implementation of vrs in india

ASIAN JOURNAL OF MANAGEMENT RESEARCH Online Open Access publishing platform for Management Research

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Research Article ISSN 2229 3795

ASIAN JOURNAL OF MANAGEMENT RESEARCH 256

Volume 4 Issue 2, 2013

Performance appraisal practices in indian service and manufacturing sector

organizations Rohan Singh1, Madhumita Mohanty2, Mohanty. A.K3

1- Research Scholar, Faculty of Management Studies, Siksha O Anusandhan University,

Bhubaneswar, India

2- Professor & Head, Dept of MHRM, IISWBM, Kolkata, India

3- Associate Professor, IBCS, Siksha O Anusandhan University, Bhubaneswar, India

[email protected]

ABSTRACT

Performance appraisal (PA) is gradually becoming a part of a more strategic move towards

integrating HR practices and organizational objectives and might now be seen as a general

term covering a range of actions through which organizations seek to measure employees and

increase their competence, improve performance and distribute rewards. The purpose of this

paper is to investigate the relationship between performance appraisal and employee

performance among employees of service and manufacturing sector organizations in India.

Data was collected by standard questionnaire and random sampling from over 100

organizations both for service and manufacturing sectors. Correlation and regression analysis

were used to explore the relationship between them. SPSS, Version 20 was used for analysis.

Overall 52% and 32% of the variance in employee performance can be derived for by

performance appraisal in the case of service sector organizations and manufacturing sector

organizations respectively.

Keywords: Performance appraisal; employee performance

1. Introduction

When HR practices are not evaluated, the investment and its effects cannot be tested and

resources can be wasted in inadequate activities (Foot and Hook, 1996; Gmez-Meja et al.,

1996). Evaluating the performance of any process or system is an indicator which is the vital

core of the performance evaluation process. This has a fundamental importance for the system

of performance evaluation to be competent and successful. Performance appraisal helps the

organization in achieving its strategic advantages and increasing of effective operational

processes through constant improvement of individual employee performance along with

focusing on weak improvable points (Divandari, 1378; 107).

Several organizational processes such as measuring of work performance, establishing of

purposes and reward management (Dickinson, 1993; Llgen, 1993), must be given importance,

which is again related to the success of the organization. The design of the performance

evaluation system is an area of dissatisfaction for various organizations. This situation could

be a indication of failure of performance appraisal as means for growth and provocation of

employees (Fletcher, 1997; 104).

Performance Appraisal Practices in Indian Service and Manufacturing Sector Organizations

Rohan Singh, Madhumita Mohanty, Mohanty. A.K

ASIAN JOURNAL OF MANAGEMENT RESEARCH


257

There are various aspects of evaluating performances of employees. A couple of known

methods are generally followed for evaluating performance. The old method of appraisal was

to validate, recollect and to control the activities of the employees. The contemporary approach

is based more on education, growth, improvement of skills of the individuals by aligning it

with the organizational requirements. The review process has become more methodical with

greater emphasis being given to motivation and accountability in order to improve the quality

as well as optimizing its operations.

Researchers and practitioners in this field states that, assessing of reflections and reactions of

evaluation are very important (Keeping & Levy, 2000). Prior research has found that, there is

a positive impact of Performance appraisal on individuals behavior and their progress in the

future. They should experience positive evidence of evaluation of their performance; otherwise

each evaluation system would be destroyed (Cardy & Dobbins, 1994).

Performance appraisal in the traditional approach is a tool for justification and recollection of

performance, but in modern approach the major and basic orientation of the evaluation system

is inclined towards growth and training of the evaluated person (Rahimi, 1385; 42).

Performance of any organization mainly depends upon the performance of its employees.

Organizations are increasingly realizing that there are number of factors which conbtribute to

its success and therefore the knowledge and skills of an organization's employees have become

increasingly important to its competitiveness and progression. A number of researchers have

stated that performance appraisal which is a part of HR practices are positively linked with

organizational and employee performance (e. g. Guest, 2002; Harley, 2002; Gould-Williams,

2003; Park et al., 2003; Wright et al., 2003; Tessema and Soeters, 2006).

The purpose of this study is to examine the relationship between performance appraisal

practices and employee performance and its variance in service and manufacturing sector

organizations.

1.1 Review of literature

Today performance appraisal is used as one of the important component of HR practices,

which is strategic in nature and for obtaining maximum benefits by the organization helps to

integrate with its policies. Performance appraisal is observed as a subject that covers various

activities (Fletcher, 2001; 74). Cascio (1991) stated that performance appraisal should serve as

a development tool for personal. Similarly, Cardy and Dobbins (1994) said, performance

appraisal should be more than simply the assessment of the past. It should also focus on the

future and on the skill level of the rates. Because of the interplay between performance

assessment and training, these human resource functions can be considered together as

development activities. A natural follow-up to performance appraisal is training. Ideally,

employees will be trained based on the results of assessments of their work. Performance

appraisal is one of the most important theories of human resources management and is one of

the subjects which have been studied and investigated in the psychology of work extremely

(Kuvaas, 2006; 504).

