Performance Management System Effect on Motivation

PERFORMANCE MANAGEMENT SYSTEM EFFECT ON MOTIVATION

Clough is a privately owned company that provides engineering, construction, commissioning and asset support services to the Hydrocarbon and Infrastructure markets in Australia, Asia, Africa, Europe and North America.  Although an engineering company focused primarily on the hydrocarbons industry Clough’s workforce is made up of a mix of administration, engineering and technicians with a majority based in Clough head office, located in Perth Western Australia, but many still working in remote locations in Australia and overseas.

Clough established “My Performance of Excellence” (MPOE) in 2013 as an online performance management and goal setting tool. The intention of the MPOE was to align the staff performance with the Company Vision of “Pursuit of Excellence” (Clough 2018a), utilising a Balanced Scorecard approach (Kaplan & Norton 1992). This approach involves the cascading of goals so that each level supports goals relevant to the next higher level. The rational for this is to ensure employees understand how their work relates to their manager’s goals and to align the employee’s work with the organisation’s strategic direction and goals.

The MPOE system is based on the basics of goal setting theory (Locke & Latham 1990; Locke & Latham 2013) and utilises the outcome to evaluate the employees performance to adjust pay and promotion. For the purpose of this case study if will be assumed that Clough’s use of the MPOE system has been successful in achieving the corporate strategies. This paper will explore how Goal Setting Theory explains the effects individuals’ performance motivation and how Organisational Justice Theory explains employee satisfaction and performance in relation to the application of the challenges in applying the MPOE performance management system.

CRITICAL ANALYSIS

ASSIGNING GOALS IS HARDER THAN IT SOUNDS

Goal Setting Theory is a well-established and widely accepted motivational theory that describes how employees can be motivated to improve performance where specific, difficult, reachable goals are set (Latham & Locke 1979). Assuming an individual possesses the knowledge and skills, commitment to the goal is critical for specific and difficult goals to be motivating (Latham, Seijts & Slocum 2016; Latham & Locke 1991).

To ensure employees have specific and achievable goals the MPOE system Clough utilises suggests goals set by supervisors are SMART (Specific, Measurable, Achievable, Relevant, Time-bound) as defined by Doran (1981). The MPOE system additionally requires subordinate collaborate with their supervisor and agree on goals, enhancing goal commitment, aiming to have difficulty of the goal as the motivational factor (Latham & Steele 1983).

Although MPOE system requires SMART goals used, MERCER (2013) indicates that 29% of managers are inadequately skilled in setting SMART goals, indicating a potential for a portion of employees to have poorly set goals. So although MPOE encourages subordinate commitment to the goal, a varying skill level of goal setting could create a margin of error affecting job motivation up to 16% (Mento, Steel & Karren 1987).

CHALLENGES OF PEFORMANCE MANAGEMENT

The idea of organizational justice stems from equity theory (Adams, 1963, 1965), which posits that judgments of equity and inequity are derived from comparisons between one’s self and others. Greenberg (1987) introduced the concept of organisational justice with regard to how an employee perceives the behaviour of the organisation and the employee’s resulting attitude and behaviour.  Where an employee perceives unfair treatment with regard to outcomes and processes the employees respond both affectively (e.g., low commitment) and behaviourally (e.g., turnover). (Greenberg 1990).

There is conjecture in studies on the factors of organisational justice (Latham & Pinder 2005), with distributive and procedural justices agreed and forming a two factor model, interpersonal justice is added for a three factor model, while Colquitt (2001) argues informational justice should be split from interpersonal justice for a four factor models. Irrespectively of the model chosen, distributive justice relates to the perception of fairness in allocation of rewards of the organisation and procedural justice relates to the perception of fairness in process by the organisation. For this case study it is assumed that interpersonal justice is a combination of perception of fair, polite interpersonal interaction with management and perception accurate explanation of procedures (informational justice) when determining organisational outcomes.

The first challenge with Clough’s application of the balanced scorecard approach is the organisation’s goals (Clough 2018b), which are broad and out of date, leading to difficulties in cascading to individuals due to lack of specificity. Additionally, the cascading of goals is time consuming for managers to complete, particularly with the relative high level of hierarchy inside Clough. By the time the cascade reaches individual employees, it has sometimes been several months, if the goals arrive at all.

