Performance appraisal fairness & its outcomes a study of Indian banks.
| Author | Shrivastava, Arunima |
| Position | Report |
This study examines fairness perceptions of performance appraisals in the fast changing Indian banking sector. The mediating role of performance appraisal satisfaction on the relationship between justice perceptions and job satisfaction has been investigated using a cross-sectional study with 340 respondents. The findings highlight that satisfaction with the appraisal process is guided by perceptions of fairness and this further impacts the job satisfaction. The findings emphasize the importance of employee perceptions and consequent reactions that shape employee outcomes versus the intent and design of HR systems. For ensuring success of the HR systems organizations need to incorporate regular assessments of employee perceptions and reactions as despite best efforts employee perceptions can vary from management intent.
Introduction
Considerable research has been done on the effects of justice perceptions in the organizational setting and identified various positive and negative outcomes of fairness (Colquitt et. al, 2013). However more studies are required to examine the fairness in the performance appraisal context to leverage performance in organizations as perceived fairness is a more important goal for employee satisfaction with the appraisal process (DeNisi & Sonesh, 2011). Researches have argued that to fully examine the influence of HRM practices on employee behavior it is important to study employee perceptions instead of intentions of managers and organizations provided in reports and statements. Employee perceptions of aims and impacts of policies and practices may vary considerably from the management's perceptions (Nishii et. al, 2008). The intention with which HR policies and practices are designed may not be reflected in their implementation and employee perceptions are shaped by their personal experiences of the implemented policies and not the intention. Thus, research focus needs to shift from examining HR processes-performance relationships to examining employee perceptions of HR systems that have consequences which further influence organizational performance (Kinnie et al, 2005; Nishii et al, 2008).
Very few studies have examined the performance appraisals in the Indian scenario (Amba-Rao et al., 2000; Gupta & Kumar, 2012; Sharma, Budhwar & