Performance appraisal system and its impact on employees
Analyze performance appraisal system and its impact on employees’ performance in different working environments ‘a case study of Royal Dutch Shell retail specific to operation in UK and PAKISTAN. Executive summary
The research explores the effect of performance appraisal on performance of employees and in turn on companies as well. The purpose considers the operation of Shell in UK and Pakistan to enhance its employee performance. Furthermore, the academic requirement, the research aim and question are specified in literature available on performance appraisal system. Also with the supporting of related theory available by book s, journals, articles and surveys, the critical review of literature is made in all the aspects of topic and concept of performance appraisal system and its relationship to drive performance.
The self administered questionnaire is distributed among the selected sample, like Shell UK and Shell Pakistan staff members, also a telephonic interview from the top mangers helped in collection of the required data. Than data is analyzed through different ways of comparison and contrasts. Finally the general recommendation of research findings is made on the current performance appraisal system and main driver of employee performance which company and employee wants. Table of contents
INTRODUCTIONThe study seeks to examine ‘Analyze performance appraisal system and its impact on employees’ performance working in different working environments ‘a case study of Royal Dutch Shell retail specific to operation in UK and PAKISTAN. In the 1980s Western world observed the achievement of Japanese organizations.
The main factor identified for this success was the recognition and proper utilization of their work force. This has subjective the key practitioners and writers of western countries and they also start considering the significance of proper management of their work force, they name this management, Human Resource Management or HRM. Most the organization is no longer rely on the fixed resource of capital and technology to achieve competitive advantage in fast changing and highly competitive environment(sparrow et ,1994).its mainly on the hiring and skilled retention, devoted and motivated employees that will give an organization a competitive edge.
To improve the effectiveness of their employee’s organization are more focusing on the management of their human resources. According to Boxall and Purcell (2003) when the human resource practices are aligned to an organization business strategy it become more effective. Furthermore, McCourt and Eldridge (2003) propose the integration of individual human resource practices so that they balance each other.Nonaka and Takeuchi (1995) and Collins and Porras (2004) highlight organizations which have successfully aligned their human resource practices with business strategy. Unfortunately, for many organizations the effective human resources management is still problematic.
Therefore Bratton and Gold (1999), state that performance appraisal (pa) in organization is a continuous and problematic process which is not liked by both mangers and employees. According to Latham and Wexley (1994) performance appraisal is like a seatbelt which still necessary, is unpopular. Lawler et (1995) suggest that since it is noticed that performance appraisal fulfilled the needs of organization and the individual, which are different, performance appraisal will always be characterised by differences in purpose, miscommunications and ineffectiveness.
Fletcher (2004) states that many organization move away with the effective performance appraisal. The term performance appraisal will be used in this study to consign to the appraisal practice. Different organization called this on different names such as performance evaluation, performance review, performance rating ,employee evaluation and employee appraisal (ivancevich ,1995).after finding that employee performance can affect largely on productivity of organization ,they continue to endeavour to find out the most effective way of managing its human resources.
Performance appraisal is human resource practice used by organization for the development of their employee to best output potential and overall enhancement of an organization’s performance and efficiency. Shell is known for exploring and producing oil and natural gas products and also famous for retail stations. Shell transport and trade oil and gas product for heavy industrial uses includes fuel and lubricant for ships and planes. Many other activities includes wind power, electricity production, and making solar panels, producing petrochemicals which are used for coatings,plastics and detergents, and build up new technology for hydrogen vehicles.
More importantly, approximately 3% of the world’s oil and approximately 3.5% of the world’s gas is produced by Shell companies, similar to other major private oil and gas companies (Shell, 2005). Using royal Dutch shell plc for research study is because it is international group of energy and petrochemicals companies, operating in more than 145 countries and employing approximately 119,000 people (shell, 2005).
