Solutions to enhance performance appraisal effectiveness at joint stock commercial bank for investment and development of vietnam sogiaodich 1 branch

ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------

ĐỖ THỊ BÍCH NGỌC

SOLUTIONS TO ENHANCE PERFORMANCE APPRAISAL
EFFECTIVENESS AT JOINT STOCK COMMERCIAL BANK
FOR INVESTMENT AND DEVELOPMENT OF VIETNAMSOGIAODICH 1 BRANCH
MỘT SỐ GIẢI PHÁP NÂNG CAO HIỆU QUẢ CỦA HOẠT
ĐỘNG ĐÁNH GIÁ THÀNH TÍCH NGÂN HÀNG TMCP ĐẦU TƯ
VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2020


ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------

ĐỖ THỊ BÍCH NGỌC

SOLUTIONS TO ENHANCE PERFORMANCE APPRAISAL
EFFECTIVENESS AT JOINT STOCK COMMERCIAL BANK
FOR INVESTMENT AND DEVELOPMENT OF VIETNAMSOGIAODICH 1 BRANCH
MỘT SỐ GIẢI PHÁP NÂNG CAO HIỆU QUẢ CỦA HOẠT
ĐỘNG ĐÁNH GIÁ THÀNH TÍCH NGÂN HÀNG TMCP ĐẦU TƯ
VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

Chuyên ngành: Quản trị kinh doanh
Mã số: 60 34 01 02
LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS. LÊ ANH TUẤN

HÀ NỘI - 2020


DECLARATION
The author confirms that the research outcome in the thesis is the result of
author‘s independent work during study and research period and it is not yet
published in other‘s research and article.
The other‘s research result and documentation (extraction, table, figure,
formula, and other document) used in the thesis are cited properly and the
permission (if required) is given.
The author is responsible in front of the Thesis Assessment Committee,
Hanoi School of Business and Management, and the laws for above-mentioned
declaration.
Date…………………………..

i


TABLE OF CONTENTS
DECLARATION........................................................................................................i
TABLE OF CONTENTS.......................................................................................... ii
LIST OF TABLE...................................................................................................... vi
LIST OF FIGURES.................................................................................................vii
INTRODUCTION.....................................................................................................1

CHAPTER 1.............................................................................................................. 7
LITERATURE

REVIEW

AND

THEORETICAL

BACKGROUND

ON

PERFORMANCE APPRAISAL...............................................................................7
1.1. Definition of key terms...................................................................................7
1.2. Purposes of performance appraisal.................................................................8
1.3. Benefit of performance appraisal.................................................................. 11
1.4. Method of performance appraisal................................................................. 13
1.4.1 Behavior Anchored Rating Scales (BARS)............................................. 13
1.4.2. Trait Scales............................................................................................. 13
1.4.3 Management by Objectives (MBO)........................................................ 14
1.4.4. Essay Method......................................................................................... 14
1.4.5. Ranking.................................................................................................. 14
1.4.6. Paired Comparisons............................................................................... 14
1.4.7. Forced Distribution................................................................................ 15
1.5. Multi-source performance appraisal.............................................................. 15
1.5.1. Self appraisal.......................................................................................... 15
1.5.2. Peer appraisal......................................................................................... 16
1.5.3. Subordinate appraisal............................................................................. 17
1.6. Bias in performance appraisal....................................................................... 18

1.6.1. Rater and ratees personal characteristics................................................ 19
1.6.2. Other rater biases in performance appraisal........................................... 24
1.6.3. Bias Effects on PA.................................................................................. 29
1.7. Uses of Performance Appraisal..................................................................... 30
ii


1.7.1. Linking performance appraisal with pay................................................ 30
1.7.2. Linking performance appraisal with career development.......................31
1.8. Factors determining PA effectiveness............................................................ 35
1.8.1. Performance appraisal objective............................................................ 35
1.8.2. Performance criteria............................................................................... 37
1.8.3. Period of PA........................................................................................... 38
1.8.4. Fairness in P.A....................................................................................... 39
1.8.5. Linking PA to compensation and reward................................................ 40
1.8.6. Rater accuracy........................................................................................ 40
1.8.7. Performance Appraisal Feedback........................................................... 41
1.9. The analysis framework for the thesis........................................................... 44
CHAPTER

2:

