Role of Performance Management

BSMH 5043

PERFORMANCE MANAGEMENT

LITERATURE REVIEW

Retention & Turnover: The Role of Performance Management

(1990 - 2013)

By;813315 - KOK SAU YEE

813379 - SYAHRULNIZA ANAK LEMBANG814093 - NOR LIYANA BINTI MOHD KHALIL

814284 - PRIDHIVRAJ NAIDU

Introduction the problem

• The issues of turnover and staff retention have continued to plague organizations in Malaysia.

• Annual surveys report that the annual labour turnover rates for 2003 and 2004 were high, approximately 17% and 16%.

(Malaysian Employers Federation, 2004 & 2005)

• Survey reports that Malaysian respondents are only willing to stay with their current organizations for less than three years.

(Lim, 2001)

Introduction Arguments

• HRM infrastructures, as a technique techniques to enhance employeeattachment towards their organization.

• Can be achieved through the enhancement of organizational

commitment and organizational citizenship behaviors (OCB)

(Allen & Meyer, 1990 and Organ, 1990)

• Organizational citizenship behavior, a form of extra role behavior and reciprocation of fair treatment by employees

(Colye-Shapiro, Kessler & Purcell, 2004)

Introduction Research Idea

Greater use of high commitment HR practices is likely to have two broad effects

• First, high involvement in our high commitment to work practices enhances employee retention

(Arthur, 1994; Huselid, 1995; Shaw, Delery, Jenkins, & Gupta, 1998)

• Second, greater use of these practices may increase

firms’ exposure to distributions associated with the loss of employees

(Guthrie, 2001)

• As commitment develops after an employee has experienced the satisfaction of his needs, companies should control and manage the experiences they provide to their workers so the desired commitment will develop.

(Meyer & Allen, 1991)

• If employees feel that the company is not committed to them, this may result in disaffection, and intent to leave

(Meyer & Allen, 1997)

Research Framework

PERFORMANCE MANAGEMENT

• The dominant approach used in testing the link between HRM and performance has considered HRM as an ideal set of practices.

(Delaney & Huselid, 1996; Huselid, 1995),

• High commitment practices increase organizational commitment by creating conditions where employees become highly involved in the organization and work hard to accomplish its goals

(Arthur, 1994; Youndt, 2000).

• This leads to lower turnover and higher productivity.

TRAINING

• Training has been an important factor in influencing performance management in the organization

(Schuler, 1995)

• Firms can use strategic HR practices to provide employees with the skills, resources, and discretion that they need to develop knowledge management

(Ubeda-garc,2012)• Training: well-trained and flexible workforce

(Bollinger and Smith, 2001)

• HR practices: those that improve skills, and those that enhance motivation

(Huselid,1995)

• With high commitment HR systems there is a strong correlation between employee retention and productivity

(Arthur, 1994)

TRAINING & PERFORMANCE MANAGEMENT

• The strong association between the commitment of an individual to an organization’s aims and the type and quality of HRM practices employed by that organization, can be explained by the theory of social exchange

(Witt, Kacmar & Andrews, 2000)

• Mutually beneficial for employee and company, as it improves the strength of the organization and retains key talent.

(Huselid, 1995)

• Training with market share and organizational performance

(Thang and Quang, 2005)

• Effect of training on productivity(Bartel 1994)

• Training activities and improvement in employee productivity, firm profitability and shareholder value

(Russell, Terborg and Powers 1985)


• In human capital theory, training can be classified into general training and specific training

(Becker, 1962)• If general and specific training differ in their effects,

there are implications for the productivity changes of training

(Barrett and O'Connell, 2001)• Training is to become part of the psychological contract

pg5(Rousseau, 2003)

• In the absence of employment security, the ability of employees to gain the skills and competencies needed to find a new job may serve as a basis for commitment.

(Benson 2006)• Training may lead to higher organizational

performance, as measured by indicators such as profits (Ellinger, Ellinger, Yang and Howton 2002)

• Employees armed with many general skills may not be able to find new jobs, but they are still able to use those skills to do their present jobs more effectively

(Acemoglu and Pischke 1999)


• The Early economic theoryTraining would make organizations less productive

and less profitable because it allowed employees to be choose their jobs, potentially leaving the

organization for competitors

(Guthrie 2001)• organizations would not invest in training programs

because future returns to the organization seldom offset the costs

(Acemoglu and Pischke 1999)• Reduce turnover

(Huselid, 1995)• particularly those that are general versus firm specific

—may actually increase turnover (Benson, Finegold, & Mohrman, 2004; Haines et al., 2010)

H1: There is significant influence between training and performance management when the training is

firm specific, in turn effecting retention and turnover

Employee Engagement

• “The challenge today is not just retaining talented people, but fully engaging them, capturing their minds and hearts at each stage of their work lives.”

• Employee engagement has emerged as a critical driver of business success in today’s competitive marketplace.

• Define employee engagement as “a positive attitude held by the employee towards the organization and its value.