They are one of the biggest in the oil sector is known to be listed in the top 50 companies on number one in the world. (Fortune ,Global 500 ,2009).This research is going to look at the concept of HRM, draw up a unified work to examine its role on profitability and growth of businesses, and finally, investigate the current business context with regards to performance appraisal system of Royal Dutch Shell Plc. Literature review
2.1 Performance appraisalPerformance appraisal is one of the important practices of human resource management started early in 1813 in United states of America ,(Bellows and Estep 1954m cited in wise and Buckley ,1998)so there is increasing interest in and uses of performance appraisal system in the last three decades stated by Murphy and Cleveland ,(1995).therefore extensive literature available on this subject. in spite of this success ,many organization still struggling to make and implement effective performance appraisal system.
All the thought given to process ,many of flaws still willful (wise and Buckley ,1998).performance management is a bigger picture in which performance appraisal is located (piggot ,Irvine ,2003),performance management focuses on providing a framework for guiding employee performance towards achieving organizational goals(Torrington et ,2002)performance management is therefore anxious with improving the performance of teams and individual to ensuring the optimal environment is available for their employees to enhance their performance (Armstrong ,2003).
Wilson and westrn, (2003), and Cattell, (1999) argued that performance appraisal is looked in the broader term and that it’s begin in management by objectives, performance management is a continues repeated process of decisive performance expectation, supporting performance, appraising performance and, managing performance standards (Analoui and Fell, 2002). Performance appraisal generally means the annual interview between the manger and employee to discuss the individual’s job performance during the previous 12 months the result of action plans to encourage enhanced performance (Wilson and western, 2001).
Armstrong and Barron (2003) stated that it is easier to achieve the desired goals and objectives when the manger and subordinates clearly know what is expected of them. According to Fletcher (2004), performance appraisal provides a prospect for a manger and for subordinates to discuss the previous performance work on agreed objectives and standards to reach an agreement on how the appraise can enhance job performance.
Performance appraisal is spread in organization since 1960s for employee evaluation, for organization planning purposes, and it is becoming the important element for maximizing the effectiveness of all part of the organization ,from management staffing and development to production and customer services (Creamer and jonosik, 2000).it was used before in this century by larger organization mostly for the administrative purposes (peter and Liang ,2007). 2.2 Why performance appraisal?
Performance appraisal is one of the important among the HRM practices ,many organization is able to measure the development of their employee posture and behavior through the use of appraisal system.teh information which is get by this approach is used for the changing in the selection and training practices to chose and develop employees with the require behavior and attitude.
The effectiveness of skilled employee is not in favor unless they are properly motivated to perfume their job (Singh K, 2004). Wan et al (2002) explored that there is encouraging relationship between performance appraisal and employee performance or organizational performance. The basic object of performance appraisal is how productive and employee is and verify the way in which employee productivity can be improved. 2.2 .1 Benefits of performance appraisal to employee
Generally, performance appraisals serve an important purpose in the management of workforce and in achieving the organization objective. From employee perspective, performance appraisal give direction to employee that what exactly their way of required to do the job, also to motivate them to achieve their target and help them to improve their work performance. According to Brown and Heywood, (2005) performance appraisal is formalized way of monitoring the work force and it is proposed to be a management tool to enhance the performance and productivity of worker. Performance appraisal also improves the commitment of employee (Brown and Benson.2003).
The Organization needs an appraisal system in order to put their managers in charge of relation to the performance of organization because when employees are given their job responsibilities and duties, then they are liable for these responsibilities. Also Fletcher (2004) suggested that performance appraisal provide a platform for employees to look forward their tough goals and objectives, which leads them in successful completion of their job.