ASSESSING

THE

SITUATION

OF

PERFORMANCE

APPRAISAL IN COMMERCIAL JOINT STOCK BANK FOR INVESTMENT
AND DEVELOPMENT OF VIETNAM – SOGIAODICH I BRANCH.................45
2.1. Introduction of the Commercial Joint Stock Bank for Investment and
Development of Vietnam, Sogiaodich 1 branch................................................... 45
2.1.1. BIDV - History and Development.......................................................... 45
2.1.2. BIDV‘s Organization Structure.............................................................. 48
2.1.3. BIDV‘s Main Business Lines................................................................. 51
2.2. Introduction about Sogiaodich 1 Branch....................................................... 52
2.2.1. History and development....................................................................... 52
2.2.2. Organizational Structure........................................................................ 53
2.2.3. Situation of Workforce in BIDV SGD1.................................................. 54
2.3. Human resource activities at BIDV SGD1.................................................... 56
2.3.1. Human resource planning...................................................................... 56
2.3.2. Employment recruiment......................................................................... 59
2.3.3. Training and developing human resources:............................................ 61
2.4. Status of performance appraisal at BIDV SGD1........................................... 62
2.4.1. Period of performance appraisal............................................................. 62
2.4.2. Performance criteria............................................................................... 63
iii


2.4.3. Uses of performance appraisal............................................................... 64
2.5. Survey results................................................................................................ 66
2.5.1. Demographic characteristics of sample.................................................. 66
2.5 Achievements and drawbacks of current P.A system at BIDV SGD 1...........75
2.5.1. Achievement.......................................................................................... 75
2.5.2. Drawbacks............................................................................................. 76
CHAPTER 3: PROPOSAL ON SOLUTIONS TO ENHANCE PERFORMANCE

APPRAISAL AT COMMERCIAL JOINT STOCK BANK FOR INVESTMENT
AND DEVELOPMENT OF VIETNAM – SOGIAODICH I BRANCH.................78
3.1. Strategic orientation of BIDV....................................................................... 78
3.2. New challenges for HRM at BIDV............................................................... 79
3.2.1. Higher demand for quality of human resources..................................... 79
3.2.2. Change in corporate cultural values....................................................... 80
3.2.3. Change in workers' perceptions.............................................................. 81
3.2.4. Training and career development activities are changing.......................82
2.3.5. Higher complexity of Compensation and Benefit system......................83
3.3. Requirement for performance appraisal at BIDV and SGD1........................84
3.4. Solutions to improve Performance Appraisal Effectivenes at BIDV SGD1. .85
3.4.1. Raising awareness on job performance evaluation.................................85
3.4.2. Perform job analysis to standardize job titles......................................... 85
3.4.3. Determine the evaluation objectives...................................................... 88
3.4.4. Clarify performance criteria................................................................... 89
3.4.5. Adjustment of PA cycle.......................................................................... 91
3.4.6. Selection and training of raters............................................................... 92
3.4.7. Building effective PA feedback channels............................................... 93
3.5. Some recommendations................................................................................ 93
3.5.1. Paying attention to developing human resources of the banking industry
......................................................................................................................... 93
3.5.2. Recommendations on Policies for training human resources in the
banking and finance industry in general and BIDV in particular.....................94
CONCLUSION....................................................................................................... 95
iv


REFERENCE.......................................................................................................... 97
APPENDIX

v


LIST OF TABLE
Table 2.1: Workforce at BIDV SGD1...................................................................... 54
Table 2.2: Workforce in BIDV SGD1 by gender.................................................... 55
Table 2.3: Workforce in BIDV SGD1 by age group................................................ 55
Table: 2.4: Workforce by education level................................................................ 56
Table 2.5: Gender survey result............................................................................... 67
Table 2.6: Ages survey result................................................................................... 67
Table 2.7: Working experience survey result........................................................... 68
Table 2.8: Working position survey result............................................................... 68
Table 2.9: Educational background survey result.................................................... 69
Table 2.10: Understanding about the purposes of PA.............................................. 69
Table 2.11: Perception about the period of PA........................................................ 70
Table 2.12: Perception about evaluation criteria...................................................... 71
Table 2.13: Fairness in performance appraisal........................................................ 72
Table 2.14: Raters knowledge and skills in performance appraisal.........................73
Table 2.15: Perception about the use of PA............................................................. 74
Table 2.16: Perception about PA feedback.............................................................. 75

