give us the data we need to provide feedback to employees about their performance, determining who gets promoted, facilitating layoff or downsizing decisions, encouraging performance improvement, motivating superior performance, setting and measuring goals, counseling poor performers, determining compensation changes, encouraging coaching and mentoring, supporting manpower planning or succession planning, determining individual training and development needs, confirming that good hiring decisions are being made, providing legal defensibility for personnel decisions, and improving overall organizational performance. Fletcher (2004) suggested that, as a result of negative feelings surrounding appraisals, many organizations have attempted to rename them and have shown ingenuity in thinking up alternative titles for much the same process, such as ‘performance reviews’ or ‘work planning and review’. Another shortcoming of performance appraisal relates to the changing nature of organization such as the rapid increase in telecommunications, increasing diversity of the workforce, environmental considerations, and increasing specialization as well as new forms of organizations are becoming more common, e.g., worker-centered teams, self-organizing and self-designing team and so forth which affect the validity of the individual rating (Ferguson, 1993).
2.5 Performance Appraisal in Malaysia
As evidenced in several researches and articles such as Vance, McClaine, Boje & Stage, (1992), Halim (1996), Ahmad & Ali (2004), and Poon (2004) that the implementation of performance appraisal in Malaysia has taken place about couple of decades ago. Due to globalization, Malaysia has experiencing a vast growth in terms of foreign direct investment companies, international joint ventures as well as other forms of business venture. The appraisal process may be misinterpreted as a signal of distrust or even an insult in some countries (Dowling and Schuler, 1990). In fact, many Asian countries reject the principles upon which the American performance appraisal is based (Gellerman, 1967). As Seddon (1987) mentioned there is evidence that the Malaysian public education organizations do use a formal or panel process for conducting performance appraisals. Another notable study done by Vance et al., (1992) in which their results suggest that in Malaysia the performance appraisal design should reflect formal control by measurable company standards (perhaps a panel process), measurement of performance efforts on a group basis, little involvement of employees in the decision making and appraisal processes, extrinsic rewards, and fairly frequent performance appraisals. However, Ahmad & Ali (2004) and Halim (1996) noted that in 1992, Malaysia, as part of its administrative reforms efforts, introduced a new performance appraisal system (NPAS) which aims to improve the public sector in achieving higher productivity and education quality. In this system, emphasis is given to performance-based appraisal system which allowed development of action plan to coach and counsel employees on a continuous basis. The progress of performance appraisal particularly in the Malaysian context has drawn more and more attention from researchers and among others are Poon (2004) who conducted a study in an attempt to examine the effects of perceptions of performance appraisal politics on job satisfaction and turnover intention and the author concluded that “when employees perceived performance ratings to be manipulated for affective reasons such as personal liking and for the purpose of punishing employees, they experienced reduced job satisfaction” (Poon, 2004, p.329). Another notable study was conducted by Kumar (2005) to explore the issues associated with the key components of performance appraisal system, after which it has been implemented in Malaysia. According to the author, in order to conduct an effective and formal performance appraisal process, the managers must be well equipped with required rater skills. The study also examines the types of rater training programs which are available for managers to enhance their rating skills.