IMPACT OF PERFORMANCE APPRAISAL ON PRODUCTIVITY OF EMPLOYEES IN MICROFINANCE INSTITUTIONS

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Performance appraisal is a discrete, formal, organizationally sanctioned event, usually not occurring more frequently than once or twice a year, which has clearly stated performance dimensions and/or criteria that are used in the evaluation process. It is also described as a formal process of employee monitoring which usually involves the evaluation of performance based on the judgments and opinions of subordinates, peers, supervisors, other managers and even workers themselves. Nevertheless, it is concerned with the clarification of employees’ work expectations, helping with individual employee growth and the collective growth of the entire workforce, as well as ensuring that pay structure designing incorporates performance.

 Today’s business environment is becoming increasingly uncertain and dynamic. This trend has accelerated due to environmental forces such as globalization, advances and innovation in technology and changes in the market conditions. The changes in the business environment require firms to show greater concern in developing human competence and have a competitive advantage over their competitors (Wanjala & Kimutai, 2015). In today’s competitive business world, it is understood that organizations can only compete with their rivals by innovating and organizations can only innovate by managing their human resources well (Rasch, 2014). The human resource system can become more effective by having a valid and accurate appraisal policy used for rating performances of the employees (Collings & Wood, 2013). Thus, the appraisal system refers to a function within the human resource management (HRM) which allows firms to develop a competent workforce. When effective, the appraisal process reinforces the individuals’ sense of personal worth and assists in developing his/her aspirations Zafrullah, & Irfanullah, 2017). The significant role of performance appraisal in any establishment of organizations has become indispensable when we talk of organizational success (Denning, 2016). The success of any organization is dependent on how well the performance of every employee is effectively appraised and managed. The performance appraisal is a unique and very important aspect of career development which entails a regular review of the performance of employees in the organization (Wanjala & Kimutai, 2015).

Accurate appraisals are crucial for the evaluation of recruitment, selection, and training procedures that lead to improved performance (Cowandy, 2014). Appraisals can determine training needs and occasionally, counseling needs. They can also increase employee motivation through the feedback process and may provide an evaluation of working conditions, thus, improving employee productivity, by encouraging the strong areas and modifying the weak ones (Gabris & Ihrke, 2000). Every organization requires competent personnel to boost up their productivity. It is concerted effort of the human resource division/section to check the strength and weaknesses of their employees; the performance is connected to the actions and also incorporates judgment and appraisal process (Mollel, Mulongo & Razia, 2017). In many organizations – like in the microfinance institutions - appraisal results are used, either directly or indirectly, to help determine reward outcomes. That is, the appraisal results are used to identify the better performing employees who should get the majority of available merit pay increases, bonuses, and promotions. Performance appraisal deals with how an organisation evaluates and measures its employees’ achievement. Performance Appraisal is a systematic evaluation of employee’s performance and their ability that leads to further growth and development (Grote, 2016). It helps to identify gaps, if any in performance and it can be filled by training and development.

Employee productivity is an assessment of the efficiency of a worker or group of workers. Productivity may be evaluated in terms of the output of an employee in a specific period of time. Typically, the productivity of a given worker will be assessed relative to an average for employees doing similar work. Because much of the success of any organization relies upon the productivity of its workforce, employee productivity is an important consideration for businesses (Collings & Wood, 2013). In short, productivity is what comes out of production. Managers of every business organization are charged with the responsibility to motivate their employees to achieve organizational goals. Most organizations wonder how they can sustainable performance among its employees. This means looking at what can be done to encourage the employees to give their best though various reward systems in whatever work they do in the organization (Armstrong, 2014).

Employee productivity plays an important role as far as success and overall direction of an organization is concerned. Hence, performance appraisal is the basis of success of most businesses today. Organizations today use performance appraisal to increase efficiency and effectiveness of employees at the work place. Through performance appraisal, management is able to identify need to motivate, establish goals and targets, train employees and provide feedback on performance (Hahn and Powers, 2017). Human Resource managers are charged with this important responsibility of maintaining a sound performance appraisal system. Employees in an organization should show their commitment to attaining of the required goals and standards of performance so as to sustain the growth, profitability and maximization of the value of the firm (Singh, 2016). To achieve required performance through performance appraisal, an organization should optimally utilize the level of skills, abilities and knowledge available to increase the overall productivity of employees.

