Documents8

PLEASE SCROLL DOWN FOR ARTICLE

This article was downloaded by: [Ingenta Content Distribution Psy Press Titles]On: 6 April 2011Access details: Access Details: [subscription number 911796916]Publisher RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

The International Journal of Human Resource ManagementPublication details, including instructions for authors and subscription information:http://www.informaworld.com/smpp/title~content=t713702518

Employee perceptions of performance appraisals: a comparative study onIndian banksA. Shrivastavaa; P. Puranga

a Department of Humanities and Social Sciences, Indian Institute of Technology, Mumbai, India

Online publication date: 23 February 2011

To cite this Article Shrivastava, A. and Purang, P.(2011) 'Employee perceptions of performance appraisals: a comparativestudy on Indian banks', The International Journal of Human Resource Management, 22: 3, 632 — 647To link to this Article: DOI: 10.1080/09585192.2011.543639URL: http://dx.doi.org/10.1080/09585192.2011.543639

Full terms and conditions of use: http://www.informaworld.com/terms-and-conditions-of-access.pdf

This article may be used for research, teaching and private study purposes. Any substantial orsystematic reproduction, re-distribution, re-selling, loan or sub-licensing, systematic supply ordistribution in any form to anyone is expressly forbidden.

The publisher does not give any warranty express or implied or make any representation that the contentswill be complete or accurate or up to date. The accuracy of any instructions, formulae and drug dosesshould be independently verified with primary sources. The publisher shall not be liable for any loss,actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directlyor indirectly in connection with or arising out of the use of this material.

http://www.informaworld.com/smpp/title~content=t713702518

http://dx.doi.org/10.1080/09585192.2011.543639

http://www.informaworld.com/terms-and-conditions-of-access.pdf

Employee perceptions of performance appraisals: a comparative studyon Indian banks

A. Shrivastava and P. Purang*

Department of Humanities and Social Sciences, Indian Institute of Technology, Mumbai, India

Performance appraisal is the most critical human resource practice and anindispensable part of every organization; however, the practice continues to generatedissatisfaction among employees and is often viewed as unfair and ineffective. Indianbanking sector is one of the biggest and fastest growing financial service sectors.The post-liberalization era has witnessed significant changes in the structure andoperations of banks operating in India. Arrival of new private and foreign banks hasgiven a cause to public sector banks to be more competitive, effective and innovative intheir approach. Past researches have compared public and private sector banks andhave indicated that new private sector banks are outscoring public sector banks in termsof technical and economic efficiency parameters. However, no study could be foundthat compared public and private banks in India on fairness perceptions of performanceappraisal system. Therefore, this research studied the differences between public andprivate sector banks with respect to perception of fairness of the performance appraisalsystem and performance appraisal satisfaction. Perception of fairness of theperformance appraisal system has been studied through nine factors. The study usedindependent samples t-test and qualitative analysis to study the mean differencesbetween the two banks. Results indicated that private sector bank employees perceivegreater fairness and satisfaction with their performance appraisal system as comparedto public sector bank employees.

Keywords: perception of fairness; performance appraisal; public and private sectorbank

Introduction

Performance appraisal is one of the most critical human resource (HR) practices

administered in organizations by which supervisors evaluate the performance of

subordinates organizations use appraisal ratings to make pay and promotion decisions,

identify training and development needs and motivate employees (Cascio and Bernardin

1981). Performance appraisal is one of the most widely researched topics in

industrial/organizational psychology (Murphy and Cleveland 1991). However, in spite

of the attention and resources paid to the practice, it continues to generate extreme

dissatisfaction among employees and employers alike and is often viewed as inaccurate,

unfair, and political (Church 1985; Skarlicki and Folger 1997; Rao 2004). In their review

of performance appraisal, Bretz, Milkovich and Read (1992) indicated that perceived

fairness of the appraisal system has emerged as the most important issue to be faced by

ISSN 0958-5192 print/ISSN 1466-4399 online

q 2011 Taylor & Francis

DOI: 10.1080/09585192.2011.543639

http://www.informaworld.com

*Corresponding author: Email: [email protected]

The International Journal of Human Resource Management,

Vol. 22, No. 3, January 2011, 632–647

Downloaded By: [Ingenta Content Distribution Psy Press Titles] At: 04:06 6 April 2011

managers. Concerns about perceptions of fairness of appraisal arise from the evaluation of

the outcomes received (distributive fairness), the procedures used to allocate those

outcomes (procedural fairness), and the way in which the decision-making procedures are

communicated by the authority (interpersonal fairness; Smither 1998). Distributive

fairness, procedural fairness, and interpersonal fairness are integral components of

‘organizational justice,’ which may be defined as the study of fairness at work (Byrne and

Cropanzano 2001). Perception of fairness holds an important place in organizations as it

prevents negative consequences like theft, sabotage, withdrawal, and other disruptive

behaviors and enhances positive outcomes like citizenship behavior, organizational

commitment, and job satisfaction (Adams 1963; McFarlin and Sweeney 1992; Moorman,

Niehoff and Organ 1993). For this study, Greenberg’s (1993) conceptualization of

organizational justice has been used, in which he crosscut two types of justice dimensions

(procedural and distributive) with two determinants of justice (social and structural).

It resulted in four-factor structure of justice (systemic, configural, interpersonal, and

informational). This conceptualization was later used by Thurston (2001) in his study to

address the specific aspects of performance appraisal. The success and effectiveness of any

appraisal system largely depends on employees reactions to important aspects of the

appraisal process (Bernardin and Beatty 1984; Cardy and Dobbins 1994). It is now a

widely accepted fact that perceptions of fairness influence the way people think, feel, and

act on the job (Bies and Shapiro 1987). Hence, perception of fairness of the performance

appraisal system would influence positive affective reactions like performance appraisal

satisfaction (Thurston 2001; Cook and Crossman 2004). Procedures used to appraise

performance, and the manner in which performance-related information is communicated

play an integral role in shaping employees’ satisfaction with appraisal process (Keeping

and Levy 2000; Jawahar 2007).

Employee performance appraisal is an indispensable part of every organization

including banks in India. Indian banking sector is one of the oldest, biggest, and fastest

growing financial service sectors which has seen tremendous progress post liberalization.