vi


LIST OF FIGURES
Figure 1.1: Analysis Framework............................................................................. 44
Figure 2-1: BIDV‘s Organizational Structure......................................................... 49
Figure 2-2: BIDV‘s Governance Structure.............................................................. 51

vii

INTRODUCTION
1. Research Rationale
The success of every organization, public or private, depends largely on the
availability and quality of well-motivated human resource. Organizations are now
more focused on the need to get more from their employees if they are to achieve
organizational objectives. Financial motivation and other forms of motivation in the
form of rewards and recognitions are used by organizations to achieve higher
productivity. Most companies are able to meet set targets or even exceed because
they have attractive reward and recognition systems for employees (Maund, 2001).
Performance appraisal systems began as simple methods of income
justification. That is, appraisal was used to decide whether or not the salary or wage
of an individual employee was justified (Armstrong, 1988). The process was linked
to outcomes. If an employee's performance was found to be less than ideal, a cut in
pay would follow. If their performance was better than the supervisor expected, a
pay rise was in order. Performance appraisal results are used either directly or
indirectly to help determine reward outcomes. That is, the appraisal results are used
to identify the best performing employees who should get the majority of available
merit, pay increases, bonuses, and promotions. Also, appraisal results are used to
identify the poorer performers who need training demoted or dismissed. Accurate
appraisals are crucial for the evaluation of recruitment, selection, and training
procedures that lead to improved performance. Appraisal can determine training
needs and occasionally, counselling needs. It can also increase employee motivation
through the feedback process and may provide an evaluation of working conditions,
thus, improving employee productivity, by encouraging the strong areas and
modifying the weak ones. When effective, the appraisal process reinforces the
individual‘s sense of personal worth and assists in developing his/her aspirations.
Performance appraisal is good because it makes employees to work hard and
fulfill their responsibilities hence, contribute to the overall performance of the

organisation. But, unless performance appraisal is performed effectively, it may not

1


help the organization to achieve the objectives of conducting it in the first place that
is, to improve organisational performance.
For a long time, BIDV were operating in the traditional public administration
system using more subjective forms of evaluation. This system was inherited by
many institutions since the beginning of the economic revolution of Vietnam. Some
research has indicated that these three organizations in Vietnam faced a number of
challenges in relation to their performance management systems. These included
poor links between performance results and rewards, perception of unfairness,
confrontation with senior employees and resistance of line supervisors (Stanton and
Pham, 2014). Perceptions of employees about the targets, outcomes, and uses of
performance appraisal results could be also a reason causing the ineffectiveness of a
performance appraisal system. For example, if the employees perceive the
performance appraisal as a risk of being overobserved by their supervisors, they
would be unsatisfied and reluctant with participating in the performance appraisal
process (Boachie-Mensah & Seidu, 2012). The thesis, therefore, investigate the
employees perception towards performance appraisal at Transaction Center 1
(SGD1), Bank for Investment and Development of Vietnam (BIDV).
2. Review of previous research
Research article "Evaluation of work performance at the enterprise Vietnam" by Dr.
Le Trung Thanh published in Economic and Development Journal, No. 163,
January 2011. The article has recompiled five evaluation stages perform work, start
from agreeing on objectives, monitoring public performance work, guidance and
assistance, provide feedback and evaluation at the end of the year. The effective use
of assessment of job performance is also mentioned. In addition to paying
remuneration, the results of the performance evaluation are used in human resource

management practices such as: training and development, transfer and relocate
personnel, promote and replace personnel.
Besides, the article also mentions the necessary work that the manager human
resources needed to apply this system successfully at businesses in Vietnam.