Performance is defined as the record of outcomes produced on a specified job function or

activity during a specified time period (Bernardin and Russell, 1993). Performance

management isnt just a once-a-year assessment; effective managers incorporate performance

review and feedback as part of their day-to-day communications with employees (Webb,

2004). Performance appraisal can identify employees who should be retained. Appraisals





258

continue to be used widely, especially as a basis for tying pay to performance (Schellhardt,

1996; Cleveland, Murphy and Williams 1989). Performance appraisal satisfaction has a

positive relation with work performance (PettiJohn et al, 2001; 374).

Firms can monitor the development of desired employee attitudes and behaviors through the

use of the appraisal mechanisms. This appraisal-based information could be used for changing

the selection and training practices to select and develop employees with the desired

behaviours and attitudes. However, the effectiveness of skilled employees will be limited

unless they are motivated to perform their jobs. Pardo (1999) considers systems of

performance evaluation as one of the most vital subjects of human resources in 21 century

(Divandari, 1387; 107).

Performance appraisal clearly has an effect on employee performance. A meta-analysis of the

effects of psychologically based interventions highlighted the influence of performance

appraisal on employee output, with drawl and disruptions (Guzzo, Jette & Katzell, 1985).

Similarly, Katzell and Guzzo (1983) tabulated the effects of different psychological

approaches on improving productivity. Their review showed that a vast majority of published

articles found that performance appraisal and feedback had a positive relationship with various

outcome measures. In addition, with due attention to the social exchange viewpoint (Shapiro &

Conway, 2004; Lee & Bruvold, 2003) those employees who believe that the organization is

trying to supply their needs may have a sense of responsibility with regard to render to the

organization through high work performance (Kuvaas, 2006; 505).

The main components of performance appraisal is detailing and feedback. Three techniques

concerning performance appraisal are relevant to performance. First, performance appraisal

feedback provided to employees is associated with satisfaction, performance and motivation

(DeGregorio & Fisher, 1988; Dorfman, Stephan & Loveland, 1986; Ilgen & Moore, 1987). In

fact, Chapanis (1964) called the positive influence of feedback on performance one of the most

dependable findings in psychology. Moreover, Ashford and Cummings (1983) argue that

individuals often seek feedback to reduce goal attainment uncertainty, address performance

errors and resolve the uncomfortable state of uncertainty, further reinforcing the value of

frequent feedback. Second, participation in the performance appraisal process is important.

Research on employee participation in the feedback discussion shows that subordinates

perceive this type of performance appraisal feedback more favorably than performance

appraisal with no feedback or top-down only feedback (DeGrsgorio & Fissher, 1988). Third,

performance appraisals that include feedback and employee participation imply observation by

the performance appraiser. In order to meet the requirements of effective performance

appraisal, the rater must spend adequate time observing the individual being rated (Murphy &

Cleveland, 1991).

There is a growing consensus that organizational human resource policies can, if properly

configured, provide a direct and economically significant contribution to firm performance.

The effectiveness of even highly skilled employees will be limited if they are not motivated to

perform, however, and HRM practices can affect employee motivation by encouraging them to

work both harder and smarter. Examples of firm efforts to direct and motivate employee

behaviour include the use performance appraisals that assess individual or work group

performance, linking these appraisals tightly with incentive compensation systems, the use of

internal promotion systems that focus on employee merit, and other forms of incentives

intended to align the interests of employees with those of shareholders (e.g., ESOPS and profit

and gain sharing plans).





259

Performance is defined as the record of outcomes produced on a specified job function or

activity during a specified time period (Bernardin and Russell, 1993). Performance

management isnt just a once-a-year assessment; effective managers incorporate performance

review and feedback as part of their day-to-day communications with employees (Webb,

2004).

Performance appraisal is an action for testing, measuring, valuating and justifying about the

performance during a certain period of time. It is synonymous with improvement of

individuals' effectiveness and process of the organization's business from organizational

viewpoint (Watz & Levy, 2004; 352). When employees believe that organizational feedback is

focussed to support them, their loyalty towards organization will be greater.

2. Research objectives

H1: Performance appraisal will be positively related with employee performance in service

sector organisations.

H2: Performance appraisal will be positively related with employee performance in

manufacturing sector organisations.

