Performance Appraisal System

Procedural justice and Interactional justice: Assessing employees’ perception of fairness of performance appraisal; an empirical study of a small manufacturing company.

ABSTRACT

This research identifies procedural justice and interactional justice influences on perceived fairness of performance appraisal at a small private manufacturing company located in Newcastle, UK. Distributive justice refers to the perceived fairness of procedures used to determine the appraisal ratings. Interactional justice refers to the perceived fairness of the rater’s interpersonal treatment of the ratee during the appraisal process. A qualitative and quantitative case study method was used to obtain an understanding of employee perceptions of the fairness of their performance appraisal. Data from both interviews with nine employees was collected along with questionnaires completed by these participants. Two hypotheses were developed. Both hypotheses were supported by research data.

1.1 Aim of the researcher

The researcher will assess the relationship between perceived fairness of justice among employees of the performance appraisal system. The aim of this research is to prove through this study that level of employees’ satisfaction with the appraisal system is influenced by the employees’ perceived fairness of procedural and interactional justice of the performance appraisal session.

1.2 Introduction

Performance appraisal is a process designed to evaluate, manage and ultimately improve employee performance. It should allow the employer and employee to openly discuss the expectations of the organisation and the achievements of the employee. That is, the primary emphasis is on future development of the employee within the objectives of the organisation.

There is no universally accepted model of performance appraisal. However, more often than not this process is designed around the following elements: setting performance goals and objectives; measurement of performance against those goals and objectives; feedback of results; amendments to goals and objectives. Performance appraisal systems can provide organisations with valuable information to assist in the developments of organisational strategies and planning. The information gained from this process can assist: in identifying and developing future management potential; in increasing performance and overall productivity; it works towards identifying strengths and managing weaknesses; in providing clarity to employees about an organisation’s expectations regarding performance levels; in providing an opportunity to audit and evaluate current human resources and identify areas for future development.

Managers may conduct appraisals primarily to affect employee input through the feedback process, or justify some sort of human resource action (termination, transfer, promotion etc). Jawroski and Kohli (1991) identify other benefits that can be obtained from performance appraisals. Among these benefits are increase in role clarity, performance, and job satisfaction. Given the positive returns obtained from performance appraisals, one could reasonably expect that organisations would devote considerable resource to the appraisal process. Correspondingly, it may be anticipated that managers try to make certain that the dimensions of the appraisal process are known, understood, and supported by the participants.

There’s probably no management process that has been the subject of more research than the performance appraisal. At the best managed companies, the performance appraisal is no joke – it is a serious business that powers the success of the organization. (Montague, 2007)

It has been suggested that to enhance satisfaction, managers should consider expanding the evaluation criteria to include those criteria which are important to the employee, perhaps creating a participatory performance appraisal system. (Thomas and Bertz 1994) In fact, employee input into the process has been described as having an impact on the perceived fairness of the evaluation (Latham at el. 1993). It has been stated that the opinions of employees, as they pertain to the appraisal system, may be greater determinant of the system’s effectiveness than the validity or reliability of the system itself (Wanguri 1995). As stated by Thomas and Bretz (1994) without a sense of ownership, both managers and employees may view the process with fear and loathing. Thus, they contend that a major concern in the evaluation process is an acceptance of the system by those employees being evaluated. To this end, if employees believe they are evaluated based upon inappropriate criteria, it would follow that their commitment to and satisfaction with the organisation supporting this particular evaluation system would be correspondingly reduced.

Academic background

2.1 The social context of performance appraisal

Levy & Williams (2002) argue that identifying, measuring, and defining the organizational context in which appraisal takes place is integral to truly understanding and developing effective performance appraisals. Further, it is believed that this has been the framework driving the performance appraisal research since about the 1990 and into the beginning of the 21st century. Whether it is discussed as the social-psychological process of performance appraisal (Murphy & Cleveland, 1991), the social context of performance appraisal (Ferris, Judge, Rowland, & Fitzgibbons, 1994) the social milieu of performance appraisal (Ilgen at al. 1993), performance appraisal from the organisational side (Levy & Steelman, 1997) the games that rates and rates play (Kozlowski, Chao & Morrison, 1998), or the dues process approach to performance appraisal (Folger, Konovsky & Cropanzao, 1998) it is argued along with other scholars that performance appraisal takes place in a social contact and the context plays a major role in the effectiveness of the appraisal process and how participants react to the process (Farr & Levy, 2004).