2


Doctoral thesis of PhD student Hoang Minh Quang belongs to the school Da
Nang University in 2012 with the theme: "Evaluating staff achievements at Asian
joint-stock commercial bank ‖, has shown the drawbacks in evaluation method,
selection of assessment objects, methods of evaluation. The practice has not yet
created a link between results and compensation, thus hindering the main efficiency
and working ability of workers.
The dissertation of Nguyen Dinh Xuan (2015) mentions the topic "Assessing
the performance of employees at the Dac Lak State Treasury", analyzing the current
situation of personnel assessment at this unit and giving some solutions such as:
improving the criteria for evaluating achievements, improving the assessment
method, determining the period of periodic assessment...
Author Le Thi Le Thanh (2012) in the thesis with the title "Completing the
evaluation of staff performance at Central Hydropower Joint Stock Company‖ also
systematized the theoretical basis of staff performance assessment and analysis of
the elements of the staff evaluation system such as evaluation criteria, evaluation
methods, evaluation objectives. On the basis of assessing the situation, the author
offers a number of solutions such as building culture to evaluate achievements,
improve assessment skills, conduct job analysis.
Phan Quang Quoc (2012) has carried out the thesis "Evaluating staff performance at
Quang Nam Rubber One-member Co., Ltd." to point out the remaining problems in the
staff evaluation system at this unit and propose some solutions to complete this work such
as perfect assessment methods, identify suitable audiences, etc.

It can be seen that the above works approach assessment activities in a
number of different contents such as standards, methods, implementation processes
with practical inheritance values. However, no studies have investigated the
evaluation of employee performance at a specific bank like BIDV. Therefore, the
author stated that there is gap for this research topic.
3. Research Objective

3


The main objective of the study is to propose solutions for improving the
effectiveness and eficiency of performance appraisal systems at BIDV SGD1
Branch.
The particular objectives:
-

Review of literarure on performance appraisal.

-

Systematize the basic theories of performance appraisal.

-

Survey and analyze the status of performance appraisal of staffs at BIDV
SGD1 and propose several solutions to improve the effectiveness of the
performance appraisal system at BIDV SGD1.

4. Objects of research

Object of the research is effectiveness of performance appraisal systems at
BIDV SGD1.
5. Scope of research
- Scope of content: effectiveness of performance appraisal systems at BIDV

SGD1.
- Scope of space: at BIDV SGD1.
- Scope of time: Data has been collected during 2019, solutions are valid until

2022.
6. Research Method
* Secondary Data Collection: Secondary data will be collected through the

Human Resources Department of BIDV SGD1. In addition, the thesis will use some
documents as well as information about organizational commitment from books,
dissertations, magazines and the internet.
* Primary data collection: Primary data collection methods are surveys, personal

interviews, observations. In addition, synthetic analytical methods was applied.

The questionnaire survey is the most important method in the study, which is
described in detail as follows:
Sampling:

4


 Sample size: According to EFA analysis, the minimum sample size is five

times as much as the total number of observation variables in all scales. The number
of observation variables, in this research, is 30 so the minimum sample size is 150.
On the other hand, according to Multivariate regression analysis, the
minimum sample size: n =50 + 8*m (m: independent variable). The number of
independent variables, in this research, is 4 so the minimum sample size is 82.
Therefore, in this research, the author chooses the sample size of 150. The
respondents will be chosen randomly.
 Sampling objects: The staffs at BIDV SGD1.

Design of questionnaires: Questionnaires are designed to be in line with the
objectives of the thesis and theoretical framework in a clear and concise manner. To
ensure accuracy, the questionnaire will be designed according to the following
process:
 Based on research objectives and frameworks to identify the information

needed: factors, variables and metrics;
 Determine the type of question;
 Determine the content of each question;
 Determine the terms used for each question;
 Determine the logic of the questions;
 Draft questionnaire;
 Submit a questionnaire to the instructor;
 Instructors guide, review, and agree to conduct the investigation;
 Ruler: use Likert's measure of 5 levels from the least to the most.

Data analysis method
The dissertation uses qualitative method of data analysis.
* Quantitative methods
- Statistical aggregation: Collected data and information collected, selected and

statistical information needed.

5


- Comparison: After collecting and analyzing the necessary data, comparison will

be made over time.
- Processing survey data using SPSS software 18.0

7. Thesis structure
In addition to the introduction, conclusion, references, appendixes; the
content of the dissertation is divided into three chapters:
- Chapter 1: Theoretical background on performance appraisal.
- Chapter 2: Assessing the situation of performance appraisal in Joint Stock

Commercial Bank for Investment and Development of Vietnam – Sogiaodich1
Branch.
- Chapter 3: Proposal on solutions to enhance performance appraisal

effectiveness at Joint stock commercial Bank for Investment and Development of
Viet Nam – Sogiaodich1 Branch.