3. Research methodology

3.1 Sample and data collection

A company was included in the sample whose minimum number of employees in the last

financial year was 1000. The sample includes firms from various sectors representing all the

major domestic organizations in India covering manufacturing sectors like automobiles,

fertilizers, pharmaceuticals, luxury items FMCGs (Branded Wall Paints) and service sectors

like banks both private and public, insurance etc.

The data was collected by distributing the questionnaire for performance appraisal practices

and employee performance. The questionnaire was used and developed by Mussie

Teclemichael Tessema & Joseph L. Soeters (2006) which is used for the present study. Reason

for choosing this questionnaire was because the reliability and validity was checked by them.

The reply was required on a five point Likert scales (endpoints: 1= strongly disagree, 5 =

strongly agree).

3.2 Respondents

The above procedure generated responses from more than 100 organisations both from service

& manufacturing sector organizations, out of a sample size of over 500 organisations and thus,

overall response rate was just above 20 percent. The survey was administered consisting of

first round email, follow-up emails and second round emails.

4. Analysis and interpretation

We have analysed the data and computed the correlations considering that our main objective

was to examine the variation of relationship between performance appraisal and the employee

performance. The findings are presented in Tables 1 to 6.





260

Table 1: Reliability statistics

Service

Sectors

Manufacturing

Sectors

Cronbach's Alpha

Performance Appraisal (PA) .82 .91

Employee Performance (PR) .84 .88

Table 2: Descriptive statistics

Service

Sectors

Manufacturing Sectors

PA PR PA PR

Mean 3.26 3.54 3.01 3.54

Median 3.50 3.66 3.21 3.66

Std. Deviation .924 1.00 1.00 1.00

Table 3: Inter-item correlations matrix

Service Sectors Manufacturing Sectors

PA PR PA PR

PA 1 .721** 1 .563**

PR .721** 1 .563** 1

**. Correlation is significant at the 0.01 level (2-tailed).

PA performance appraisal, PR employee performance

The employee performance correlation with performance appraisal practices showed that the

service sector organizations edges past the manufacturing sector organizations.

Table 4: Regression coefficients

Service Sectors Model R R Square Adjusted R Square Std. Error of the

Estimate

1 .721a .520 .498 .71300


Model R R Square Adjusted R Square Std. Error of the

Estimate

1 .563a .317 .286 .85057

a. Predictors: (Constant) PA,

b. Dependent Variable: PR





261

Table 5: ANOVA

Service Sectors

The ANOVA table shows the significance level at .000

Model Sum of Squares df Mean Square F Sig.

1

Regression 12.108 1 12.108 23.816 .000b

Residual 11.184 22 .508

Total 23.292 23

a. Dependent Variable: PR

b. Predictors: (Constant), PA


The ANOVA table shows the significance level at .004 Model Sum of Squares df Mean Square F Sig.

1

Regression 7.375 1 7.375 10.195 .004b

Residual 15.916 22 .723

Total 23.292 23


b. Predictors: (Constant), PA

Table 6: Coefficients

In line with the hypothesis, the results showed that there was significant relationship between

the variables.

Service Sectors

Model Unstandardized Coefficients Standardized

Coefficients

t Sig.

B Std. Error Beta

1 (Constant) .976 .545 1.790 .087

PA .785 .161 .721 4.880 .000



Model Unstandardized Coefficients Standardized

Coefficients

t Sig.

B Std. Error Beta

1 (Constant) 1.849 .558 3.314 .003

PA .561 .176 .563 3.193 .004


5. Conclusion

In the fast varying scenario of the Indian economy, performance appraisal has become a

essential requirement of every organization to properly evaluate the performance of it

employees. In a lot of organizations, rarely is an effort made to discuss with its work force as

to whether expected results, as predetermined, were met, exceeded or not. Todays employees

want to know not only how they fit in with the targets of the organization for which they work

but also what aspects of self-improvement is needed in their performance. Organizations





262

cannot grow if individuals that work in the organizations are not on purpose encouraged and

supported through genuine performance appraisal.

The existing relationship between performance appraisal and employee performance in service

and manufacturing sectors, which was the objective of this study was met and the variance

have been projected.

Performance appraisal has a important role to play on employee performance. But there are

other factors also. Our analysis is a comparative study of performance appraisal and employee

performance in service and manufacturing sectors.

Conducting periodical review of workforce performance by organizations has become a

fundamental requirement which will help to shrink the gap between employee performance

and successful attainment of its objectives.

5.1 Limitations

One of the primary drawback of this study was to justify the relation between a organizations

employee performance with its personal system like selection, recruitment, training,

compensation, performance appraial etc. As well as the success and failure of any organization

depends on a lot of factors other then the various aspects of HR practices like performance

appraisal. The collection of HR data was also very challenging and limited.

There is enough scope for future research in this area. The results could also vary with the

increment of the sample size.

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