Arrival of new banks, robust growth of domestic economy, rapid growth of the Indian

corporate sector, technological deployments, and rising household incomes are some of

the factors contributing to its growth. Making international presence, attracting and

retaining talents, and overhaul of HR practices are some of the challenges being faced by

banks in India. The Indian banking system can be broadly categorized into scheduled and

non-scheduled commercial banks. Scheduled commercial banks can be further classified

into public and private sector banks (old and new) and foreign banks. Over a period of

time, differences have been observed between public and private sector banks on various

parameters.

Differences between public and private sector banks

Public and private sector banks differ from each other in terms of structure, operations, and

efficiency. The public sector banks are largely regulated by the government, whereas the

private sector banks are regulated by the private bodies. Structurally, public sector banks

have a wide network of branches largely concentrated in the rural and semi-urban areas as

contrasted to private sector banks which are mainly concentrated in urban and

metropolitan areas. Public and private sector banks differ with respect to their background

and work culture. It has been observed that the work culture of public sector banks was

based on the socioeconomic responsibility concept, in which profitability was secondary.

They were and are still involved in variety of non-profit social sector welfare activities.

The International Journal of Human Resource Management 633


On the other hand, private sector banks work toward profitability (Bajpai and Srivastava

2004).

Being government-owned institutions, public sector banks have to operate under

constraints which affect their efficiency. For instance, their staff quality suffers as they can

neither lay off poorly performing employees nor can offer high salaries to attract

well-qualified people. Private banks (especially, the new private sector banks) on the other

hand have grown aggressively by using highly competitive and innovative strategies,

especially with their strong emphasis on information technology (IT). As a result, private

sector banks have made considerable progress in a very short span of time. Kumar (2005)

in his study found that organizational climate (OC) of new private sector banks and foreign

banks in India was perceived as significantly better vis-a-vis public sector banks.

The difference was seen on leadership, motivation, communication, interaction influence,

decision making, goal setting, and control process aspects of OC. Recent SWOT analysis

of private banks (Singh and Kohli 2006) revealed that new private sector banks are

different from the traditional banks (public sector banks and old private sector banks) and

their strength lies in the following areas:

. Most of the branches of private sector banks are fully computerized and support

core banking solutions.

. Private sector banks support an efficient payment system and most of the banks are

free from bureaucratic work environment.

. In contrast to their public sector counter parts, operational efficiency is maintained

at their highest level, because private sector banks provide a smooth working

environment to their employees.

. Private sector banks do not have bureaucratic environment and therefore, enjoy a

high level of autonomy, which facilitates faster decision making.

. With higher automation to their work, private sector banks are better at innovating

new customized products and services and thus are high on customer satisfaction.

. Private sector banks have more responsive organizational structure as compared to

public sector banks which leads to better resolution of customer problems.

. With full computerization, private sector banks offer cost-effective services such

as automated teller machines, electronic fund transfer, Internet banking with

much ease.

McKinsey & Company (2007), in their study, highlighted the clear divide between the

performance of attackers (new private and foreign banks) and incumbents (public sector

and old private sector banks). It indicates that in between 2000 and 2007, attackers have

increased assets from 12 to 26%, profits from 21 to 32%, and market capitalization from

37 to 49%. Apart from this, the study posits that attackers also excel in corporate

leadership, marketing and sales, distribution efficiency, IT, credit policy, and skills as

compared to incumbents (McKinsey & Company 2007).

Organization’s success depends on how productive its employees are. Thus, employee

productivity becomes an important yardstick to measure organization’s performance. In

one such study, Kumar and Sreeramulu (2007) compared the employee productivity

(business per employee and profit per employee) and employee cost ratios (employee cost

to total business, employee cost to total assets, and employee cost to operating expenses)

between the traditional banks (public sector and old private sector banks) and modern

banks (foreign and new private sector banks) from 1997 to 2008. The results indicated that

the performance of the modern banks (foreign and new private sector banks) has been

much superior than the traditional banks (public sector and old private sector banks).

A. Shrivastava and P. Purang634


Employee motivation in the organization can be viewed from increased employee

productivity ratios. Motivated employees are more productive (Kovach 1980). Therefore,

it becomes important for organizations to look for and groom those factors which may

make both employees and organizations more productive.

Furthermore, differences have been observed with respect to performance appraisal

practice. New private banks are introducing newer approaches to regulate and measure

their employees’ performance. Appraisal mechanisms like, 360-degree feedback and

balanced score card (BSC) are being used in new private sector banks, whereas most of the

public sector banks are still adhering to the traditional and highly confidential way of

doing appraisals (Juneja, Shankar and Bhattacharya 2007). Apart from that, performance

appraisals are not linked with pay and promotion decisions in public sector banks and thus

are not perceived as motivating by employees. It has been regarded as one of the processes

generating maximum dissatisfaction among employees (Rao 2004). A kind of general

apathy has been observed among employees and employers toward performance appraisal

and the need to conduct employees’ perception studies has been felt (Varkhey 1994).

Furthermore, there is a dearth of studies which relate performance appraisal with issues of

fairness in the Indian context (Agrawal and Gupta 2007). Therefore, the main objective of

the study was:

To study the differences between public and private sector banks with respect to

perception of fairness of the performance appraisal system and employees’ satisfaction

with performance appraisals.

Further, it is hypothesized that:

Hypothesis 1: Employees’ perception of fairness of the nine factors of their appraisal

system would be significantly different between the two banks.

Since different banks follow different approaches toward the appraisal, it is further

assumed that employees’ affective reactions would also be different in public and private

sector banks. Hence, it is also hypothesized that:

Hypothesis 2: Employees’ satisfaction with the performance appraisal system would be

significantly different between public and private sector banks.

Perception of fairness of the appraisal system has been defined by the following nine

factors (Thurston 2001):

Setting performance expectations: It refers to the importance of setting performance

expectations at the beginning of the performance period. It captures the nature of

performance criteria; their relevance and flexibility.

Rater confidence: It refers to rater’s level of knowledge about the performance appraisal

system, ratee’s job, and performance levels.

Clarifying expectations: It refers to raters clarifying performance expectations and the

evaluative standards to the ratees before and during appraisal.

