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Employee performance appraisal

Employee performance appraisal is one of the most commonly used management tools in the United States. Over 90 percent of large organizations including 75 percent of state employment systems require some type of annual performance appraisal (Seldon, Ingraham & Jacobson, 2001). Performance appraisal is one of the most widely researched areas in industrial/organizational psychology (Murphy & Cleveland, 1993). However, the traditional research agenda has done little to improve the usefulness of performance appraisal as a managerial tool.

Recent research has moved away from studies of rater accuracy and psychometric measures to themes of employee reactions towards performance appraisal as indicators of system satisfaction and efficacy. Employee perception of fairness of performance appraisal has been studied as a significant factor in employee acceptance and satisfaction of performance appraisal. This study investigated employee reactions to fairness of and satisfaction with an existing performance appraisal system utilizing a hypothesized four-factor model (Greenberg, 1993) of organizational justice as the theoretical basis.

The underlying hypothesis was that the conceptualized four-factor model, which differentiated between the constructs of interactional and procedural justice, would best represent the underlying factor structure of the data. Data were obtained via a survey questionnaire from 440 participants from two organizations that were part

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of a large public employment system. Ten multi-item scalesrepresenting four factors of organizational justice and performance appraisal fairness and three scales indicating satisfaction were included.

The findings of the study indicated that respondents perceived the performance appraisal system was to be fair as indicated by their agreement with 9 of the 10 scales used to measure reactions to fairness. The respondents also indicated their relative satisfaction with their most recent performance appraisal rating and with their supervisor. Less satisfaction (although not dissatisfaction) was indicated with the performance appraisal system overall.

The conceptualized four-factor model was not found to represent the underlying factor structure substantially better than alternative plausible three-factor models. The best fit three-factor model, however, provided some support for the differentiation between procedural and interactional organizational justice factors, which is a distinction that has been debated in the organizational justice literature. Employee performance appraisal, whereby a superior evaluates and judges the work performance of subordinates, is one of the most common management practices utilized in organizations in the United States.

Over 90 percent of large organizations employ some performance appraisal system and over 75 percent of state employment systems require annual performance appraisal (Locker & Teel, 1988; Murphy & Cleveland, 1991; Seldon, Ingraham & Jacobson, 2001). The widespread use of performance appraisal can be attributed to the belief by many managers and human resource professionals that performance appraisal is a critically needed tool for effective human resource management and performance improvement (Longenecker & Goff, 1992).

The assumption appears to be that an effectively designed, implemented, and administered performance appraisal system can provide the organization, the manager, and the employee with a plethora of benefits (Cascio, 1987; Coens & Jenkins, 2000). In spite of its widespread use, or perhaps because of it, the practice of formal performance appraisal continues to come under considerable scrutiny and criticism. Performance appraisal is one of the most widely researched areas in industrial/organizational psychology (Murphy & Cleveland, 1991.

) Researchers have developed and practitioners have implemented various changes to the evaluation criteria, rating instruments, and appraisal procedures in an effort to improve the accuracy and perceived fairness of the process (Banks & Murphy, 1985). However, in spite of the attention and resources applied tothe practice, dissatisfaction with the process still abounds and systems are often viewed by employees as inaccurate and unfair (Church, 1985). Evaluation of Performance Appraisal Efficacy

Widespread frustration and dissatisfaction with performance appraisal has challenged researchers and practitioners in both the private and public sectors to evaluate the effectiveness of performance appraisal systems. Evaluation of the success of a performance appraisal system is recommended as part of the system implementation and management process. However, comprehensive research of the evaluation of performance appraisal system in a field setting is scarce. Murphy and Cleveland (1991) advise that problems with current methods for evaluating performance appraisal systems represent some of the most practical problems facing practitioners.

Traditional approaches to evaluating performance appraisal systems have not adequately considered the complex personal, interpersonal, and organizational factors that affect the efficacy of performance appraisal in the organization setting (Mohrman & Lawler, 1983; Murphy & Cleveland, 1991). A significant amount of performance appraisal research has focused on the rater and evaluation of rating accuracy, which is often studied in an isolated context, generally in a laboratory setting. Extensive research has concentrated on the cognitive processes of the rater and psychometric measurements of performance appraisal.

This research agenda has done little to improve the usefulness of performance appraisal as a managerial decision-making tool (Banks & Murphy, 1985; Landy & Farr, 1980; Napier & Latham, 1986). The traditional research themes of rater accuracy, psychometric measures, and technical considerations have recently been expanded to include organizational acceptance, employee attitudes toward the organization, and the performance appraisal system and employee satisfaction as key indicators of performance appraisal efficacy (Cleveland & Murphy, 1992; Murphy & Cleveland, 1991; Tziner, Murphy & Cleveland, 2001).

Murphy and Cleveland (1995) suggested that employee reaction to appraisals is a class of neglected criteria that should be considered in evaluating the success of a system. Bernardin and Beatty (1984) also suggested that employee reactions to a performance appraisal system are usually better indicators of the overall viability of a system than the more narrow psychometric indices. A performance appraisal system can be psychometrically sound in design and construction but still wholly ineffective in practice due to resistance or lack of acceptance on the part of users.

Thus, the effectiveness of a system is particularly contingent on the attitudes of the system users, both raters and ratees (Roberts, 1990). The literature indicates that there are many factors to consider in the evaluation of performance appraisal including employee attitudes towards variables such as perceptions of fairness. Bretz, Milkovich and Read (1992) indicate that the most important performance appraisal issue faced by organizations is the perceived fairness of the performance review and the performance appraisal system. Their findings suggested that most employees

perceive their performance appraisal system as neither accurate nor fair. Skarlicki and Folger (1997) suggest that the appraisal process can become a source of extreme dissatisfaction when employees believe the system is biased, political, or irrelevant. In general, research indicates that perceptions of fairness arise from consideration of the outcomes received (outcome fairness); the procedures used to determine those outcomes (procedural fairness); and the way in which the decision-making procedures were implemented and explained (interpersonal fairness) (Smither, 1998).

This description of the components of fairness draws heavily on the research and literature in the area of organizational justice. Fairness in organizations has been studied extensively by researchers in the field of organizational justice. Organizational justice theory has been applied to many organizational systems and provides a theoretical basis to explore the complexities of performance appraisal more thoroughly.

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