Testing the Effectiveness of Performance Appraisals

Performance appraisal is one of the popular concepts among the multinational and local companies. The concept has been defined by DeVries et al., (1981) as the process which allows firms to measure and consequently evaluate an employee's achievements and behavior over a certain period of time. The basic purpose of using performance appraisal techniques within an organization is to align the employee's efforts with the overall objective of the firm.

There has been a widespread discussion within the academic circles as to how to define performance (Papers4you.com, 2006). Drawing upon Briscoe & Schuler (2004) performance can be viewed as a combination of several variables, such as motivation, ability, working conditions and expectations. It has been established that there are certain factors that affect employees' performance more than others. These factors, according to Dowling et al (1999) include the compensation package; the nature of task; support from higher management; the working environment and the overall corporate culture.
There are many advantages mentioned in the literature regarding the use of performance appraisals within an organization (Papers4you.com, 2006). It has been suggested that it improves the communication between the higher to lower level management; identify areas of improvement; show employees training needs; help in promotion, retention and termination decisions; and means of managerial control (Fletcher, 1992). In order to take full advantage of the performance appraisals, the goal in designing such systems should be congruent to the overall aim and vision of the company. For instance, it is evident that there is a direct correlation between the performance of employees and their rewards as businesses do seek creation of wealth as their primary goal. Therefore one of the increasingly adopted uses of performance appraisals is to motivate employees to perform better by linking it with reward packages.
The concept and its uses can be further explained with the help of the example of Nokia. Nokia has incorporated performance appraisals in its compensation plans for its employees. The company has adopted the philosophy of pay-for-performance and therefore measuring and gauging different performance indicators of each employee is essential to the company. Nokia is an innovative firm with a global matrix structure and a typical line management configuration at the country level. Therefore the performance appraisal system called 'Investing in People' has been designed as 360 degree feedback and electronic briefing sessions (Pollitt, 2004), which are perfectly aligned with the structure and overall aim of the company.
It can be concluded from the discussion that valuable organizational objectives are served with the help of performance appraisals and organizations should use the technique by aligning the performance parameters with their overall mission and vision.

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