6


CHAPTER 1
LITERATURE REVIEW AND THEORETICAL BACKGROUND ON
PERFORMANCE APPRAISAL
1.1. Definition of key terms

Performance appraisal is one of the most important human resource practices
and is also one of the most heavily researched topics (Murphy and Cleveland, 1993;
Judge& Ferris, 1993). Performance appraisal can be defined as a formal meeting
between a supervisor and a subordinate, in a periodical basis (often annually), in
which the work performance of the subordinate is reviewed and examined in order
to identify strengths, weaknesses and opportunities for improvement and skill
development (Tran Xuan Cau, Mai Quoc Chanh, 2008).
Performance appraisal is a process of identifying, observing, measuring and
developing human performance in organisations and has attracted the attention of
both academicians and practitioners. The process is also viewed as making an
important contribution to effective human resource management as it is closely
interlinked to organisational performance (Nguyễn Hữu Thân, 2010).
Gupta (2006) defines performance appraisal as a process of assessing the
performance and progress of an employee or of a group of employees on a given job
and his potential for future development. He further argues that performance
appraisal consists of all formal procedures used in work organizations to evaluate
personalities, contributions and potentials of employees.
Although the use of performance appraisal was believed to begin from early
history in both Western and Eastern countries (Wren, 1994; Patten, 1977), its use in
industry was marked with Robert Owen‘s use of ―silent monitors‖ in the cotton
mills of Scotland (Wren, 1994). The formal use of performance appraisal originated
in the US since the early 19th century mainly for evaluative purpose and with the
use of global ratings, global essays or traits rating scales as tools (Devries et al.
1918). Management by objectives was first proposed by Peter Drucker in 1954 in
which performance appraisal focused more on feedback and developmental purpose
7


and involved the setting of performance goals jointly by employees and manager.
The goals will then be discussed and modified until they are accepted by all parties.

At the end of each period, the performance of employees is evaluated based on the
degree to which goals have been achieved. New goals for the next period will also
be set during the meeting between employees and their manager.
This research adopts Trần Kim Dung (2011), definition of performance
appraisal as ―a system that provides a formalized process to review the
performance of employees. Performance appraisal varies between organisations and
covers personality, behaviour or job performance and it can be measured
quantitatively or qualitatively. Performance appraisal involves unstructured
narrative on performance of the appraiser‖.
1.2. Purposes of performance appraisal
Researchers have suggested multiple uses of performance appraisal.
Bernadin and Beatty (1984), for example, identify two broad uses of performance
appraisal including 1) improvement of the effective use of resources and 2) the basis
for personnel actions such as salary determination and promotions. Cleveland,
Murphy and Williams (1989) suggest four different purposes of performance
appraisal: 1) to distinguish among employees, 2) to identify an employee‘s strengths
and weaknesses, 3) to implement and evaluate human resource systems and 4) to
make and record personnel decisions. In general, performance appraisal is supposed
to serve two main purposes: 1) evaluative purpose and 2) developmental purpose. In
evaluative performance appraisal, the supervisor focuses on measuring employees‘
work behaviors, identify the gap between work outcomes and established standards,
and the results are used primarily for such decisions as salary adjustments,
promotion, retention-termination, layoffs and so on. Cleveland, Murphy and
Williams, (1989) contended that evaluative functions involve between-person
decisions. On the contrary, in developmental performance appraisal, the supervisor
aims to find the employees‘ strengths and weaknesses, provides performance
feedback, opportunities for improvement and development. The results are used for