Providing feedback: It refers to the raters’ ability to provide clear, timely, frequent, and

constructive feedback to their subordinates.

Accuracy of ratings: It talks about the appropriateness of the ratings which is based on

employee’s efforts, abilities, and quality and quantity of his/her performance.

Explaining rating decisions: It refers to the raters’ ability to explain rating decisions to the

ratees clearly and effectively. It also involves raters explaining to employees about

bringing performance improvement.

Seeking appeals: It refers to the extent of freedom given to employees to challenge

performance ratings and to express feelings, especially of discomfiture.



Concern over ratings: It refers to the concern that ratings should be a true reflection of

employee’s performance that ought to be based on employee’s effort and contributions

rather than on his/her personality.

Treatment by rater: It refers to the quality of interpersonal treatment received by the ratees

from their supervisor/s. It conveys the importance of sensitivity, dignity, and respect in

supervision.

The satisfaction with the appraisal system has been defined as the positive affective

reactions of employees toward the performance appraisal system.

Method

Sample organizations

The data were collected from two banks belonging to public sector (Bank A) and a private

sector (Bank B), respectively. Purposive sampling method was used to select different

banks with different performance appraisal practices. Other public and private sector

banks were also approached for the purpose of data collection; however, final selection of

the banks was made on the basis of the permission granted by the banks to collect

information and data. The two banks selected for the study are the leading banks in their

respective sectors. Both the banks have their head offices in India with multiple branches

spread across the globe.

Participants

The sample consisted of a total of 340 bank employees from both public and private sector

banks situated in India. All the bank employees were serving at the middle-level

management. The middle managers were chosen as they are the front-line managers

having good exposure of bank and its policies and practices. There were 230 bank

employees from a public sector bank; with the majority being male (73.04%). Mostly, the

sample was between the ages of 40 and 50 years (41.07%), with 39.8% between 25 and

40 years, and 19.04% between 50 and 60 years. The average age was 42.7 years and

average tenure was 16.9 years. From a private sector bank, 110 bank employees

participated with the majority being male (70.09%). Mostly, the sample was between the

ages of 25 and 40 years (82.05%), with 17.9% between 40 and 50 years. The average age

was 34.89 years and average tenure was 11.02 years.

Procedure

Information on performance appraisal practice was collected by interviewing the senior

HR managers of both the banks in the first phase. To structure interview, questions were

divided into four broad categories (Bretz et al. 1992); (1) system design and

characteristics, (2) system management, (3) important appraisal uses and (4) performance

distribution. ‘System design and characteristics’ dimension includes issues such as

appraisal construction and development, appraisal approach and format, raters, and rating

sources, and performance criteria. ‘System management’ dimension is concerned about

appraisal frequency, appraisal-related decision making, rater training and rater

accountability. Appraisal use includes concerns about developmental and administrative

uses of appraisals, whereas ‘performance distribution’ talks about differentiating

employee performance into certain levels. However, managers were free to provide any

extra information about appraisals. Information collected has been provided in Table 1.



The second phase of the study involved distributing questionnaires to the bank

employees (middle-level managers). For this purpose, 18 branches of the public sector

bank and 10 branches of the private sector bank were visited. Employees were personally

approached and given the questionnaire. In many cases, respondents were called in the

conference room and briefed about the study and were requested to fill the questionnaire

and confidentiality was assured. In total, 358 questionnaires were distributed; out of which

340 could be utilized as 18 questionnaires that were half filled. The response rate came out

to be 94.97%. This study also used an open-ended questionnaire method in which

participants were free to respond the way they wanted to. Employees were asked, ‘how do

they perceive their performance appraisal system in the current organization.’ For this

purpose, 42 middle-level managers from public sector and 20 middle-level managers from

private sector bank participated in the study. This group of participants was not given

standardized questionnaires earlier in this study. The questionnaires were personally

distributed to and collected from the managers from different branches of the respective

banks.

Measurement

Nine dimensions of performance appraisal fairness were measured by a 56-item scale.

The scale was originally developed by Thurston (2001), which was later modified by

Walsh (2003) in her study, e.g. ‘respect in supervision’ and ‘sensitivity in supervision’

dimensions from Thurston’s scale was clubbed to form ‘treatment by rater.’ This study

used the same version (Walsh 2003) with little adaptations to suit the Indian context, like,

the term ‘performance planning and review (PPR) system’ was replaced with performance

appraisal system. All the items were modified to fit into the 5-point Likert scale format

(1 ¼ strongly disagree and 5 ¼ strongly agree). Item no. 45 and 46 were reverse coded.

Table 1. Differences in performance appraisal system of the public and private sector banks.

Performance appraisalsystem: features Public sector bank Private sector bank

Appraisal design/format ACR BSCManagement by objectives(MBO) based approach

Online system

Manually doneFrequency Annually BiannuallyAppraisal purpose/s,administrative,developmental

Promotion (partially linked) Pay and promotionfully linked)

Pay (not linked) Training and development(fully linked)

Training and development(partially linked)

Communication/feedback Closed system, one-waycommunication

Open system, open,two-way communication

Appeal system Only for promotion-related issues

Robust system, employeesmay challenge theirappraisal-related ratings

Post-appraisal attitudesurveys

No Yes

Accountability issues Not addressed Addressed



Cronbach’s alpha for each dimension was as follows, setting expectations ¼ 0.94, rater’s

confidence ¼ 0.94, clarifying expectations ¼ 0.93, providing feedback ¼ 0.92, accuracy

of rating ¼ 0.91, explaining rating decision ¼ 0.91, seeking appeals ¼ 0.87 concern over

rating ¼ 0.75, and treatment by rater ¼ 0.89.

Performance appraisal system satisfaction was measured by the items modified from

scales by Taylor, Tracy, Renard, Harrison and Carroll (1995) and Tang and Sarsfield-

Baldwin (1996). Seven items have been taken for this study. Items 4 and 5 are reverse

coded. It is a 5-point rating scale with 5 ¼ strongly agree; 4 ¼ agree; 3 ¼ neither agree

nor disagree; 2 ¼ disagree; and, 1 ¼ strongly disagree. Cronbach’s alpha of this scale is

0.85.