The positive feedback receive from the mangers in appraisal interview will motivate employees in improving their performance likely. Martin and Jackson, (2000) appraisal is also a method of enhancing employee training and development as it provide information about the strength and weaknesses in performance, which create a debate how to improve the performance of employee. In the end it helps the employees to understand their overall contribution in achieving organization goals (Martin and Jackson, 2000). 2.2 .2 Benefits of Performance apprisal to organization
In most of the organization performance appraisal are used to take meaningful decision regarding salary increases, promotion and transfer. Performance appraisal is also the known to be best for the training and consultation of individual employees by their superiors to improve job performance (Wan D et al 2002, Sels L 2003: Singh K, 2004).the performance related pay processes can also be used in integration with appraisal system. There are many ways by which organization will enhance the performance of their employees.
They use performance based compensation to give rewards on successful completion on specific organization goals and objectives. Further research has given evidence that compensation to employees help in improving their performance (Gomez –Mejia & wellbourn,1988 ., Milkovich & Boudreau 1998). Another system is the bonus system which can also be used for motivating employee to work towards their achievement of the company (Pfeffer 1994).Empirical studies done and found that there is positive relationship between performance-related pay and overall company performance. 2.3 Problem with performance Appraisal
Deming (2000) stated that performance appraisal is considered to be one of the seven deadly diseases of management practice. He argued that rating employee on individual based was not a suitable way of measuring performance since the working environment is controlled by manager contributes to and affects the way of employee performance. Many problems arise during performance appraisals, some arise from manger side and some from employee, and also some arise from other factors. 2.3 .1 Employee and mangers perception about PA
Mostly employees dislike performance appraisal interview for the fear of uncertainty in handling the questions, fear of criticism, concern about promotion, and also fear because their future job with organization mainly depends upon the outcome of these interviews. Employees see these interviews as validation for those decisions which are already made concerning salaries, promotion and job tenures.
Poorly conducted performance appraisal system can more damage the organization environment. In organization many managers also dislike performance appraisal interviews; it’s difficult for them to explain employees about their poor performance they find it unpleasant and awkward. Some managers fear that performance appraisal gives employees self satisfaction and result in lower of performance. Due to these reasons, they not give any positive information to employees.
Another reasons to give regular scheduled for taking appraisal interview. Some manger not involve in seriously performance appraisal they just taking it as job to be completed not a mean of exchanging or sharing suggestion and getting new ideas from their subordinates (Wells and Spinks ,1994). 2.3 .2 Complexity of PA procedure
Armstrong and Baron, (1998) has name performance appraisal as ‘dishonest annual ritual’ because manger and staff disbelieve performance rating with the faith that performance related pay may function unfairly. Some problems with appraisal are known as complex procedure used in assessment, biased elements which bring confusion in the assessment, rewards and progress in the hand of single boss, employees have to work with their appraisers after the appraisal and idea is that performance appraisal aims to limit the collective aspects of work.
There are some common problems which are faced by both appraiser and appraise such problem like paperwork; formality of the appraisal process .that’s why performance appraisal has been termed as curse rather than a solution for organization (Taylor, 1998). 2.3.3 Performance appraisal to organization
Grint (1993) argues that due to the subjectivity of performance appraisal is not giving the positive expected result to organization and is unlikely to assist objective appraisals. He indicates that performance appraisal is not as much acceptable to line managers as it is acceptable to human resource managers. However he admits that performance appraisal still play important role in organization. Fletcher (1997) suggests that expecting too much from performance appraisal is danger since it in unlikely solution for all performance problems. In spite of the criticism, Fletcher (2004),
Murphy and Cleveland (1995) argue that performance appraisal is important for improvement performance in organization and Simmons (2002) say again that nobody give reasonable alternative for appraising perfomance.Fletcher (2004), Murphy and Cleveland (1995) suggest that the process that is followed in design and implementation of such a system prohibits effectiveness rather than only performance appraisal is not responsible.