It has been suggested elsewhere that research over the last 10 years has moved noticeable away from a limited psychometric scope and toward an emphasis on variables that compose the social context (Fletcher, 2001).

Distal factors

Levy & Williams (2002) definition of distal variables is generally consistent with Murphy and & Cleveland (1995). Specifically, distal variables are broadly construed as contextual factors that affect many human resource systems, including performance appraisal. In other words, distal variables are not necessarily related to performance appraisal, but they may have unique effects on the performance appraisal process that are useful to understand and consider.

Distal factors include but are not limited to organisational climate and culture, organisational goals, human resource strategies, external factors, technological advances, and workforce composition. Levy & Williams (2002) believe these factors have an effect on rater and rate behaviour, although not directly. For instance, an organisation that espouses a continuous learning culture may structure and implement a very different type of performance appraisal system than an organisation without such a culture.

A review of the performance appraisal literature over the last 7-10 years reveals little systematic empirical work on the distal variables other than some studies on culture, climate and technology issues (see, e.g. Hebert & Vorauer, 2003). While this is at some levels disappointing, it is rather understandable. First, there is little theory specific to performance appraisal to methodically guide this level of research. Second, the breadth of the constructs Levy & Williams (2002) construe as distal make it difficult to measure and implement within the research setting. Third, given the distal nature of these factors, their direct effects on performance appraisal behaviour may be small. Perhaps closer examination of the relationships between distal and proximal relationships would prove more fruitful. Even with the difficulties regarding this type of research, however, it is believed it will be important to continue examining these factors to fully understand the social context in which performance appraisal operates. (Levy & Williams, 2002)

Process proximal variables

The next two section of the paper will underscore those proximal variables (both process and structural) receiving attention in the recent appraisal literature. Some researchers chose to categorize the proximal variables as either process (i.e. having a direct impact on how the appraisal process is conducted including things such as accountability or supervisor – subordinate relationships), or structural (i.e. dealing with the configuration or makeup of the appraisal itself and including areas such as appraisal dimensions or frequency of appraisal).

Rater issue

Rater affect is one of the most studied rater variables. Although the literature has not been consistent regarding a formal definition of affect in performance appraisal (Lefkowitz, 2000), a good general definition linked to most of this research involves liking or positive regard for one’s subordinate. The Affect Infusion Model (Forgas & Georges, 2001) suggests that affective states impact on judgements and behaviours and, in particular, affect or mood plays a large role when tasks require a degree of constructive processing. For instance, in performance appraisal, raters in good moods tend to recall more positive information from memory and appraise performance positively. Consistent with the Affect Infusion Model, a few recent studies have examined the role of mood or affect in performance appraisal. Lefkowitz (2000) reported that affective regard is related frequently to higher appraisal ratings, less inclination to punish subordinates, better supervisor – subordinate relationships, greater halo effect, and less accuracy. A couple of recent studies have looked at the role of similarity in personality and similarity in affects levels between raters and rates, finding similarity is related to appraisal ratings. Antonioni and Park (2001) found that affect was more strongly related to rating leniency in upward and peer ratings than it was in traditional top-down ratings and the this effect was stronger when raters had observational time with their subordinates. They concluded from this that raters pay so much attention to their positive regard for subordinates that increased observations result in noticing more specific behaviours that fit their affect-driven schema. It was also found that although affect is positively related to appraisal ratings; it is more strongly related to more subjective trait-like ratings, then to ostensibly more objective task-based ratings. Further, keeping performance diaries tended to increase the strength of that relationship between affect and performance ratings leading the authors to conclude that perhaps affect follows from subordinate performance level rather than the other way around.