Results

Quantitative analysis: independent samples t-test

An independent sample t-test was computed to test the mean differences in the nine factors

depicting employees’ perception of fairness of performance appraisal and performance

appraisal satisfaction of the two banks under study. The findings indicate that there is a

significant mean difference between the two groups with respect to most of the variables.

Levene’s test has been used to assess the equality of variance in different samples.

The resulting p-value of Levene’s test in most of the cases is less than critical value

(i.e. 0.05) indicating that there is a difference between the variances in the population.

Significant differences were observed between the two groups with respect to most of the

fairness dimensions (seven out of nine). Results in Tables 2 and 3 indicate that private

sector bank employees (i.e. Bank B, N ¼ 110) perceive their expectations to be better set

(MB ¼ 25.26, MA ¼ 20.21, t ¼ 18.746, p , 0.001) and explained (MB ¼ 24.8,

MA ¼ 18.3, t ¼ 20.17, p , 0.001), rate their raters to be more knowledgeable

(MB ¼ 19.1, MA ¼ 15.3, t ¼ 13.185, p , 0.001), find feedback procedure to be more

Table 2. Two-group mean difference.

Variables Group N MeanStandarddeviation

Standarderror mean

Setting expectations Bank B 110 25.26 2.35 0.225Bank A 230 20.21 2.23 0.147

Rater’s confidence Bank B 110 19.13 1.74 0.165Bank A 230 15.33 3.57 0.235

Clarifying expectations Bank B 110 24.84 2.26 0.215Bank A 230 18.03 3.94 0.259

Providing feedback Bank B 110 15.05 2.61 0.248Bank A 230 12.99 3.30 0.217

Accuracy of rating Bank B 110 18.44 3.95 0.376Bank A 230 16.13 3.92 0.258

Explaining rating decision Bank B 110 19.14 2.07 0.197Bank A 230 15.16 3.58 0.235

Concern over rating Bank B 110 21.81 2.61 0.248Bank A 230 22.32 2.91 0.192

Seeking appeals Bank B 110 24.53 1.87 0.178Bank A 230 14.20 2.64 0.174

Treatment by rater Bank B 110 35.98 5.39 0.514Bank A 230 35.68 5.80 0.382

Performance appraisal satisfaction Bank B 110 26.95 2.16 0.206Bank A 230 21.89 2.68 0.177



Table

3.

Independentsamplest-test.

Levene’stestfor

equality

ofvariances

Variables(N

¼340)

FSignificance

tdf

Significance

(two-tailed)

Meandifference

Standard

errordifference

Settingexpectations

1.291

0.257

18.75

202.05

0.000

5.05

0.269

Rater’s

confidence

99.490

0.000

13.18

337.85

0.000

3.79

0.287

Clarifyingexpectations

53.822

0.000

20.17

327.21

0.000

6.80

0.337

Providingfeedback

7.774

0.006

6.24

265.83

0.000

2.06

0.330

Accuracy

ofrating

4.782

0.029

5.06

213.28

0.000

2.32

0.457

Seekingappeals

12.021

0.001

41.47

290.28

0.000

3.98

0.307

Explainingratingdecision

62.971

0.000

12.92

325.76

0.000

10.34

0.249

Concern

over

rating

2.532

0.093

21.68

237.39

0.106

20.53

0.314

Treatmentbyrater

0.847

0.358

0.467

229.59

0.641

0.29

0.640

Perform

ance

appraisal

satisfaction

14.557

0.000

18.61

261.35

0.000

5.06

0.272

Note:Allbold

values

aresignificantat

p,

0.001.



robust (MB ¼ 15.0, MA ¼ 12.9, t ¼ 6.241, p , 0.001), ratings to be more accurate

(MB ¼ 18.4, MA ¼ 16.13, t ¼ 5.065, p , 0.001) and well explained (MB ¼ 19.1,

MA ¼ 15.1, t ¼ 41.471, p , 0.001), and feel more positive about the appeal system

(MB ¼ 24.5, MA ¼ 14.2, t ¼ 12.925, p , 0.001) as compared to public sector bank

employees (Bank A, N ¼ 230). No difference could be found for the dimension treatment

by rater and concern over rating indicating that employees of both the banks hold more or

less similar perceptions about these two dimensions. The results also indicated that private

sector bank employees (Bank B, N ¼ 110) expressed significantly more satisfaction with

performance appraisal than public sector bank employees (MB ¼ 26.8, MA ¼ 21.9,

t ¼ 18.61, p , 0.001). The quantitative results indicated that both the hypotheses have

been accepted.

Qualitative analysis

The qualitative analysis of the data was done using the method of content analysis. For this

study, the method of nominal quantification was used. It involved the process of assigning

numerals and assigning ranks to the objects of the content analysis. Participants were

asked in an open-ended questionnaire, ‘How do they perceive “Performance Appraisal”

practice in their organization?’ The responses obtained from the qualitative analysis

supported the quantitative results.

In the case of public sector bank, the first item generated variety of responses from

the participants that were broadly clubbed into four most frequently reported themes:

(1) appraisal as a developmental and motivational tool, (2) appraisal unfairness,

(3) appraisal design and its conductance and (4) raters’ issues. Detailed description of the

qualitative data has been provided in Table 4. In case of private sector bank, the first

question generated responses that were broadly clubbed into four major themes:

(1) appraisal as a critical HR practice, (2) appraisal unfairness, (3) stress associated with

the appraisal and (4) importance of raters. Detailed description of the qualitative data has

been provided in Table 5.

Discussion

Both quantitative as well as qualitative results indicate that employees’ perception of

fairness of their appraisal system is significantly different between the two banks and

private sector bank employees perceive performance appraisal factors, namely, setting

performance expectations, rater’s confidence, clarifying expectations, providing feedback,

accuracy of rating, seeking appeals, and explaining rating decisions to be fairer as

compared to public sector bank employees. All the mean values were significantly higher.

The results also indicate that private sector bank employees have significantly higher

satisfaction with the performance appraisal system than the public sector bank employees.