1.2       Statement of the Problem

Most organizations in this competitive market fail to achieve their targets successfully because employees perform below standard, and this is due to the inability of the working environment to encourage them to work harder. If management does not invest much into the welfare of their workers, problems are bound to arise that may lead to industrial labour turnover, low commitment to work, low morale, poor job satisfaction that may also lead into low productivity of services. For this reason, most organizations established attractive performance appraisal systems to help motivate their employees to strive hard towards the desired performance that will be reflected on their productivity. However, regardless of the efforts and resources devoted to the implementation of various performance appraisal systems in microfinance institutions, employee productivity has been deteriorating to the large extent and in recent times, the microfinance institutions in Abeokuta has embarked on massive retrenchment.

Another problem arise from the fact that some employees see appraisal results as not been fair to them Cowandy (2014). As much as this is happening, there seem to be a vacuum in the actual contribution of performance appraisal enhancing tool on organizational commitment. However, it has been observed that performance appraisal system in microfinance banks in Abeokuta is suffering some defects such as Lack of employee participation in organizational goals setting that clarify organizational goals and expectations, and lack of feedback of performance appraisal result to employee. This study therefore is intended to examine the impact of performance appraisal and productivity of employees in microfinance institutions.

1.3       Objective of the Study

The purpose of this study is to investigate the impact of performance appraisal and productivity of employees in microfinance institutions: A study of selected Microfinance banks in Abeokuta.

Specifically, the objectives of the study are:

     ii.         To ascertain how rewards system influence employee’s efficiency

   iii.         To examine the relationship between performance feedback and employee morale

1.4    Research Questions

To achieve the above stated objectives, answers would be provided to the following questions.

      i.         What is the impact of training and development on employee’s innovation capability?

     ii.         To what extent has rewards system influence employee’s efficiency?

   iii.         Is there any relationship between performance feedback and employee morale?

1.5       Research Hypotheses

The following hypotheses would be tested.

H01:     Training and development does not have impact on employee’s innovation capability

H02:     Rewards system does not influence employee’s efficiency

H03:   There is no relationship between performance feedback and employee moral

1.6       Significance of the Study

The study of performance appraisal and productivity of employees in microfinance institutions is hoped to be of benefits to students, business men, corporate organization, and Microfinance banks in Abeokuta. The study also hopes to highlight the problem associated with performance appraisal and to make use of the analysis to improve the working situation thereby minimizing the problems of performance appraisal in organization and its environment.

The findings in this study will have both theoretical and practical contributions by adding to the existing knowledge on research that has already been done in relation to performance appraisal and productivity of employees.

1.7       Scope and limitation of the Study

This research covers the performance appraisal and productivity of employees and variables such as training and development, rewards system and performance feedback, in relations to employee productivity and variables such as employee morale, employees’ innovation capability and employee efficiency.

The relationship between these variables will be tested and measured in three of the Microfinance banks in Abeokuta. (Lavender Microfinance Bank, Lafenwa, Abeokuta, LAPO Microfinance Bank Ltd, Oke - Ilewo Road, Ibara, Abeokuta and Astra Polaris Microfinance Bank, Onikolobo, Abeokuta). The study will focus on the staff of three Microfinance banks in Abeokuta from whom relevant data will be obtained.

1.8       Definition of Key Terms

An organization: This entity comprising multiple people, such as an institution or an association that has a collective goal and is linked to an external environment.

Performance appraisal: It can be defined as a periodic evaluation of the output of an individual measured against certain expectations. The process involves observing and evaluating staff members' performance in the workplace with relation to pre-set standards.

Employee productivity:  This is usually defined as the extent to which an organizational member contributes to achieving the goals of the organization

Employee Efficiency means the output or level of productivity of employee which is a determined by employee development in place by their organisation.

Reward system: This is a group of neural structures that are critically involved in mediating the effects of reinforcement. A reward is an appetitive stimulus given to a human or some other animal to alter its behavior. Rewards typically serve as reinforces.

Training and development: refers to educational activities within a company created to enhance the knowledge and skills of employees while providing information and instruction on how to better perform specific tasks.

Performance Feedback: This refers to the information reflecting past performance and results and given by the manager to the employee.