A second broad area related to raters that has received considerable research attention has to do with the motivation of the raters. Traditionally, research seemed to assume that raters were motivated to rate accurately. More recently, however, researchers have begun to question whether all or even most raters are truly motivated to rate accurately. One line of research related to rater’s motivation has focused on the role of individual differences and rating purpose on rating leniency. Most practitioners report overwhelming leniency on the part of their raters and this rating elevation has been found in empirical papers as well as surveys of organisations (Murphy & Cleveland, 1995).

The role of attributions in the performance appraisal process has also attracted some recent research attention. In some of these studies investigators have examined how the attributions that raters make for ratees’ behaviours affect their motivation to rate or their actual rating. For instance, using a traditional social psychological framework, researchers found that whether individuals opted for consoling, reprimanding, transferring, demoting, or firing a hypothetical employee depended in large part on the extent to which rater believed that the exhibited behaviour was due to ability or effort. It was found that both liking and attributions mediated relationships between reputation and reward decisions. More specifically, raters consider ratees’ behaviour and their reputations when drawing attributional inferences and deciding on appropriate rewards. The implications of this line of research are clear: attributional processing is an important element of the rating process and these attributions, in part, determine raters’ reactions and ratings. (Murphy & Cleveland, 1995)

A second line of research related to rater motivation has to do with rater accountability, which is the perceived potential to be evaluated by someone and being held responsible for one’s decisions or behaviours (Frink & Ferris, 1998) With respect to performance appraisal, accountability is typically thought of as the extent to which a rater is held answerable to someone else for his or her ratings of another employee. They concluded that accountability can result in distortions of performance ratings. It is demonstrated that raters told that ratees had been rated too low in the past responded by inflating ratings while others told that they would have to defend their ratings in writing provided more accurate ratings. In a follow up to this study it was hypothesized that the accountability pressure on raters to justify ratings may operate through an increased motivation to better prepare themselves for their rating task. This was manifested in raters paying more attention to performance and recording better performance-related notes. A related study looking at accountability forces in performance appraisal found that raters inflated ratings when they were motivated to avoid a negative confrontation with poor performers, but did not adjust ratings downward when good performers rated themselves unfavourably (Levy & Williams 1998).

Ratee issues

A second major of focus of performance appraisal research consist of research centred on the performance appraisal ratee. Two areas were covered, in particular, the links between performance ratings and rewards; those elements of the performance appraisal process which increases ratees’ motivation such as participation. Related article argues the while pay is an important motivator along with recognition, work enjoyment , and self-motivation, very few organisations actually link the performance appraisal system to pay or compensation in a clear, tangible way (Mani, 2002). Both traditional academic research (Roberts & Reed, 1996) and more practitioner-focused research (Shah & Murphy, 1995) have identified the significance of participation in the appraisal process as an antecedent of ratees’ work motivation. It suggests that participation is simply essential to any fair and ethical appraisal system. It was identified that participation and perception of fairness as integral to employees’ perceptions of job satisfaction and organisational commitment. Roberts & Reed (1996) take somewhat similar track in proposing that participation, goals, and feedback impact on appraisal acceptance which affects appraisal satisfaction and finally employee motivation and productivity. Performance appraisals are no longer just about accuracy, but are about much more including development, ownership, input, perceptions of being valued, and being a part of an organisational team. Focus on reactions to the appraisal process Cardy and Dobbins (1994) arguing that perhaps the best criterion to use in evaluating performance appraisal systems was the reactions of ratees. The claim was that even the most-psychometrically-sound appraisal system would be ineffective if ratees (and raters) did not see it as fair, useful, valid, accurate, etc. Good psychometrics cannot make up for negative perceptions on the part of those involved in the system. Folger et al. (1992) define three elements that must be present to achieve higher perceptions of fairness: adequate notice, fair hearing, and judgement based on evidence. Although they identified specific interventions that should be implemented to increase due process, they cautioned that “due process mechanisms must be implemented in terms of guiding principles (i.e. designed with process goals in mind) rather than in a legalistic, mechanical, rote fashion.

