Creating Alignment in Employee Performance Management

Introduction

One of the major challenges for any company lies in realizing organizational alignment: that preferred point in which the entire company is working together to reach business goals. The complications in trying to understand what 'is' and what ‘does’ the performance management means for managers and employees, are best illustrated by Armstrong & Baron (1998) who beleived that the management of performance is a very inaccurate term, these processes manifest themselves in many different ways, and that there is no single right way to manage employee performance. However, scientists as Mabey (1998) argue that performance management is a framework where individual performance can be managed, monitored, and improved. It is an important system as it responds to the “how employees are doing?” question, and helps the company to improve employee performance and motivation. Therefore, the indication that performance management is not needed within a company is not accurate since entire performance system brings increased employee performance and quality of work.

The research demonstrates the use of tools for defining goals as a basis for determining an effective bonus structure.

The analysis is presented in two sections:

Institutionalizing the “Goal Setting Mechanism” within Employee Evaluation Forms and the Employment Bonus - Scheme; and

Demonstrating interaction between the two

The purpose of this research is to develop a system for performance evaluation through the integration of objectives to a well-organized bonus structure.

The objectives of this study are:

-To assess the importance of the design and implementation of a performance management system that will integrate corporate goals with employee performance goal setting, appraisal, and bonus;

-To identify the critical steps for conducting employee performance appraisals.

The study looked additionally at employee satisfaction and commitment. In addition, economics literature on rewards and incentives also enlighten the problem of designing employee evaluation and compensation schemes.

The method of reviewing results, finding the right employee score, and then deciding upon the bonus is what employee performance management system is all about.

Company Profile

The company is recognized as one of the fastest growing telecommunications companies in Europe. Established in 1999, X Telecom Company has grown from being the first Kosova-wide Internet provider to becoming a modern enterprise offering full range of integrated services as well as content, in mobile communications, fixed telephony, digital cable television, Internet services as well as media. X Telecom finds itself at the stage of continuous growth and development.

Literature Review

Green and Ahmed (2014) believe that in old times to evaluate the work of any single employee was to deal with the dumb of heap, how much you investigate that deep dump you may find out. However, the criteria for Performance Excellence has evolved significantly over time to help organizations address a dynamic environment, focus on strategy-driven performance, and address concerns about customer and workforce engagement, governance and ethics, societal responsibilities, and long-term organizational sustainability (Blazey, 2009). Many contemporary organizations are placing a greater emphasis on their performance management systems as a means of generating higher levels of job performance (Gruman, 2011). Performance evaluation lately is seen as a process to review the employee’s past performance and to agree on future objectives and development activities. Coens and Jekins (2000) believe that performance appraisal can be seen as a process of evaluating and assessing the way in which employees are working. In addition, Armstrong and Baron (1998), see performance management as a strategic and integrated approach to provide sustained success for the organization by improving the performance of people. In the absence of employee evaluations within one company, Stipp (1999) trusts that the employer shall make no effort to work with the employee to improve his/her performance. In this case, employees may be also omitted to the benefit of concrete measures, which will give information such as how they are doing and where they need improvements. On the other hand, DelCampo (2011) argues that when someone is searching for the job or deciding how to craft a position description one of the primary dimension discussed always seems to involve the concepts of performance management and performance appraisal, or, in more common place parlance, ‘How do I move up and/or get a raise?

When and Why Performance Appraisal Is Usually Executed?

Performance management is the method of reviewing an employee’s performance during the preceding year or cycle and deciding where he or she stands as far as their managers in the same group are concerned. The appraisal cycle can be based on the calendar year or the financial year i. e. it can run from April to March of the following year or January to December of the same year. In the same manner, it can be half-yearly as well. Its objective is to induce workers to become more efficient and effective (Kondrasuk, 2011), and assist supervisors to become more transparent in the way they correlate with their employees. According to French (1998) performance appraisals are used for a variety of essential purposes. Determining the compensation is by far the most frequent use of appraisals, but performance improvement and feedback to employees are also major uses. French (1998) added that it is important to recognize that performance appraisals, in addition to being periodic, should be an ongoing process. Employees desire performance feedback, or information on how well they are doing the job, and this feedback should be provided to them timely. Employees and managers gain feedback, as the objective is to find out how things are going within a company. A constant exchange of information helps employees to identify their strengths and weaknesses.