Appraisal dimension setting performance expectations formally initiates the appraisal

process and deals with setting performance expectations and goals at the beginning of the

performance period. Setting goals has been suggested as one of the most important

motivational forces influencing people in organizations (Wood and Locke 1990). Having a

clear-cut goal enhances performance, because goal brings in clarity about what type and

level of performance is expected. In this study, the performance appraisal system in private

sector bank requires that employee goals and targets are clearly set at the beginning of the

performance period. Results from the qualitative analysis indicate that employees possess

goal clarity and show confidence about what they have to achieve; to quote one employee,



‘Right from the beginning of the financial year, one knows what one is supposed to

achieve; performance targets are well set and explained.’ The appraisal process in the

private sector bank constitutes ‘BSC’ to evaluate its employees, wherein, along with

financial indicators, there is a clear segregation of the performance areas and targets to be

achieved, namely, customer perspectives, internal business processes, organizational

growth, and learning and innovation. It gives employees a sense of direction and goal

clarity regarding ‘what to do and how to do.’ As employees’ compensation and growth in

private sector bank are largely contingent on performance, paying attention to the targets

and their subsequent achievement is very important. In case of public sector bank, 38.1%

employees have reported ‘lack of role and goal clarity’ in the qualitative analysis. Also,

45.2% employees feel that performance appraisal is treated as a ‘mere ritual with no

seriousness towards it.’ Also, there has been no change in the appraisal format of the

public sector bank; it has been continuing with the graphic rating format to measure

qualitative traits of employees. This type of format does not consist of any behavioral

observations. Due to this, it misses out on evaluating the actual factors affecting job

performance and is thus seen as ‘unfair’ and ‘subjective’ by the employees. Also, it has

been reported by the private sector bank employees that goals and performance

expectations are decided jointly by supervisors and subordinates. Research reports that

people better accept goals that they have been involved in setting, than goals that have

been assigned by the raters, and they work harder for their attainment (Latham and Locke

1988). It may be due to the fact that employees ‘psychologically rationalize’ their

Table 4. Themes identified for public sector bank.

Themes Frequencya Percentage

1. Appraisal as a developmental and motivational tool 37/42 882. Unfairness of the appraisal practice 31/42 73.8(a) Highly subjective process/lacks transparency 28/42 66(b) Raters’ biases/appraisal politics (nepotism, sycophancy) 25/42 59.5(c) Unfair distribution of the ratings 22/42 52.3(d)Absence of strong ‘appeal’ system 19/42 45.2

3. Appraisal design and appraisal administration 25/42 59.5(a) Appraisal design is very old and highly confidential 22/42 52.3(b) Newer approaches like online PMS or 360 degree appraisalshould be introduced

20/42 47.6

(c) Less time is spent on the appraisal process. It is treated as amere ritual by supervisors and subordinates

19/42 45.2

(d) Appraisal frequency may be increased, biannually 18/42 42.8(e) Self-appraisal should be given due consideration 16/42 38.09(f) Differential rewards should be based on appraisal 16/42 38.09(g) Appraisals are hardly linked with promotions 15/42 35.7(h) Appraisals should be aptitude/interests based and not justtrait based

13/42 30.9

(i) More active participation from employees’ side shouldbe allowed

12/42 28.5

(j) Appraisal should be seriously used to chalk out career pathsand training programs

10/42 23.8

4. Raters’ issues 16/42 38.09(a) Raters are not trained enough to conduct the appraisal 15/42 35.7(b) Raters do not give ‘constructive and quality feedback’;feedback should guide future growth and development

13/42 30.09

(c) Very formal and hierarchical relationship 9/42 21.4

a Frequency of the response.



decisions to set those goals (Greenberg and Baron 1995) and thus find it hard to deny them.

In their studies, McConkie (1979) and Edwards (1983) emphasized the use of more

effective participative, goal-oriented performance appraisal as against traditional

performance appraisal in which there is lesser or no participation. Public sector bank

still follows the traditional way of doing appraisal, where employees’ participation is kept

at a minimum.

Furthermore, it has been observed that public sector bank employees have expressed

less confidence in their raters as compared to private sector bank employees. To quote one

public sector bank employee, ‘Supervisors/raters do not know how to conduct the process;

they do it for the sake of doing.’ Since appraisal is a complex process with embedded

interpersonal dynamics, its successful conductance demands raters’ attention, knowledge

and skill. Therefore, lack of training in conducting appraisals might be one of the reasons

for raters’ disinterest in the process. Another reason might be disregarding appraisals’

importance and looking at it as a routine process and thus, not paying adequate attention

toward ratees’ job and performance throughout the year. Private sector bank employees

have shown greater confidence on their raters as compared to public sector bank

employees. Statements such as, ‘supervisors take keen interest in the process,’ ‘if your

immediate supervisor is supportive, entire appraisal activity is easy otherwise vice-versa’

indicate employees’ confidence on their raters. It has been found that raters play a crucial

role in the success and failure of any appraisal system (Pooyan and Eberhardt 1989). In his

study, Jawahar (2006) found that if raters are knowledgeable of subordinate’s job, and job

performance and provide guidance to their subordinates, subordinate’s satisfaction with

Table 5. Themes identified in private sector bank.

Themes Frequencya Percentage

1. Critical HR practice 18/20 90(a) Performance appraisal is a well-stretched out, systematic,and serious activity

16/20 80

(b) Right from the beginning of financial year, one knows whatone is supposed to achieve

15/20 75

(c) Performance targets are well set and explained 15/20 75(d) Both supervisors and subordinates take keen interest inthis process

14/20 70

(e) Performance appraisal is very critical and motivating aspromotion, pay, and benefits depend on it

14/20 70

(f) Quality of feedback is good. Feedback is used to chalkout future growth plans

13/20 65

(g) PA brings improvement and guides future career paths 11/20 55(h) Efficient online system 10/20 50(i) Performance appraisal paves way for future trainingprograms

10/20 50

(j) One is free to discuss one’s evaluation freely withone’s supervisor

9/20 45

(k) Presence of appeal system 7/20 352. Unfairness of the appraisal practice 14/20 70(a) Favoritism/departmental politics 13/20 65(b) Unfair distribution of ratings/rewards 12/20 60

3. Stress inducing 10/20 50(a) It is very detailed, time consuming and little harsh sometimes. 10/20 50

4. Important role of raters 7/20 35

a Frequency of the response.



supervisors increases. It is important to have confidence and trust in one’s rater/supervisor

as supervisors are seen as embodiment of the organization, so when employee feels

content and confident about one’s supervisors/raters, the same feeling also spreads to the

entire organization (Lind and Tyler 1988).