In general studies have found that both ratees and raters respond more favourably to fair performance appraisal systems (e.g. less emotional exhaustion, more acceptances of the feedback, more favourable reactions toward the supervisor, more favourable reactions toward the organisation, and more satisfaction with the appraisal system and the job on the part of both rater and rate) (Taylor et al. 1995, 1998).

Trust issue

Researchers have posited that trust is the key element in managing the supervisor – employee relationship. According to Mayer and Davis (1999) trust is made up of three components: ability, benevolence, and integrity. In other words, if an employee believes a supervisor has the skills to properly appraise, has the interests of the employee at the heart, and believes the supervisor upholds standards and values, the employee is likely to trust that supervisor. Interest in understanding the processes related to trust are the result of research that support both direct and indirect effects of trust on important organisational and individual outcomes. For instance it is supported by research the relationship between trust and outcomes such as employee attitudes, cooperation, communication, and organizational citizenship behaviours. As with appraisal perceptions and reactions it is also believed that trust issues can limit the effectiveness of performance appraisal. If ratees have low levels of trust for their supervisor, they may be less satisfied with the appraisal and may not as readily accept feedback from the source. More to come…

2.2 Behaviourally Anchored Rating Scales (BARS) – performance appraisal

Behaviourally Anchored Rating Scales (BARS) are a relatively new approach to performance evaluation. They are in effect a combination of the graphic rating scales and the critical incident method. An actual description of important job behaviour is developed and “anchored” alongside the scale. The evaluator is then asked to select the description of behaviour which best matches actual employee behaviour for the rating period.

In a controlled field study, Silverman and Wexley (1984) used BARS to test the effect of rate participation on the appraisal process. BARS were developed for each of the following job classifications: clerical, non-clerical staff, technical and professional, nursing, management/supervisory. Those employees who participated in creating, and were evaluated by, the behaviourally-based scales, had a more positive reaction to the entire performance appraisal process. Specifically, they felt that the performance appraisal interviews were more useful, that their supervisors were more supportive, and that the process produced more motivation to improve job performance.

BARS address many of the problems often found in traditional evaluation approaches such as the halo effect, leniency, and the central tendency error. In addition, research suggests that many employees prefer this evaluation method (Rarick & Baxter, 1986) BARS are however not a panacea for management and do possess both advantages and disadvantages. According to Rarick and Baxter (1986) advantages of BARS are: clearer standards – both subordinate and superior have a clearer idea of what constitutes good job performance. Ambiguity concerning expectations is reduced; more accurate measurement – because individuals involved with the particular job develop the BARS instrument they have a good understanding of the requirements for good performance; better performance feedback – since the BARS is based on specific behaviour it provides a guideline for improving future work performance; better consistency – BARS have been shown to be more consistent in terms of reliability than more traditional evaluation methods. In other words, when more than one supervisor rates the same employee, the results are more similar when BARS is the evaluation method. Behaviourally Anchored Rating Scales are, however, not without drawbacks. Disadvantages of BARS are: more costly – more time and effort, and eventually more expense is involved in the construction and implementation of BARS; possible activity trap – since BARS are more activity oriented, they may cause both supervisor and subordinate to become more concerned with activity performance rather than accomplishing actual results; not exhaustive behaviour scale – even if the rator posses lengthy listing of behaviour examples he/she may not be able to match the observed behaviour with the stipulated anchor.

As Rarick and Baxter (1986) note Behaviourally Anchored Rating Scales have the potential to increase both the accuracy of employee appraisal and ultimately the effectiveness of the organization. BARS are equally useful as a judgemental instrument and as an employee developmental device. They are designed to make performance appraisal more accurate by minimising ambiguity and focusing on specific behaviour. BARS move employee performance appraisal away from the subjective opinions of the evaluator and closer towards on objective measure of true performance.