8

determination of individual training needs, assignment and transfer or within person
decisions, according to Cleveland, Murphy and Williams, (1989).
Different purposes of performance appraisals have been found to have
impacts on the performance appraisal processes and outcomes (Bernardin and
Beatty, 1984; Ostroff, 1993; Williams, Denisi, Blencoe and Cafferty, 1985;
Zedeck& Cascio, 1982). For example, performance appraisal conducted for
developmental purposes are less prone to ratings bias than those conducted for
administrative purpose (Meyer, Kay, and French, 1965; Zedeck & Cascio, 1982).
The purpose of performance appraisal also affects the attitude of the
employees towards appraisal process and supervisors. Employees‘ perception of
performance appraisal uses would have a dominant influence on their attitudes.
Perception of evaluative use of PA can have positive impact on employees‘ attitude
if it clarifies the link between performance and rewards (Cleveland, Murphy, and
William, 1989). Prince and Lawler, (1986) found that the integration of salary
discussion into performance appraisal interviews even enhance satisfaction with PA.
Other researches, however, showed that perception of evaluative use of PA is
negatively related to satisfaction with PA and supervisor (Mayer, Kay, and French,
1965). Drenth (1984) proposed that evaluative PA often elicits negative feelings and
behaviors such as resistance, discouragement, and aggression, especially when
evaluation is negative.
On the other hand, developmental PA is view as positive because of its
futuristic and helpful focus (Milkovich and Boudreau, 1997). Boswell and Boudreau
(2000) studied the relationship between perception of PA use and satisfaction with
performance appraisals and appraisers. They found significant positive relationship
between perception of developmental PA and satisfaction with both appraisals and
appraisers. However, no significant relationship between perception of evaluative
PA and satisfaction has been found. Youngcourt, Leiva, and Jones (2007) expanded
Boswell and Boudreau study by proposing another purpose of performance
appraisal in addition to evaluative and developmental purpose which they termed

role definition purpose. This purpose of performance
9


appraisal focuses on the position rather than the incumbent. They found a positive
relationship between perception of developmental PA and affective commitment.
They also found that perception of evaluative PA was significantly related to job
satisfaction and the relationship was mediated by satisfaction with performance
appraisals. The relationships between perception of developmental PA or of role
definition PA and job satisfaction, however, are not significant.
Kuvaas

(2007)

studied

the

relationship

between

perception

of

developmental PA and job performance. He found the connections between
perception of developmental goal setting and feedback in PA and work performance
and that this relationship was mediated by intrinsic motivation but not by affective
commitment. Finally he found that there would be a positive relationship between

perception of developmental PA and job performance only among employees with
low autonomy orientation.
Researchers contend that although performance appraisal is conducted for
multiple purposes, these purposes are often conflict (Cleveland, Murphy, and
Williams, 1989; Ostroff, 1993; Meyer et al., 1965). They believe that this conflict
prevents performance appraisal from attaining its goals, and may have negative
impacts on individuals and the organizations. Other researchers found that
employees prefer performance appraisal is used for a certain purpose rather than for
others (Jordan and Nasis, 1992; Harvey, 1995). McNerney (1995) advocated that
employees cannot get accurate feedback about their strengths, weaknesses and
development needs if two PA purposes are combined. As a result, researchers and
managers have proposed separate uses of performance appraisal.
Boswell and Boudreau (2002) conduct a study about the impacts of
separating evaluative and developmental uses of performance appraisal on
employees PA satisfaction and satisfaction with supervisors. They hypothesized that
employees in separated use PA systems have higher level of PA satisfaction and
satisfaction with supervisors than those in the traditional unseparated PA systems
that combine the two uses. They also predicted that employees in separated system
would report higher awareness of development opportunities than those in
10


traditional systems. The results, however, suggested no significant difference in PA
satisfaction and satisfaction with supervisors between two groups. Employees under
separated PA systems did not report higher awareness of development opportunities
either. However, they found some significant difference in the intention to use
development opportunities between the two groups. The employees under new
systems reported they intend to use less development than those under the
traditional system. Boswell and Boudreau (2002) suggested that the separated PA
use may have weakened the instrumentality of using developmental PA to gain

valued outcomes for employees under the separated systems because there are no
longer the links between development and salary raise or promotion.
In summary, previous studies suggested that perception of different PA uses
influences employees‘ satisfaction with both appraisal and appraisers. Generally,
perception of developmental PA will lead to higher satisfaction while evaluative PA
may have negative impacts. However, some rresearches found that evaluative PA
can also have positive impacts on employees‘ satisfaction with PA if used
appropriately.
1.3. Benefit of performance appraisal
Appraisal is the analysis of the successes and failures of an employee and the
assessment of their suitability for training and promotion in the future (Maund,
2001). According to Maund (2001), appraisal is a key component of performance
management of employees. When effective, the appraisal process reinforces the
individual‘s sense of personal worth and assists in developing his/her aspirations. Its
central tenet is the development of the employee. Performance appraisal was
introduced in the early 1970s in an attempt to put formal and systematic framework
on what was formally a casual issue (Maund, 2001). Accurate appraisals are crucial
for the evaluation of recruitment, selection, and training procedures. Appraisal can
determine training needs and occasionally counseling needs. It can also increase
employee motivation through the feedback process and may provide an evaluation
of working conditions and it can improve employee productivity, by encouraging
the strong areas and modifying the weak ones. Further, employee evaluation can
11


improve managerial effectiveness by making supervisors more interested in and
observant of individual employees (Auerbach, 1996). Objectives for performance
appraisal policy can thus, best be understood in terms of potential benefits.
Mohrman et al (1989) identified the following:
•

increase staff self-esteem.