Fletcher (2004) further argues that organization spends proper money, time and willing to spend effort can achieved successful performance appraisal system. He also acknowledges though that if organization has an effective performance appraisal system they still have to monitor continuously that system to make sure that it compels all needs of its stakeholders. 2.4 Why performance appraisal fails
Fletcher and Williams (1985) point out that only assessment of people is not only thing involve in appraising person’s work performance. in fact there are two incompatible roles involve in appraisal- these are judge and helper. In its unclear format, foot and Hook (2002) stated that some usual appraisal schemes have been accused of being run for the profit of personnel managers or top managers, with many other people in the organization not really understanding or appreciating what the performance appraisal scheme was trying to achieve.
A sample of a typical form for performance appraisal using Management by Objectives (MBO) i.e. (based on objectivity rather than subjectivity) is drawn in appendix a below, that shows that the questions are quite straight forward and seems no direct confusion in terms of understanding: 2.4 .1 Expected many results from PA
Foot and Hook (2002) raised the point that why the performance appraisal fails and where we are mistaken? One major point is that too many purposes are attached to fulfil by the appraisal system. Usually, most of the appraisal schemes drop into one of three categories i.e. they are concerned with performance, potential or reward. Failure to this occurs as they don’t fall into one of the three categories described, but are expected to achieve all three in general.
The recognition of appraisal system downgraded due to the reason that many managers claim that they give this sort of feedback all the time informally, and if they do this well there may indeed be no need for a formal appraisal scheme. Foot and Hook, (2002) But in general, it is important to say that it is unlikely that all managers in a particular organization will appraise their staff constantly and effectively, so we do not have enough argument against the use of performance appraisal systems. There are some other flaws in the approach of performance appraisal that are mentioned by Foot and Hook (2002) as below: Lack of clarity
Linking appraisal with payKeeping information secret from the employeeAnd Subjectivity or attacks on the appraises characterAs we now entered into the new millennium, so almost everything is reshaped and rethought for more effective results, so the performance appraisal as well. Mentioned by Stone (2002) that a study by William M. Mercer Consulting in 1995 suggested that 84 per cent of responding companies would continue to use the results of performance appraisals for its further improvement. So it is obvious that performance appraisals will be the keystone of performance management programmes. This studies show that majority of organizations will continue to use some version of these systems with the passage of time. 3 Methodology
This research follows methodology of Saunders (2003) explain the research its in his famous ‘research onion’. The research methodology explained the overall process of implementing research which includes information about how the data will be collected, from whom, who will be included in the collection of data and how the involvement made in research (Saunders,2003).In this research the assessment in detail of findings from the primary research. This will be done through the analysis and discussion of the result obtained through the unstructured interviews and questionnaire which was conduct with various personnel of the shell Pakistan, and Shell UK .
The analysis and findings from the primary research, relates to the objective of the research mentioned in the literature review. The primary research findings will be discussed in detail in order to draw conclusions and recommendations, which will discuss in the organizational findings and discussion. In the research a total of 70 questionnaires spread among the targeted sample of shell Pakistan. A total of 28 completed and returned, showing the participation average rate as 47%, which is still a good response rate for questionnaires.
The feedback was expected at least 50%; the reason behind was the good management cooperation and the researcher’s good recognition among other employees. The management distributed and recollected the questionnaire in the time frame allotted for this activity and the management also shown their own interest due to the examination of upcoming results to find out the actual root of many problems. In addition to the overall result of the questionnaire, the telephonic interviews were also analyzed to see how it can influence the whole results.
While in Shell UK the same number 70 questionnaires distributed across the selected sample, mainly these questionnaires distributed in the shell retail patrol service stations. in which 35 of them completed and returned, which is the good expected rate of feedback 50 %.the reason is the mangers corporation and organization culture ,which always welcomes these research for the result which gives useful amount of information to the organization to help them in their organization development. 4 Organizations findings and discussion
4.1Organizational Context: Royal-Dutch Shell GroupOverviewThe ‘Royal Dutch Company for the development of petroleum properly in the Netherlands East indies’ was registered in Hague in 1890.than in 1949 the name is changed to Royal Dutch petroleum company .Shell was first registered back in 1897 by brothers Marcus and Sam Samuel called as ‘the “shell” transport and trading company, Ltd .(now it become PLC ,public limited company ).The first joint operating company Royal–Dutch /shell ,the Asiatic petroleum company was first established in 1903 and in 1907,Royal-Dutch and shell merged their operation respectively ,in 60 % Royal-Dutch ,40 % shell.