It is further observed that private sector bank employees perceive appraisal factors

providing feedback and explaining rating decisions to be fairer than public sector bank

employees. Providing feedback and explaining rating decisions are crucial features of

appraisal process, as they bring purpose and transparency to the appraisal process. Both

the factors are informational and communicative processes involving interaction between

supervisors and subordinates. In this study, public sector bank employees have reported

that, ‘Supervisors maintain a distance and seldom involve employees in the appraisal

feedback/discussions.’ Performance appraisal in public sector bank is known as annual

confidential report (ACR) and as the name suggests, it is highly secretive in its approach

wherein final reports are not shown to and discussed with employees. On the other hand,

private sector bank boasts of its robust feedback culture, (75% employees show agreement

in the qualitative analysis). Studies on Indian culture and mode of leadership may be

helpful in explaining this observed trend. Studies indicate that the Indian society is

characterized by a culture of high power distance between superiors and subordinates

(Sabharwal 1995; Gopalan and Rivera 1997). Therefore, managers prefer to adopt

authoritarian and hierarchical forms of management and exert their influence by

maintaining distance with subordinates and following top-down mode of communication,

wherein supervisors speak and subordinates listen. Furthermore, public sector bank

employees have expressed their concern regarding quality of feedback, as indicated in the

qualitative analysis, 31% employees feel that, ‘the quality of feedback should be improved

and it should be used to guide future growth in the organization.’ Feedback is considered

effective when there is a strong link between performance improvement and valued

outcomes (London and Smither 2002). Results indicate that public sector bank is not

delivering on these aspects. On the other hand, in case of private sector bank, 80%

employees have stated that appraisal is a well stretched out activity which is used to guide

future growth plans. Public sector bank employees have also expressed their

discontentment against appraisal frequency which is an annual affair, whereas in the

case of private sector bank, it happens biannually. It has been reported that appraisal

systems that provide formal feedback once a year are more likely to be feedback deficient

(Bernardin and Beatty 1984).

Appraisal ratings are important in the appraisal context as administrative and

developmental decisions are based on them. This study indicates that private sector bank

employees consider their ratings to be more accurate as compared to public sector bank

employees. Since in public sector banks, appraisal ratings alone do not serve important

administrative and developmental purposes, and thus, taken lightly. Public sector bank

employees have expressed their discontentment due to various reasons, like, raters’ biases

and lack of regard for hard work and merit. Lack of rater’s training can be the reason

behind biased ratings. Biases may be cognitive owing to the memory decay or changes in

information processing ability of the rater or it may be deliberate owing to the social or

contextual factors, collectively called as ‘politics.’ In this study, both the banks have

talked of politics and presence of trends like favoritism and sycophancy. There is some

evidence that raters deliberately distort subordinates’ performance ratings for political

reasons, like manager provides inflated ratings to their subordinates in order to project

his/her good image or to avoid any confrontation (Longenecker, Gioria and Sims 1987;

Fried and Tiegs 1995).



Lastly, dimension ‘seeking appeal’ talks about the ‘voice’ provided to the employees

to challenge the ratings and other decisions received from the supervisor/s. It is an

‘opportunity’ given to the employees to put forth their views, refute the rating decisions

and express feelings; especially of discomfiture. In this study, it has been found that

private sector organization talks of strong appeal system, whereby an employee may

challenge the appraisal-related decisions. The ability to appeal a rating which is

considered unfair, inaccurate, or biased is an important component to ensure perceptions

of procedural fairness (Leventhal 1980; Cascio and Bernardin 1981; Greenberg 1986;

Alexander and Ruderman 1987; Murphy and Cleveland 1991). As indicated by 45.2%

employees, public sector bank does not have strong ‘appeal’ system. Lack of ‘voice’ and

‘control’ provided to the employees may be indicative of rigid and closed OC of Public

Sector Bank. In one such study, Kumar (2005) compared the OC of public sector, new

private sector, and foreign banks in India. The results indicated that the OC of new private

sector banks and foreign banks has been perceived as significantly better vis-a-vis public

sector banks on the following factors constructing OC: leadership, motivation,

communication, interaction influence, decision making, goal setting and control process.

Furthermore, the results indicate that private sector bank employees express higher

satisfaction with their performance appraisal system as compared to public sector bank

employees. It has been already demonstrated in this study that private sector bank

employees perceive their appraisal system to be fairer than public sector bank employees

on account of the following factors: (1) raters’ knowledge to conduct the process, (2) well-

set and explained performance expectations, (3) accurate ratings and well-explicated

rating decisions, (4) constructive feedback and (5) well-placed appeal system.

Aforementioned fairness factors connote ‘procedural’ as well as ‘distributive’ fairness

of the system. Research indicates that procedural and distributive justice factors have been

consistently correlated with employee’s positive affective reactions toward their

performance appraisal system (Tang and Sarsfield-Baldwin 1996; Thurston 2001).

Hence, the perception of fairness of the performance appraisal system would impact the

affective and attitudinal reactions like satisfaction with the performance appraisals system

of the employees. The public sector bank employees cited unclear expectations about

goals, lack of feedback, rater’s biases, and ratings independent of actual performance, as

some of their perceptions of the performance appraisal system. These provide an

explanation to the low satisfaction with the performance appraisal system of the public

sector bank employees. Studies have found that the supervisor’s goal setting behavior, and

his/her relations with subordinates accounted for 53% of the variance in appraisal

satisfaction (Pooyan and Eberhardt 1989), and employees’ perception of their meaningful

role in the appraisal process enhances their satisfaction and acceptance of the system

(Roberts 2003). In the qualitative analysis, 75% private bank employees have mentioned

about well laid-out goals and supervisors’ involvement in the appraisal process. Also, in

contrast to public sector bank employees, private sector bank employees have indicated

their appraisal practice to be highly ‘participatory’ in its approach. In private sector bank,

employees’ pay and perks are performance based and tied with performance appraisal

system; differential wage structure enhances appraisal satisfaction for private bank

employees as they feel that one’s efforts and abilities are recognized, evaluated, valued,

and aptly rewarded (Miceli, Jung, Near and Greenberger 1991). Furthermore, transparent

and innovative online appraisal mechanism at private sector bank may account for greater

satisfaction as it lends certain control to the employees and generates feedback at regular

intervals. Also, the bank conducts time to time employee attitude surveys which may be



helpful in escalating employees’ satisfaction level, as it gives them the feeling that their

views are valued.