(Robinson et al., 2004)

• The organization must work to develop and nurture engagement, which requires a two-way relationship between employer and employee.”

Employee Engagement

• Over many years, studies have shown that engagement is positively correlated with organizational performance (Harter, Schmidt, Killham, & Asplund; Towers Perrin-ISR,

2006).

• Organizations have been focusing their attention on performance management as a way to improve organizational performance and productivity

(Boxall & Purcell, 2003; Buchner, 2007).

• In fact, employee engagement has been a popular topic in organizations because it has been shown to bring benefits and competitive advantages to organizations.

• Assert that if PM systems are designed to promote employee engagement, it may lead to higher levels of performance

(Mone and London, 2010)

Employee Engagement

• There is a connection between employee engagement and business results; a meta-analysis conducted by Harter et al (2002:272) confirms this connection.

• They concluded that, “…employee satisfaction and engagement are related to meaningful business outcomes at a magnitude that is important to many organizations”.

• Proposed that high levels of engagement lead to both positive outcomes for individuals, as well as positive organizational-level outcomes.

(Kahn, 1992)

• Employee engagement can be achieved through the creation of an organizational environment where positive emotions such as involvement and pride are encouraged, resulting in improved organizational performance, lower employee turnover

(Robinson, 2006) .

Employee Engagement

• If employee engagement is not assessed and addressed as soon as possible, disengaged employees will multiply and negative employee satisfaction issues can result in higher employee turnover.

• Therefore, employee engagement is critical to any organization that seeks to retain valued employees.

• Fully engaged workers are those who are physically energized, emotionally connected, mentally focused, and feel aligned with the purpose of the agency

(Loehr & Schwartz, 2003).

• High levels of satisfaction and employee engagement were positively correlated with organization profitability, productivity and outcomes where employee engagement boasted lower turnover percentage rates.

Employee Engagement

• Suggest that “performance management, effectively

applied, will help you to create and sustain high levels

of employee engagement, which leads to higher levels

of performance”.

(Mone and London, 2010)

• organizations that hope to achieve a competitive

advantage through employee engagement will be most

successful by incorporating and including employee

engagement in the performance management process.

Employee Engagement

• Engaged employee consistently demonstrates three general behaviors’ which improve organizational performance:

1. Say - the employee advocates for the organization to co-workers, and refers potential employees and customers.

2. Stay - the employee has an intense desire to be a member of the organization despite opportunities to work elsewhere.

3. Strive - the employee exerts extra time, effort and initiative to contribute to the success of the business

(Baumruk and Gorman, 2006)

H2: There is significant influence between employee engagement and performance

management system

Organizational Culture

• Organizational culture has been defined as patterns of shared values and beliefs over time which produces behavioral norms that are adopted in solving problem

(Owens, 1987)

• Organizational culture has the potential to enhance organizational performance, employee job satisfaction, and the sense of certainty about problem solving

(Kotter, 2012)

• Believe that research on culture will contribute to the understanding of performance management.

(Murphy and Cleveland, 1995)

• also argues that organizational culture influence directly the performance

(Maria, 2011)


• In order for an organization to be successful long-term culture should be managed effectively

(Altman, 1992)

• Proper understanding of organizational culture sholud leads towards improvement of employees performance.

• The key to good performance is a strong culture.(Kandula, 2006)

• A positive and strong culture can reduce the employee turnover and can make an average individual perform achieve brilliantly.


The effects of organizational culture on employee behavior and performance based on four ideas:

Allows employees to understand history and current methods.

Foster to the organizational philosophy and values. Control mechanism to channel behaviors toward

desired behaviors. Certain types related directly to greater effectiveness

and productivity than others. (Potter, 2012)


• Organizations and managers are willing to get employees commitment, need to introduce the organizational culture.

• It is the responsibility of the management to introduce organizational culture that will assists the employees to get familiar with the system in the organizations.

H3: There is significant influence between Organizational Culture and performance

management, in turn effecting retention and turnover

Reward

Reward refers to material and psychological payoffs given to an employee as recognition for good contribution and for performing tasks well in the workplace.

(Okioga, 2012)

Reward is something that the organization gives to the employees in response of their contributions and performance and also something which is desired by the employees.

(Shoaib, Noor, Tirmizi and Bashir, 2009)

Reward is the thing that an organization gives to the employee in response of their contribution or performance so that the employees become motivated for future positive behaviour.

(William and Livingstone, 1994)

Rewardand Performance Management

There are positive relationship between rewards and employee performance.

(Hafiza, Shah, Jamsheed & Zaman, 2011)

There are significant relationship between reward and workers performance.

(Ajila and Abiola, 2004)

On their research found that there the statistical analysis for the relationship between rewarding elements and employees performance.

(Gohari, Ahmadloo, Boroujeni and Hosseinipour, 2013)

Reward

• Pay is a significant factor which affects employee

motivation to encourage them doing well on their job.

• Reward for high performance has a positive influence

on performance pressure and, as a result, influences

intrinsic interest and creativity to organizations.