In general, management by objectives is executed through yearly, twice a year or quarterly meeting between manager and employee, on which manager evaluate work of employee grounded on guidelines represented by goals/objectives set at the beginning of the year, not forgetting to set objectives/goals for next incoming year.

How to Make an Ideal Performance Appraisal System?

Human Resource professionals are facing a very difficult task of developing the best performance management approach which fulfills the company’s needs. In fact, surveys and studies have found that the majority of employee’s who leave the company do so because of dissimilarities over their ratings. In other words, emplolyee turnover is in many cases a direct consequence of the system in which the employee performance management process is managed. According to Kondrasuk (2011), many firms use inappropriate assessment because they do not use the correct tools for designing the system. French (1998) argues that in designing the appraisal program, attention should be given to relevant laws and court decisions, the choice of appraisers, the role of human resources, and the validity and reliability of the appraisal methods. The company can prepare an evaluation system with long forms and detailed data, which can be very complex but time consuming. The method can also be straightforward with one page only.

Since this paper presents “Real Time Employee Evaluation and Bonus System” below some practical mechanism demonstrate how performance evaluation methods is engaged by X Telecom Company. A graphic rate scale evaluation worksheet is used to define measurable and observable objectives, which demonstrate how well an employee performs its duties and responsibilities. There are many versions of graphic rate scales, but all concentrate on specific employee’s behaviors related to work performance. Mathis and Jackson (2008) state that using employee rating’s managers provide three primary advantages (1. ) in critical manager employee relationship, employee rating can be quite useful for identifying component managers; (2. ) this type of rating program can help make manager more responsive to employees; (3. ) employee appraisal can contribute to career development efforts for managers by identifying areas for growth. It reveals the performance standards that come from already set objectives. The form is designed to identify the employee’s strengths and weaknesses. It also provides an overall assessment of performance using a score. The rating method lists employees from highest to lowest in performance. Each employee can be placed into one of five categories; from Exceptional to Disciplinary (Low Performer). Maximum 25% of employees are evaluated with rankings from 4 to 5. The system is adapted as per Deming’s exercise called the “red bead experiment” used in many of his management seminars to indicate the importance of foregoing numerical performance evaluations as a means of improving performance (Aluri & Reichel, 1994; Deming, 1982).

Goal Settings

Employee’s evaluation can have both positive and negative effects and rather it is determined by the system of evaluation. According to Dransfield (2000), in recent years Management by Objective (MBO) has become less popular because of difficulties and danger associated with too rigid definition of objectives at a time of creative solutions to problems from employees are being sought. However, a key factor to the achievement of any company is its aptitude to ensure employees clearly comprehend what is required to do in order to contribute to the company’s success. Therefore, MBO is a needed process within the company, where goals are set for the company as whole, which are afterwards cascaded throughout departmental goals, into employee objectives. With better understanding of goals better productivity and satisfaction as well as motivation of the employees can be accomplished.

In the X Company which is used for this study, goals are set based on:

Company Goals weighting 25%, where

First goal is connected to Financial results (EBITDA) - weight of 15% - Successful business performance is base for company existence and contribution is done from all levels.

Second goal is connected to Customer satisfaction - with weight of 10% - Customers and their satisfaction are base for successful business operation.

Individual goals weighting 75%, where manager may set maximum 3- 4 goals for employee, which are then defined and discussed in table 1.

Work performance of an employee is appraised during the interview appraisal process where evaluation of employee is done based on company’s reached goals and based on individual objectives set preceding year.

Employee Appraisal Form in Relation with the Bonus Scheme

Reward systems are very crucial for an organization (Maund, 2001). Rewards comprise systems and practices that influence the actions of employees. Fundamental purpose is to provide positive consequences for contributions to desired performance (Wilson, 2003). Reward management is one of the strategies used by Human Resource Managers for attracting and retaining right employees as well as assisting them to develop their performance through motivation. There are some researchers who suggest (Murphy, 1981) that the employee should be motivated through a proportional wage according to their efforts on the job and the others that support the idea of human resources motivation according to their results and performances obtained (Deaconu et al., 2002). On the other hand, DelCampo (2011) believes that managing performance is more than periodic reviews of employee performance that results in salary performance. He believes that an action plan must be developed, by creating collaboratively the list of items that are more completed on a particular time table, which include measurement improvements within a specific task. Mathis and Jackson (2008) claim that companies adopt variable bonus plans for a number of reasons: links strategic business goals and employee performance; and enhances organizational results and reward employees financially of their contributions. According to Mathis and Jackson (2008), organizations generally use performance appraisals in two potentially conflicting ways. One is to provide a measure of performance for consideration in making salaries or other administrative decision about employees. The other use focuses on development and training of employees.