Conclusion and implications

The two banks differ from each other with respect to perception of performance appraisal

fairness. Seven out of nine appraisal fairness factors emerged as important differentiators;

it was found that private sector bank employees perceive appraisal factors setting

performance expectations, rater’s confidence, clarifying expectations, accuracy of rating,

providing feedback, explaining rating decisions, and seeking appeal to be fairer as

compared to public sector bank employees. The private bank employees are more satisfied

with their appraisal system as compared to the public sector bank employees.

Drawing from the above findings, it is suggested that there is an urgent need to

redesign the appraisal system in public sector bank. Changes in design/appraisal format

such as introduction of 360-degree feedback, BSC, or online appraisal can be given a

thought. More importantly, implementation of appraisal should be improved.

Improvements can be brought about by providing training to the raters regarding

conductance of fair appraisal by making them realize the importance of setting clear-cut

goals, giving accurate ratings, and providing clear and constructive feedback to the ratees.

Furthermore, public sector bank should try to build up strong appeal system to bring in

more transparency. The main purpose of appraisal should go beyond ‘measurement’ and

should be oriented towards ‘developing and motivating employees.’ Performance

appraisal should be better used as a need-assessment tool that may identify the

developmental needs of employees and may channelize organizations’ and employees’

energy toward achieving them. Furthermore, appraisal should not be taken lightly as it can

be used as a strategic tool that integrates individual goals with that of organizations’. Also,

it is recommended that the bank should employ a systematic approach to routinely collect

employee reaction data post appraisal. Private sector bank may also bring in more fairness

by training its raters to minimize appraisal-related politics. Furthermore, post-appraisal

counseling sessions may be introduced to attenuate appraisal-related anxieties of the

employees.

Regarding limitations of this study, the data collection was restricted to two banks. It is

suggested that in order to generalize the findings to the banking industry in India, the study

should be expanded to include other private and public sector banks along with foreign and

cooperative banks.

Acknowledgement

The authors thank Prof. Meenakshi Gupta for her suggestions which have enriched this work.

References

Adams, J.S. (1963), ‘Toward an Understanding of Inequity,’ Journal of Abnormal and SocialPsychology, 67, 422–436.

Agrawal, M., and Gupta, S. (2007), ‘Effects of Perceived Procedural Fairness of OrganizationalHuman Resource Practices on the Relationship Between Facets of the Performance AppraisalSystem and its Effectiveness,’ Indian Journal of Training and Development, 37, 2, 53–67.

Alexander, S., and Ruderman, M. (1987), ‘The Role of Procedural and Distributive Justice inOrganizational Behavior,’ Social Justice Research, 1, 177–198.

Bajpai, N., and Srivastava, D. (2004), ‘Sectorial Comparison of Factors Influencing Job Satisfactionin Indian Banking Sector,’ Singapore Management Review, 26, 2, 89–99.

Bernardin, H.J., and Beatty, R.W. (1984), Performance Appraisal, Boston, MA: Kent Publishing.



Bies, R.J., and Shapiro, D.L. (1987), ‘Interaction Fairness Judgments: The Influence of CausalAccounts,’ Social Justice Research, 1, 199–218.

Bretz, R.D., Milkovich, G.T., and Read, W. (1992), ‘The Current State of Performance AppraisalResearch and Practice: Concerns, Directions, and Implications,’ Journal of Management, 18, 2,321–352.

Byrne, Z.S., and Cropanzano, R. (2001), ‘History of Organizational Justice: The Founders Speak,’in Justice in the Workplace: From Theory to Practice, ed. R. Cropanzano, Mahwah, NJ:Lawrence Erlbaum Associates, Inc., pp. 3–26.

Cardy, R.L., and Dobbins, G.H. (1994), Performance Appraisal: Alternative Perspectives,Cincinnati, OH: South-Western.

Cascio, W.F., and Bernardin, H.J. (1981), ‘Implication of Performance Appraisal Litigation forPersonnel Decisions,’ Personnel Psychology, 34, 2, 211–226.

Church, A.H. (1985), ‘From Both Sides Now, Performance Appraisals: Political Tools or EffectiveMeasures?’ The Industrial Organizational Psychologist, 33, 57–64.

Cook, J., and Crossman, A. (2004), ‘Satisfaction with Performance Appraisal Systems: A Study ofRole Perceptions,’ Journal of Managerial Psychology, 19, 5, 526–541.

Edwards, M.R. (1983), ‘Productivity Improvement Through Innovations in Performance Appraisal,’Public Personnel Management, 12, 1, 13–24.

Fried, Y., and Tiegs, R.B. (1995), ‘Supervisor’s Role Conflict and Role Ambiguity DifferentialRelations with Performance Ratings of Subordinates and the Moderating Effect of screeningAbility,’ Journal of Applied Psychology, 80, 282–291.

Gopalan, S., and Rivera, J.B. (1997), ‘Gaining Perspective on Indian Value Orientations:Implications for Expatriate Managers,’ International Journal of Organizational Analysis, 5, 2,156–179.

Greenberg, J. (1986), ‘Determinants of Perceived Fairness in Performance Evaluation,’ Journal ofApplied Psychology, 71, 340–342.

Greenberg, J. (1993), ‘The Social Side of Fairness: Interpersonal and Informational Classes ofOrganizational Justice,’ in Justice in the Workplace: Approaching Fairness in Human ResourceManagement, ed. R. Cropanzano, Hillsdale, NJ: Lawrence Erlbaum Associates, pp. 79–103.

Greenberg, J., and Baron, R.A. (1995), Behaviour in Organizations (5th ed), Englewood Cliffs, NJ:Prentice-Hall, Inc.