•

increase motivation to perform effectively

•

gain new insight into staff and supervisors.

•

better clarify and define job functions and responsibilities.

develop valuable communication among appraisal participants.
• encourage increased self-understanding among staff as well as insight into the

kind of development activities that are of value.
• distribute rewards on a fair and credible basis.
• clarify organizational goals so they can be more readily accepted.
• improve institutional/departmental manpower planning, test validation, and

development of training programs.
Appraisal focuses on what has been achieved and what needs to be done to
improve it. It should be used to help clarify what an organization can do to meet the
training and development needs of its employees. According to Maund (2001),
appraisal is to facilitate effective communication between managers, employees and
should provide a clear understanding for both of them based on four main
components; the work that must be done, the criteria by which achievement will be

judged, the objectives of the exercise, the process for giving the appraise feedback
on achievement.
Bandura (1977) stated that ‗‗self appraisal of performance set the occasion for
self-produced consequences‘‘. Favourable judgments give rise to rewarding self reactions, whereas unfavourable appraisals activate punishing self-responses‘.
Appraisal has the following as advantages:
• The appraiser and the appraisee are forced to meet formally.
• The employee becomes aware of what is expected of him/her.
• The employee learns or reaffirms his or her exact status.

12


• Valuable feedback can be received by both employee and employer.
• The manager can learn what the employee is actually doing rather than what

he/she thinks he/she is doing.
1.4. Method of performance appraisal
1.4.1 Behavior Anchored Rating Scales (BARS)
According to Swan (1991) BARS is one of the most systematic and elaborative
rating techniques. The system is usually costly as it involves in depth analysis of each
job to which the system will be applied. The BARS scale used for a certain job is
reached through a five step process as follows: Critical incidents, which refers to
experts in the job listing specific examples of effective and ineffective behaviours;
performance dimensions developed from the incidents arrived at in the critical incidents
phase; Retranslation that occurs when a second group of knowledgeable individuals on
the specific job validate and refine the performance dimensions; Scaling incidents
which relates to the rating of the dimensions by the second group of individuals and the
final instrument is the behavioural anchor in the BARS instrument.

The BARS instrument consists of a series of vertical scales that are anchored

by the included incidents. Each incident is placed on the scales based on the rating
determined in step four (Swan, 1991). The system is accurate in that it creates
measures that are closely job-relevant and is highly legally defensible.
1.4.2. Trait Scales
The appraisal system contains a list of personality traits or qualities such as
motivation, innovativeness and adaptability. The judge or manager performing the
appraisal assigns a value or number to each trait, indicating the degree to which the
employee owns the quality (Ibid.)A variation of this system requires the manager to
evaluate the employee on each of several trait labels, with short definitions and
along the line containing a variety of adjectives. In most cases the trait-rating scales
are informally analysed to ascertain which personality traits should be included in
the system.
The trait-rating scales may be broadly defined and the criteria such as meet
requirements or exceed requirements are also not clearly defined. This makes the
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trait scales very difficult to legally defend because it is difficult to prove the job
relevance. Without specific job related criteria, the system is vulnerable to rater
error such as halo effect, positive or negative leniency and central tendency. The
scales also make it difficult for a manager to identify training and development
needs. The manager essentially asks the employee what they are and not what they
do (Swan, 1991).
1.4.3 Management by Objectives (MBO)
Erasmus et al (2003) argue that this system concentrates on setting and
aligning individual and organizational goals but it can also be used for evaluating
performance. Participation in the setting of objectives allows managers to control
and monitor the performance by measuring outcomes against the goals that the
employees helped to set. Bagraim et al (2003) state that the MBO system should
keep employees focused on the deliverables of their job and in this way, the