This paper concentrates only on the pay mechanisms as it can be a powerful incentive in linking employee performance. Because of the importance of performance appraisal to employees, the appraisal methods used can have positive or negative effect on the employee’s morale. Therefore, determining bonuses is one of the most critical aspects of human resource management because the company’s reward system has an intense effect on satisfaction and motivation of employees. The purpose of employee bonus schemes is to improve employees’ efforts in their jobs. One major “switch” for increasing individual efforts is money, since by rewarding employees for good performance companies shall achieve business objectives.

Mathis and Jackson (2008) talks about the forced distribution method, the ratings of employee performance are distributed along a bell shaped-curve. For example, as per the authors stated above a medical clinic administrator ranking employees of five-point scale would have to rate 10% as 1 (unsatisfactory), 20% as 2, 40% as 3, 20 % as 4, and 10% as 5 (outstanding). As per bonus incentive systems within X Telecommunication Company workers whom meet and surpass expected objectives are given a bonus payment.

The individual performances evaluated in the process as described above will be automatically summed up in the form and based on this final result of the evaluation is defined.

Bonuses are allocated by using percentage scale as shown in the table below.

Research Approach

The quantitative approach was performed in a single large company, which operates in telecommunication sector, with the aim to explore employees’ experiences on evaluation through questionnaires. For confidentiality purposes, the name of the company we will use X Telecommunication Company, as it is said to realize the importance of the Employee Evaluation System and Performance Management and its implications with the strategy of the business. Furthermore, its vision reflects the author’s personal vision on the HR management, as the author is the HR Manager of this company and has therefore been chosen as the primary research instrument. The HR Department of X Telecommunication Company has collected data from 2008 – 2014, which demonstrates how managers rated their employee performance during that time. Consequently, in 2012 the new design of employee performance appraisal integrated with the bonus scheme has made the entire process more efficient and functional. The questionnaire provides comparison with the results of measuring employee performance management satisfaction results in the company throughout the years.

Organizational Climate Measurement Survey

X Telecommunication Company performed the organizational climate measurement survey; however, the questions were prepared from the author. Attention is focused on the link between satisfaction and work results, which has an impact both on job satisfaction and on company performance. The survey is conducted by ORVI Consultus d. o. o. using the Organizational Climate and Satisfaction. It provides a structured insight into the causes behind certain climate, and preserves a high degree of comparability to the past data of the company and also to the past general averages. Questions are designed to see more clearly how employees perceive the employee performance system, and is this system helping the company to improve motivation amongst employees and their overall performance within the company. For this research study, 467 employees of X Telecommunication Company are selected, from which 259 replied to the questionnaire (55%).

Findings and Discussion

Because of the importance of performance appraisal to employees, the employee performance appraisal methods used can have positive or negative effect on employee’s morale. Therefore, determining bonuses is one of the most critical aspects of human resource management because the company’s reward system has an intense effect on satisfaction and motivation of employees. The tables below show overall report of the company, as well as management and employee’s progressive results and outcome. The questions in the questionnaire has values from 1 to 5, 1 being the lowest value, and 5 the highest. From the results, it can be seen that most of the values are between 3 and 4, which show high employee satisfaction.

Table 4. Employee Evaluation System

Table 3 is related to the employee evaluation system, which shows positive improvement throughout the years. Employees understand better the evaluation process, and they are informed on time about the interview to discuss about their performance and receive feedback for their delivered work, as well as for their career development. The results show that the process of evaluation is getting clearer compared to previous years. Kramer (1998) agrees that individualized performance evaluation system is crucial for success of any company. Through interviews, employees get individual attention and the objectives are being discussed among each other. More importantly, this helps organization to better understand the distinctive capabilities of employees related to knowledge, skills and values. In this way, they will be able to retain dedicated and hardworking employees. Nevertheless, according to Gabris and Mitchell (1985), it is important to have proper performance management system because in many organizations, employees perceive performance appraisal as waste of their time, and they are not motivated to complete them. Also, because of the workload, managers often dislike the time of performance appraisal. Thus, it is suggested that managers are trained about the performance appraisal in order to better understand its value, as keeping the best performers is a challenge among companies.