Procedural justice has been defined as the perceived fairness of the standards or procedures by which allocation decisions are made (Folger & Konovsky 1989). Employees receiving cascaded organisational goals that are relevant while other employees are not receiving cascaded goals can lead to a perception of inequality. Employees without cascaded goals can question the breakdown of the system and why other employees have cascaded goals, alternatively, the employee may change their reference person, cognitively restoring the justification of equity. If the perceived inequity in the treatment of allocation of goals could motivate the employee who did not receive cascaded goals to act in accordance with the EVLN (Exit, Voice, Loyalty, Neglect) framework described by Farrell (1983), or respond by reducing commitment or other negative corporate behaviours (Colquitt et al. 2013).

The final challenge with Clough’s application of the balanced scorecard approach is due to the company structure. Clough is primarily a project oriented company, with a majority of employees assigned to a project and reporting daily to their on project supervisor. However, each employee has a corporate manager who is responsible for the MPOE process. As such, the corporate manager either cascades or develops goals with the employee in line with their corporate objectives, which invariably have no association with the daily tasks of the employee. Alternatively, the employee may be able to incorporate project goals into the MPOE or, more likely, self-assign unofficial goals associated to work tasks

If the employee solely has corporate goals set in MPOE there is a potential the employee will focus on these goals at the expense of the project work tasks. Shah, Friedman and Kruglanski (2002) describe the issue as goal shielding, where attention given to the focal goal while alternative pursuits are ignored. Even where the set corporate goals are difficult and attainable and therefore motivating to Goal Setting Theory, the project non-goal areas are ignored, but these project areas are critical for the performance of the employee and their satisfaction. A decline in day to day performance can result in loss of motivation (HOW) to the employee as they neglect the current pressing issues.

Where the employee has corporate goals that differ to the official or unofficial project goals, this leads to the employee experiencing goal conflicts. If an individual has multiple conflicting goals, it has been shown that the conflict is handled by prioritising one goal at the expense of the others (Erez, Gopher & Arzi 1990). Locke et al. (1994) indicated that conflict might affect effort, persistence and focus of attention on goals directly. The goal conflict that is potentially created in Clough through the conflict of Project and Corporate goals leads to a lack of commitment to some of the goals (Slocum, Cron & Brown 2002), which is a key component of motivation for goals.

GOAL CYCLE, PARTICIPATION AND FEEDBACK

Clough operates an annual review cycle of the MPOE system with additional mid-cycle feedback. The annual review involves supervisor and subordinate discussing the success or failure of the goals from the previous year prior to setting the goals for the next 12 months. The mid-year feedback session between supervisor and subordinate is used to assess the progress in the current annual goals, but prevents the creation or modification of additional goals.

The engineering, construction and commissioning industry in which Clough operates can be varied with individual projects and tasks running between 4 weeks to 4 years. The larger projects which run into the years are additionally dynamic, making it very difficult for corporate managers to clearly identify tasks that will be conducted over a 12 month period. As such, many goals set during the MPOE process are related to known short term project tasks, resulting in goals that will be completed inside 3-6 months, effectively leaving the employee with few to no goals for the remainder of the MPOE process. Various studies (Latham & Yukl 1975; Locke et al. 1981) have shown that specific, difficult goals lead to higher performance than no goals, thus for Clough the annual setting of goals has the potential undesired effect of leaving individuals without applicable goals for 6-9 months of the year, effectively eliminating the motivation advantage of goal setting.

The project environment inside Clough creates another issue for the staff with many projects requiring relocation to remote or international locations. The Clough MPOE system has been set up to only operate inside the Clough internal network, meaning that all employees located outside of these offices are unable to participate in their goal setting. The lack of ability to participate could see the employee perceiving organisational injustice in the form of procedural injustice. This could lead the employee to disengage from work leading to stress and burnout or respond both by reducing commitment and decrease in helping behaviour (Latham & Pinder 2005).

COST OF ACHIEVING SIMPLE GOALS

Where goals have not been cascaded managers in Clough turn to a sheet of “Common Corporate Goals” to be used in an effort to quickly provide potential goals for discussion. The suitability of these goals for the entire diverse workforce in Clough ensures that the goals are not specific. As the subordinate’s performance appraisal hinges on the success of achieving these goals there is a possibility that the subordinate will aim to establish simple goals. The potential to establish simple goals can be analysed against both Goal Setting and Organisational Justice theories.

The main premise of motivation using Goal Setting Theory is that the goal is specific and challenging in order to achieve motivation of the individual (Latham & Locke 1991; Locke & Latham 2013). Thus if the individual is assigned a simple goal in order to guarantee achievement then the positive effects of setting the goal are eliminated as the employee will not have an external motivational force.