Even though after merging their interests the main company remain separate: like one can buy share in Royal-Dutch or in Shell-Transport, but not in the Group as such.US oil production increase due to the Group founded the American Gasoline Company to sell gasoline along the pacific coast and also to buy oil in Oklahoma establish the Roxanna petroleum in year 1912.this growth further boost up in 2000 resulting 34 percent earnings from discovery and production and 4 percents is comes from the sales of oil products were generate in USA.(shell .com )(financial report 2009,Royal Dutch shell plc). 4.2 Largest profitable MNCs( multinational corporation)
The Royal Dutch /Shell Group is one of the largest and profitable MNCs in the world (Shell plc ,Annual report 2009 ) .The Anglo –Dutch group of companies is the Royal–Dutch shell group, the two holding companies which own the group is being the shell transport and trading company Plc (UK) and Koninklijke Nederland (Royal Dutch petroleum company, Netherlands).these companies have divided share between them are 40 percent and 60 percent respectively of the following three subsidiaries, which also own them further holding companies for more operating subsidiaries: these are Shell petroleum NV (Netherland)
Shell petroleum Company LTD (UK)Shell petroleum Inc.(USA)4.3 SHELL UK4.3 .1 from oil well to the petrol pumpShell UK is best known for its energy product and services from the oil well to petrol pump, from the pit of North Sea to the warm house throughout UK, shell delivers the energy which full fill the Britain needs. Shell makes major contribution in UK economy, Shell is not just through providing product and services to UK customer ,but also contributes through employment ,investment and tax revenues which boost up economy. Shell has around 8,600 workforces in the UK. In UK energy that is use by millions of people for heating and powering their homes Shell is the major provider of energy in UK.(shell.co.uk) 4.3.1,2 Upstream business
Shell main upstream business is a leading player in the North Sea for over 30 years. In UK sector of North Sea, shell is giving interest to more than 50 fields, operated in more than 30 installation platforms, 30 subsea installations, three onshore gas plants and a marine terminal. Shell is producing approximately 15 % of UK oil and gas on behalf of its co-ventures.(shell.co.uk) 4.3.1,3 Downstream business
Shell Downstream business includes 900 shell-branded service stations, operates the second largest refinery in the UK which providing products like premium fuels, chemicals for industry, and V-power patrol. The global headquarters of shell downstream supporting business functions is located on the south bank of the Thames in London.
Shell technology centre Thornton, involved the largest community of scientists working on huge range of research projects, and also working on technologies associated with fuels, lubricants, additives, and engineering.(shell.co.uk) In term of oil and gas production volumes shell is the largest exploration and manufacturing companies operating in UK. Shell operates major number of its operation in UK continental with the 50:50 joint ventures with ExxonMobil. Mostly UK oil and gas production came from the North Sea .in the Atlantic margin area, shell has an interests as non-operating contributor mainly in the west Shetlands area, which cover area of Schiehallion, Clair and loyal fields. 4.3.2 Shell Pakistan
Bovee, (1997) stated that today work place is completed of the people who differ in race, gender, age, culture, family structure, religion and educational background. Such cultural diversity is the second movement contributing towards the importance of ability of successful communication with people of other cultural. The business messages, how to create, planned, sent, received, and interpreted in the work place is also affected by diversity. (John v, thrill and Courtland, 1977). 4.3.2,1Shell entry in Asia
The brand name ‘Shell’ enjoys a 100-year history in this part of the world, dating back to 1899 when Asiatic Petroleum, the extreme eastern marketing arm of two companies: Shell Transport Company and Royal Dutch Petroleum Company began importing kerosene oil from Azerbaijan into the subcontinent. Even today, the legacy of the past is visible in a storage tank carrying the date – 1898. 4.3.2 ,2 PAKISTAN subcontinent
The known history of Royal Dutch Shell plc in Indo Pakistan subcontinent dates back to 1903 when partnership between the two big companies, The Shell Transport & Trading Company and the Royal Dutch Petroleum Company struck and start supply petroleum to Asia.