organisation would have delivered on a strategic promise.
1.4.4. Essay Method
The manager is required to write a report on each employee (Erasmus et al
2003). describing the person‘s strengths and weaknesses. The format is not fixed
and the results depend on the writing skills of the manager and relative rating
techniques where managers compare an employee‘s performance to that of another
person doing the same work.
1.4.5. Ranking
The system rank individuals from the best to the poorest performer according
to performance factors. The technique can only be used with a limited number of
employees in the exercise. There is no comparison between teams and the feedback
is not aimed at the employees (Erasmus et al, 2003).
1.4.6. Paired Comparisons
The system allows the manager to compare each employee separately with
each other employee (Ibid). The ranking of the employee is determined by the
number of times he/she was rated better than other workers. The limitations to the
number of employees that can be rated in this technique are a drawback.
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1.4.7. Forced Distribution
Erasmus et al (2003) states that when using this system, the manager should
assign some portion of the employees to each number of specified categories on
each performance factor. The forced distribution decided upon can specify any
percentage per category and need not necessarily comply with the requirements of a
normal
1.5. Multi-source performance appraisal
The traditional PA advocates the use of supervisor performance appraisal,
under which work performance of the employee is evaluated primarily or solely by
his or her direct supervisor. This style of PA emphasizes the vertical one way topdown flow of information within the organizations. Nowadays, however, changes in

environment have lead to the changes in organizational structure such as
decentralization, fewer level organizational hierarchy and matrix organizations. The
new organizational structure requires the expansion of information flows to increase
the speed and amount of performance appraisal feedback. Horizontal, bottom up
flows of information have been established in parallel with top-down flow. As a
result, multi-source performance appraisals become more and more common in new
performance appraisal systems.
1.5.1. Self appraisal
Self appraisal is the process in which work performance of an employee is
evaluated by the employee himself. The use of self appraisal is advocated by the
belief that the employees are the best people to observe their own work behaviors
and to give most accurate performance ratings. Many researchers have pointed out
the potential benefits of self-appraisal. Farh et al. (1991) argued that self-ratings can
contribute to the overall effectiveness of the performance appraisal system and have
positive impacts on employees‘ satisfaction and the perception of justice and
fairness. Gomez-Meija (2001) suggested that self-appraisal allows subordinates to
participate into the system and thus help them identify the real causes of their
performance problems. Jackson and Schuler (2003) believed that when subordinates
participate in the performance appraisal process they become more involved and
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committed to the goals. Furthermore, the involvement of the subordinates in the
appraisal process helps reduce goal ambiguity and conflicts. Other benefits of self
appraisal include increased communication between rates and ratees regarding a
number of performance related aspects, increased ratees participation, satisfaction
and acceptance of appraisal results (Caroll & Schneider, 1982; Fletcher, 1986;
Latham and Wexley, 1981). Self appraisal was judged as fairer, more accurate, and
even more effective than supervisor appraisal in Farh et al. (1988) study.
On the other hand, several researchers suggested limited use of self-appraisal

as a performance appraisal tool. They pointed out that the self-raters have selfenhancement desire and that most of them do not evaluate themselves objectively
and reliably enough (Denisi & Shaw, 1977; Anderson et al. 1984). Previous studies
have suggested mixed results about the usefulness of self appraisal. Thorton (1980),
in his review of self appraisal, found evidence of leniency in self appraisal in most
of the studies reviewed. The employees tended to give themselves higher ratings in
comparison with both supervisor and peers appraisals. Other characteristics of selfrating as suggested by Thorton‘s review (1980) of 22 studies in the field of self
appraisal include: less variation among self appraisals, less discriminant validity and
fewer halos. He also concluded that self appraisal have lower reliability than
supervisor and peers ratings.
1.5.2. Peer appraisal
Peers appraisal is the process in which evaluation ideas from the employees‘
peer workers are used to rate the employee‘s performance. Among several rater
sources, peers appraisal is consider the best source of performance evaluation
(Murphy and Cleveland, 1995). Korman (1968) concluded that peer ratings are
among the best predictors of job performance. Peer appraisals have been found as
valid ratings in many types of jobs including industrial managers, sales
representatives and police officers (Roadman, 1964; Waters & Waters, 1970; Landy
et al. 1976). Previous studies also suggested that peer appraisals have consistent
reliability (Dejung & Kaplan, 1962; Fiske & Cox, 1960). They reported test-retest
reliability coefficients of 0.6 and 0.7 for periods ranging up to one year. The high
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