Jawahar, I.M. (2006), ‘An Investigation of Potential Consequences of Satisfaction with AppraisalFeedback,’ Journal of Leadership and Organizational Studies, 13, 2, 14–28.

Jawahar, I.M. (2007), ‘The Influence of Perception of Fairness on Performance AppraisalReactions,’ Journal of Labor Research, 28, 735–754.

Juneja, R., Shankar, A., and Bhattacharya, B. (2007), ‘Performance Appraisal Systems in IndianBanks,’ Bank Quest, 78, 1, 37–42.

Keeping, L.M., and Levy, P.E. (2000), ‘Performance Appraisal Reactions: Measurement, Modeling,and Method Bias,’ Journal of Applied Psychology, 85, 5, 708–723.

Kovach, K.A. (1980), ‘Why Motivational Theories Don’t Work,’ SAM Advanced ManagementJournal, 45, 2, 54–59.

Kumar, S. (2005), ‘A Comparative Study of Role Clarity and Work Locus of Control in Banks,’Bombay Psychologist, 20, 14–19.

Kumar, S., and Sreeramulu, M. (2007), ‘Employees’ Productivity and Cost: A Comparative Study ofBanks in India During 1997 to 2006,’ Reserve Bank of India Occasional Papers, 28, 3, 35–50.

Latham, G.P., and Locke, E.A. (1988), ‘Goal Setting: A Motivational Technique that Works,’Academy of Management Review, 13, 4, 68–80.

Leventhal, G.S. (1980), ‘What Should Be DoneWith Equity Theory?’ in Social Exchange: AdvancesIn Theory And Research, eds. K.J. Gergen and M.S. Greenberg, R.H. Willis, New York: Plenum,pp. 27–55.

Lind, E.A., and Tyler, T.R. (1988), The Social Psychology of Procedural Justice, New York:Plenum.

London, M., and Smither, J.W. (2002), ‘Feedback Orientation Feedback Culture, and theLongitudinal Performance Management Process,’ Human Resource Management Review, 12,81–100.

Longenecker, C.O., Gioria, D.A., and Sims, H.P. (1987), ‘Behind the Mask: The Politics ofEmployee Performance Appraisal,’ Academy of Management Executive, 1, 183–193.



McConkie, M.L. (1979), ‘A Clarification of the Goal Setting and Appraisal Process in MBO,’Academy of Management Review, 4, 29–40.

McFarlin, D.B., and Sweeney, P.D. (1992), ‘Distributive and Procedural Justice as Predictorsof Satisfaction with Personal and Organizational Outcomes,’ Academy of Management Journal,35, 3, 626–637.

McKinsey & Company (2007), ‘Indian Banking: Towards Best Global Practices – Insights fromIndustry Benchmarking Survey,’ http://www.mckinsey.com//locations/india/mckinseyonindia/pdf/India_Banking_Overview.pdf (retrieved 14 February 2009).

Miceli, M.P., Jung, I., Near, J.P., and Greenberger, D.B. (1991), ‘Predictors and Outcomes ofReactions to Pay-for-performance Plans,’ Journal of Applied Psychology, 76, 508–521.

Moorman, R.H., Niehoff, B.P., and Organ, D.W. (1993), ‘Treating Employees Fairly andOrganizational Citizenship Behaviour: Sorting the Effects of Job Satisfaction, OrganizationalCommitment and Procedural Justice,’ Employee Responsibilities and Rights Journal, 6, 3,209–225.

Murphy, K.R., and Cleveland, J.N. (1991), Performance Appraisal. An Organizational Perspective,Needham Heights, MA: Allyn and Bacon.

Pooyan, A., and Eberhardt, B.J. (1989), ‘Correlates of Performance Appraisal Satisfaction AmongSupervisory and Non-supervisory Employees,’ Journal of Business Research, 19, 215–226.

Rao, T.V. (2004), Performance Management and Appraisal Systems; HR Tools for Globalcompetitiveness, New Delhi: Response Books (A division of Sage Publications).

Roberts, G.E. (2003), ‘Employee Performance Appraisal System Participation: A Technique ThatWorks,’ Personnel Management, 32, 1, 89–98.

Sabharwal, S. (1995), Wages of Segmentation, New Delhi: Orient Longmans.Singh, D., and Kohli, G. (2006), ‘Evaluation of Private Sector Banks in India: A SWOT Analysis,’

Journal of Management Research, 6, 2, 84–101.Skarlicki, D.P., and Folger, R. (1997), ‘Retaliation in the Workplace: The Roles of Distributive,

Procedural and Interactional Justice,’ Journal of Applied Psychology, 82, 434–443.Smither, J.W. (1998), ‘Lessons Learned: Research Implications for Performance Appraisal and

Management,’ in Performance Appraisal, ed. J.W. Smither, San Francisco, CA: Jossey-Bass.Tang, T.L., and Sarsfield-Baldwin, L.J. (1996), ‘Distributive and Procedural Justice: As Related to

Satisfaction and Commitment,’ SAM Advanced Management Journal, 61, 25–31.Taylor, M.S., Tracy, K.B., Renard, M.K., Harrison, J.K., and Carrol, S. (1995), ‘Due Process in

Performance Appraisal: A Quasi-Experiment in Procedural Justice,’ Administrative ScienceQuarterly, 40, 495–523.

Thurston, P.W. Jr. (2001), ‘Clarifying the structure of justice using fairness perceptions ofPerformance Appraisal practices,’ unpublished Ph.D. dissertation, Albany, NY.

Varkhey, B. (1994), ‘Human Resource Management Policies and Practices in a Critical Study ofNationalized Banks,’ unpublished Ph.D. dissertation NIBM, Pune, India.

Walsh, M.B. (2003), ‘Perceived Fairness of and Satisfaction with Employee PerformanceAppraisal,’ unpublished Ph.D. dissertation, Louisiana State University.

Wood, R.A., and Locke, E.A (1990), ‘Goal Setting and Strategy Effects on Complex Tasks,’in Research in Organizational Behavior (Vol. 12), eds. B.M. Staw and L.L. Cummings,Greenwich, CT: Jai Press, pp. 73–110.