Table 5. Goal Setting and Employee Objectives

The table 4 shows the clarity of employee goal settings, which is derived from annual business plan. The evaluation process for performance of the goals between supervisors and employees are discussed during the employee evaluation interview. This shows positive value throughout the years. Latham & Yukl (1975) discusses the assigned and participative goal setting. Many authors agree that employee participation is essential in goal setting process in order to have acceptance of job goals. Some of the conclusions from studies are that at high participative level, employees performed best at the goals set by themselves, and in low participative levels, employees performed best at goals set by boss. Other studies have concluded that there is no relationship found of the level of participation in goals setting process.

Table 6. Clarity of requirements and rewards

Table 5 shows how much employees understand the requirements and rewards based on their performance. They understand that their effectiveness is evaluated against targets agreed upon, so they should understand what they should accomplish. Also, the results show that employees understand the linkage between their performance and elements of the salary, which increases their motivation to succeed. Gabris and Mitchell (1985) emphasize that employee productivity might be stimulated through e merit-based performance appraisal. In this way, individual performance can be improved, which increases also organizations’ effectiveness.

Since the year 2010, when the system described above was implemented the author has noticed that the performance appraisal result in the graph is close to a normal curve – they are always clustered around the mean and skewed towards the positive.

Indeed, the results of this empirical study show that performance management system is integrated efficiently with the employee performance goal settings. In general, employees are happy with the employee performance, goal setting system, as well as its linkage with compensation. They receive enough information about the system, and understand that setting realistic targets is important in order to be rewarded for the work performed.

Conclusion

Designing performance management and appraisal guidelines that affects managers and employees can build trust in the company and lower perceived inequity. Deming (1982), who labeled performance appraisal systems a “Deadly Disease” in organizations, claimed that they “leave people bitter, crushed, bruised, battered, desolate, despondent, dejected, feeling inferior, some even depressed, unfit for work for weeks after receipt of rating, unable to comprehend why they are inferior. According to Lloyd (2009), motivation is the process that energizes employees and propels them to pursue their goals; therefore, well-designed and well-executed performance appraisals have a strong motivational impact. Understanding that there is crucial need of a proper evaluation system, X Telecommunications has gone through modification of the old scheme of the performance management system, trying to adopt new goal setting system and appraisal approach. For this reason, to find out if employees are pleased with modified system, the survey was performed throughout the company which shows that employee’ morale is high. Employees are satisfied as they are receiving proper guidance from managers, and they possess open lines of communication with their supervisors and managers. It is a system that helps qualify relationship between impact, performance, and compensation with expectation-based collaborative feedback. The system described in the paper supports the full review process, from alignment to review to compensation.

Since, the overall results show positive increase and positive feedback from employees, the researcher trusts that positive feedback always shall bring positive results in employees and the company in general. This situation leads to the idea that performance evaluation based on clear goals and objectives leaves little doubt about the desired outcome.

It could be argued the need to introduce an integrated system of differential motivation of human resources to foster and encourage outstanding performance of the employee. While there is no single “best way” to manage performance evaluations, the corrective actions taken at X Telecommunications throughout the years suggest that performance management is a tool that helps managers align individual performance with organizational goals and objectives. The new system should include bonuses and incentives to motivate the human resources to contribute significantly to a sustainable organizational development. It is evident that performance management and appraisal are two most time-consuming facets of the HR functions. While this process is time consuming, because of their great significance, the researchers believe that if steps conversed in the paper are followed, companies may create a user-friendly and effective operative system that both managers and employees will find it rational and unbiased. This system can allow companies to align individual objectives to those of the business goals, and prevail better understandings about how work gets done, makes it easier to have discussions with employees on regular bases, as well as tracks and measures employee’s performance.

Sugesstions for Further Research

This study has some limitations. It is concentrated in only one company; consequently, are not able to make generalizations to interpret these results for other companies as well. Furthermore, this paper did not focus on all the rewards, it only concentrated on bonuses. Further analisys can observe the consequences of non monetary rewards and observe whether it has an effect on better employee performance. Such results can enhance employee performance management system.

Bibliography