2.3 Limitations in performance appraisal

The advantages and disadvantages of using performance assessment in making employment decisions are well documented (e.g. Murphy & Cleveland, 1995). The limitations of performance assessment, such as inflated ratings, lack of consistency, and the politics of assessment (Tziner, Latham, Price & Haccoun, 1996), often lead to their abandonment. Managers responsible for delivering performance reviews who are uncomfortable with the performance rating system may give uniformly high ratings that do not discriminate between rates. Poor ratings detract from organisational uses and increase employee mistrust in the performance appraisal system (Tziner & Murphy, 1999). Employees on the receiving end of the appraisal often express dissatisfaction with both the decisions made as a result of performance assessment and the process of performance assessment (Milliman, Nason, Zhu & De Cieri, 2002), which may have longitudinal effects on overall job satisfaction (Blau, 1999) and commitment (Cawley, Keeping & Levy, 1998). The extensive research on performance appraisal (Arvey & Murphy, 1998: Fletcher, 2001: Fletcher & Perry, 2001, Murphy & Cleveland 1995) has not addressed the fundamental problems of the performance appraisal process the performance appraisal is influenced by a variety of relevant, non-performance factors such as cultural context (Latham & Mann, 2006), that it does not provide either valid performance data or useful feedback to individuals (Fletcher, 2001) , or that performance appraisal instruments often measure the “wrong things” (Latham & Mann, 2006).

Murphy and Cleveland (1995) state that “a system that did nothing more than allow the making of correct promotion decisions would be a good system, even if the indices used to measure performance were inaccurate or measure the wrong set of constructs.” No assessment system, however, would meet with success if it did not have the support of those it assessed. In developing a new performance appraisal system it is important to use past research on performance appraisals that identified a number of factors that lead to greater acceptance of appraisals by employees. Firstly, legally sound performance appraisals should be objective and based on a job analysis, they should also be based on behaviours that relate to specific functions that are controllable by the rate, and the results of the appraisal should be communicated to the employee (Malos, 1998). Secondly, the appraisals must be perceived as fair. Procedural fairness is improved when employees participate in all aspects of the process, when there is consistency in all processes, when the assessments are free of supervisor bias, and when there is a formal channel for the employees to challenge or rebut their evaluations (Gilliland & Langdon, 1998). In addition to perceptions of fairness, participation by employees in the appraisal process is related to motivation to improve job performance, satisfaction with the appraisal process, increased organisational commitment and the utility or value that the employees place on that appraisal (Cawley et al. 1998).

2.4 Blended approach – Competencies

To overcome the problem of job-specific performance dimensions, the performance assessment system was based on behaviourally defined core competencies (Dubois 1993; Klein 1996). The core competencies had been previously identified through an extensive process as being common to all positions; these competencies were to become the basis for training new recruits and for the continuous development of existing members (Himelfarb, 1996). Fletcher & Perry (2001) stated the “the elements constituting what we normally think of as performance appraisal will increasingly be properly integrated into the human resources policies of the organisation – using the same competency framework for all HR processes, linking individual objectives with team and business unit objectives framing the input of appraisal to promotion assessment in an appropriate manner, and so on” making it “more effective mechanism and less of annual ritual that appears to exist in a vacuum.” Along the same lines, Smither (1998) went on to note that the same competency model should guide “numerous human resource initiatives”.

The competency development process used for this study followed the suggestions of Fletcher & Perry (2001) and Smither (1998) and included a review of functional job analysis data for general police constables that covered a majority of the different job positions. In this sense, the competencies were blended by incorporating the values and specific attributes (Schippmann et al., 2000). A blended approach is one that couples and organisation’s strategy in the derivation of the broad competencies with the methodological rigor of task analysis. As Lievens, Sanchez, and De Corte (2004) note, blended approach is likely to improve the accuracy and quality of inferences made from the resulting competency model because a blended approach capitalizes on the strength of each method. Strategy is used as a frame of reference to guide subject matter experts to identify those worker attributes or competencies that are aligned with the organisation’s strategy and the to use the task statements to provide more concrete referents for the associated job behaviours (Lievens et al., 2004)

2.5 Justice of fairness

The study of justice of fairness has been a topic of philosophical interest that extends back at least as far as Plato and Socrates (Ryan, 1993). In research in the organizational sciences, justice is considered to be socially constructed. That is, an act is defined as just if most individuals perceive it to be on the basis of empirical research (Cropanzao & Greenberg 1997). Each approach propose a different way of conceptualizing justice, from the provision of process control (Thibaut & Walker, 1975) to a focus on consistency control (Leventhal et al. 1980) and an examination of interpersonal treatment (Bies & Moag, 1986).