In 1928, to increase their distribution capabilities, the marketing interest of Royal Dutch Shell plc and the Burma Oil Company Limited in India were merged and Burma Shell Oil Storage & Distribution Company of India was born. After the independence of Pakistan in 1947, the name was changed to the Burma Shell Oil Distribution Company of Pakistan. In 1970, when 51% of the shareholding was transferred to Pakistani investors, the name changed to Pakistan Burma Shell (PBS) Limited.
The Shell and the Burma Groups retained the remaining 49% in equal propositions. In February of 1993, as economic liberalisation began to take root and the Burma divested from PBS, Shell Petroleum stepped into raise its stake to 51%. The years 2001-2 have seen the Shell Petroleum Company successively increasing its share, with the Group now having a 76% stake in Shell Pakistan Ltd (SPL) – an expression of confidence. The company is among one of the best company in the country. The company provides the entire fuel products, competing with the international standards on the standard price. 5 Main findings
After the organizational context the main description of differences in implementation and adaptation of HR practices with the focus on performance appraisal system for their employees while working in the two different business environment ,which is shell UK and shell Pakistan. In research finding it is clear that the present appraisal system at Shell Pakistan is conducted annually in each and every department of the organisation.
Also in findings it is clear that the annual appraisal system at Shell Pakistan consists of a formal appraisal system to evaluate the employee performance. The finding also results in that a very short number of employee 15 % is fully aware of objectives of performance appraisal system, 15 % of wholly respondent fully aware of it means that makes a very weak performance appraisal knowledge base for their recommendation. However, it is clear that in Shell Pakistan there is a significant weakness in conducting of effective training and development programmes by management.
As employee working in the ‘Shell Pakistan ’there is need of more awareness program to let the staff fully aware and get the maximum benefits from it. While in shell UK also uses formal appraisal system and uses the scorecard for the performance appraisal, employees are rewarded individual performance and also the team achievement in put to sustainability. As comparison to Shell Pakistan, In research findings it is clear that very good percentage number of employee like 40% of wholly respondent is fully aware of performance appraisal and reward management.
They know that they can assess on the number of grounds works and will get rewarded according to their individual and group performances. There is also continues training and development program running time to time for the awareness of Shell UK employees. That why employee working for Shell UK is getting much more benefits compare with the employee working for Shell in Pakistan. Although ‘Shell Pakistan’ has already been practicing it, there still consist some necessary considerations to PRP (Performance Related Pay).
Contingent pay covers various methods of providing additional rewards for individuals or teams. As a cost effective factor, stated by Armstrong (2002) that increments may be withheld for unacceptable performance although this is rare, and some structure have a ‘merit bar’ which limits increments unless a defined level of ‘merit’ has been achieved. In the table 1 of appendix has straight merit increments shown as example of merit pay. The increments percentage will depend on total merit pay budget for each performance grade, the number of employee in each performance level and finally their current level of base pay, (John Shields 2007).
One of the best ways of motivation is linking pay directly to employee performance, in Shell UK finding results 70 % of the questioner’s respondents were strongly agree to this statement while 20% agree, 7% disagree and 3 % strongly disagree. It implies that there is need of contingent pay in the company. Even though pay for performance and contingent pay is difficult in mange, but include many methods of providing rewards for individual or team (Armstrong and Stephens, 2002). Improved team working is one of the core elements in t