Organisational Justice Theory acts on the peers of the individual who have been able to set simplistic goals. Although the goals these peers set are potentially more challenging and therefore more motivating, the individual may perceive unfairness of completing a performance appraisal with inequitable goals, which could affect motivation through distributive justice. This is particularly of point as the success or failure of reaching these goals has an effect on pay and promotion. The effect of distribution justice in this instance will be to motivate the employee to attempt to balance this inequity. This balance could be obtained by selecting alternative peers who have similar goal difficulties to compare to, complain about the inequity, reduce their level of commitment, decrease helping behaviour or potentially leave (Colquitt et al. 2013).

APPROACHES

GOAL SETTING SHOULD BE SIMPLE

Clough utilising the MPOE system to establish goal setting is sound and should lead to motivation. The setting of SMART goals is an important aspect of the MPOE system, and the potential lack of ability of supervisors in setting SMART goals should be addressed. If Clough provides training in SMART goal setting it is also possible that the use of “Common Corporate Goals” as prescribed by Clough will be able to be adapted into more specific, task associated, goals. Additionally, if the training for supervisors included an introduction into goal setting theory, highlight the effect of difficult but obtainable goals, the there is a potential of more suitable goals being set.

The potential for goal shielding and goal conflict in Clough cannot simply be addressed by assigning goal setting to the project supervisor. Corporate goals must be managed in conjunction with project goals and the project supervisor may not be a Clough employee and unable to participate in MPOE. Additionally, this issue ties into the turbulent nature of Clough’s project work and a 12 month goal setting not being appropriate. Latham and Seijts (1999) indicated that in a complex goal environment, such as the engineering industry, setting only a distal goal has been shown to lead to worse performance than urging people to do their best and shorter term intermediate goals are required. Additionally, in a complex goal environment regular feedback that is reacted quickly to is critical for effective performance (Frese & Zapf 1994), thus where an employee is on a project with limited interaction with the corporate  manager, the regular feedback will be required from the project supervisor and therefore the project supervisor must be engaged in the setting of goals.

Given that the employee requires both corporate and project goals and currently Clough’s MPOE system involves only corporate manager in control of the MPOE process it would be advantageous to ensure participation of both the employee and the project supervisor. To enable this the corporate manager should ensure that an official MPOE goal is set requiring the employee to set, review and provide feedback on project proximal goals be set with project supervisor on a 3 month interval. This goal setting should be set and recorded outside of the MPOE system and allow for goal adjustment throughout the year. Utilising project set dynamic goals, the employee will then have more frequent, specific feedback sessions showing progress towards the goal that can continue to motivate the individual throughout the year.

The obvious solution for the disparity of cascaded vs. non-cascaded goals would be to ensure that all goals are cascaded. However, if this was possible the MPOE system would have employed this already. Procedural, distributed and interactional justices are interrelated Organisational Justice Theory, thus there is a potential to utilise Interactional Justice (through Informational Justice) to limit the perception of the Procedural Justice issue found in the cascading of goals (Biswas, Varma & Ramaswami 2013). Colquitt (2001) indicates with suitable and fair communication a supervisor may be able to utilise this component of interactional justice, focusing in the explaining the reasons for the inequality ensuring explanations are reasonable, timely and specific.

Clough regularly communicates the importance of MPOE to all employees, so it is unlikely that interactional justice will address the employee’s perceived inequity due to inability to utilise the MPOE system. Clough’s likely driver for lack of access to MPOE is cost of distribution, which will need to be weighed against the potential cost of losing employees. An alternative solution could be to distribute stand-alone laptops with the MPOE system installed to all remote and international locations that would enable employees to participate. Additionally, the effort of providing a solution, even if not perfect, will adjust the perception of procedural injustice, particularly if coupled with open and fair communication.

Finally, managers allowing simple goals to be set for subordinates goes against the motivational principles of the MPOE system, and as mentioned previously, could be addressed through training in goal setting and its importance. Self-Concordance theory argues that individuals set goals for one of four types of reasons; External, Introjected, Identified, Intrinsic (Sheldon & Elliot 1999) and having goals aligned to one or more of these reasons enables individuals to put effort into goals (Judge et al. 2005). For the employee with the simple goal the goal is aligned with external reasons, thus aligning this goal with one or more additional reasons has the potential in increase motivation. Additionally, it is possible for self-concordance to counteract the distributional justice motivational issues by ensuring the goals set are aligned with the individual’s personal reasons for goal attainment.

CONCLUSION

Clough’s use of a performance management tool to motivate and assess employee’s performance has the potential to negatively affect the motivation of their employees. Through the use of some basic training in goal setting and arming managers and subordinates with an understanding of the aim of goal setting will assist in maintaining motivation.

Additionally, open and fair communication while aiming to ensure that all employees are included in the performance management should manage the employee’s job satisfaction and motivation.

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