Performance appraisal systems are among the most important human resource systems in organizations insofar as the yield decisions integral to various human resource actions and outcomes (Murphy and Cleveland 1995). Reactions to appraisal and the appraisal process are believed to significantly influence the effectiveness and the overall viability of appraisal systems (Bernardin and Beatty 1984; Cardy and Dobbins 1994; Carroll and Schneier 1982, Lewer 1994), For instance. Murphy and Cleveland (1995:314) contended that “reaction criteria are almost always relevant and an unfavourable reaction may doom the most carefully constructed appraisal system”. Perceptions of fairness are important to all human resource processes, e.g., selection, performance appraisal, and compensation, and particularly so, to the performance appraisal process. Indeed, a decade ago, Cardy and Dobbins (1994:54) asserted that “with dissatisfaction and feelings of unfairness in process and inequity in evaluations, any appraisal system will be doomed to failure.” Other researchers have also acknowledged the importance of fairness to the success or failure of appraisal system (Taylor et al. 1995).

2.6 Procedural justice

Procedural justice refers to the perceived fairness of the procedures used to determine appraisal outcomes (Greenberg 1986a), independent of favourability or fairness of the performance rating or its administrative consequences (Skarlicki, Ellard and Kelln 1998). Folger et. al (1992) have developed a procedural justice model for performance appraisal, rooted in the due process of law, and possessing three basic factors: adequate notice, a fair hearing and judgment based on evidence. Adequate notice involves giving employees knowledge of appraisal system and how it affects them well ahead of any formal appraisal. More specifically, it entails developing performance standards and objectives before the appraisal period commences. These standards and objectives must be well documented, clearly explained, fully understood and preferable set by mutual agreement, with employees only held accountable for standards and objectives properly communicated to them. Adequate notice also involves high appraisal frequency and giving employees constant feedback on timely basis throughout the performance evaluation period, so that employees can rectify any performance deficiencies before the appraisal is conducted (Folger et al. 1992). Studies show that adequate notice is important to employee perceptions of procedural fairness. Williams and Levy’s (2000) study of 128 employees from three US banks revealed that system knowledge significantly predicts appraisal satisfaction and procedural fairness, controlling for the much smaller effect on organizational level. The second factor that affects employee perceptions of procedural fairness is a fair hearing. A fair hearing means several things in a performance appraisal context. These include: an opportunity to influence the evaluation decision through evidence and argument, access to the evaluation decision, and an opportunity to challenge the evaluation decision (Folger et al. 1992). Fundamentally, a fair hearing entails two-way communication, with employee input or voice in all aspects of the appraisal decision-making process.

Several researchers have consistently found the ‘voice’ effects procedural justice in a variety of work contexts (Greenberg, 1986; Korsgaard and Robertson, 1995). In a study of 128 food service employees and their 23 supervisor at a large, US university, Dulebohn and Ferris (1991) found that the informal voice provided by influence tactics affected employee perceptions of fairness in the appraisal process. Two types of influence tactics were differentiated: the first on the supervisor and the second on the job. Influence of the supervisor focused on, for example, efforts at ingratiation. Influence on the job focused on, for example, manipulating performance data. Uses of supervisor-focused, influence tactics were positively associated with employees’ perceptions of procedural justice, but uses of job-focused influence tactics were negatively associated. The authors argue that this negative association may result from reverse causation: perception of unjust appraisal procedures may encourage employees to adopt job-focused influence tactics.

The third procedural justice factor is the judgment based on evidence. This means convincing employees that ratings do accurately reflect per