• Reward as the recognition to employee, so employee

will do a better performance.

Rewardand Turnover

• Develop reward systems that retained the best performers and caused poor performers to leave, the overall effectiveness of an organization would improve.

• Making reward contingent on performance would give a stronger negative relationship between performance and voluntary turnover.

(William and Livingstone, 1994)

• The most common reason for employee turnover rate being so high is the salary scale because employees are usually in search of jobs that pay well.

• Low pay is good reason as to why an employee may be lacking in performance.

Reward andRetention

• The reward system should be aligned to motivate employee performance that is consistent with the firm’s strategy, attract and retain people with the knowledge, skills and abilities required to realize the firm’s strategic goal, and create a supportive culture and structure.

(Popescu, 2011)

• A reward system is based on merit which is should encourage most of the better performers to remain with the organization.

• Rewards correlates positively with employee retention which means higher the rewards in the organization higher will be the employee retention.

(Shoaib, Noor, Tirmizi and Bashir, 2009)

H4: There are significant relationships between rewards and performance which in turn affects the

employee retention and turnover.

Turnover

The relationship between performance and voluntary turnover has produced equivocal results:

• Positive - (Griffeth & Hom 1988), • Negative - (Dreher, 1982)• Curvilinear - (Jacofsky, Ferris and Breckenridge, 1986)

• Human Capital Theory, predicting losses in performance as turnover

erodes firm- specific human capital, with cost-benefit approaches predicting an optimal level of turnover maximizing the difference between its benefits and costs

(Dess and Shaw, 2001)

• A particular benefit of turnover is replacement of poorly performing workers

Turnover and Performance Management

• When ‘good’ performers leave an organization, their replacement is likely to be of lower caliber, while the ‘poor’ performing employee is apt to be replaced by an individual of higher quality.

(Johnson, Griffeth and Griffin, 2000)

• HRM practices explain that low turnover rates are associated with employers’ practices of including

- employee participation (Employee Engagement)- effectively developing staff (Training)- concrete statement of employment conditions (Org. Culture)

• Recent studies show that organizations that experience low rates of turnover incorporate practices such as giving employees the opportunity to participation in more ways than providing labour.

(Fernie & Metcalf, 1996)

H5: Good HRM practices in the organization increases performance management and in return

reduces turnover.

Retention

• Retention as the result of the implementation of policies and processes, provision of a work environment that meets their needs

(Baer, Fagin, & Gordon, 1996).

• Employees’ knowledge and skills are central to a company’s ability to be economically competitive

(Kyndt, et al., 2000)

• Periodic labour shortages reduce high-performing employees.

(Jones & Skarlicki, 2000)

• Organizations have to tolerate the cost of hiring, and the cost of losing, their employees;

• Therefore, organizations try to keep their existing staff. • In fact, this retention of employees and their

appreciated skills helps the organizations to preserve their investment of employee training, which causes lower loss of human capital and yields higher retention

(Lockwood and Ansari, 1999)

Retention

• Increased competitiveness on a global scale, human resource departments in many

organizations are experiencing greater pressure from top management to improve

recruitment, selection, training, and retention of good employees

(Guimaraes, 1995)

• Researcher observed that organizational culture is managed partly through human resource management practices such as selection, development and reward, and employee retention

(Khatri, 1999)

H6: Good HRM practices in the organization increases performance management and in return

Increases retention.

Suggestion

• Organizations should develop human resource policies and strategies, including selection and recruitment, training and development, and performance management, that reflect their beliefs and principles as well as maintaining acceptable relationships between management and employees.

(Delery & Doty, 1996; Jackson & Schuler, 1995)

• Retention strategies: Consider the labour market and evaluates employee

differences, Job redesign, new compensation plans, job customization, social ties, hiring of employees who do not intend to quit, Offering potential defectors existing, internal job opportunities.

(Capelli, 1997)

Suggestion

• Study participants felt that a salary increase would show that they were appreciated,

• and differentiated from lazy workers. It would motivate them to continue their efforts to reach personal and professional goals

(Li‐Ping Tang, Kim, & Shin‐Hsiung Tang, 2000)

Conclusion

• Some researchers have found that high-involvement HRM practices, such as regular appraisals, bonus and compensation schemes, training and development opportunities, and regular constructive feedback, can significantly enhance the organization commitment of employees

(Iverson & Buttigieg, 1999; Meyer & Smith, 2000).

• They have also been identified as one of the strongest inducers of affective commitment when compared with other types of organizational influences

(Iverson & Buttigieg, 1999; Meyer & Allen, 1997)

Based on the arguments above, - Human Resource functions- Well implemented- Managed and well planned- Reduces turnover and increases retention of employee

Retention & Turnover: The Role of Performance Management(1990 - 2013)

THANK YOU

813315 – KOK SAU YEE813379 - SYAHRULNIZA ANAK LEMBANG814093 - NOR LIYANA BINTI MOHD KHALIL 814284 - PRIDHIVRAJ NAIDU

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Role of Performance Management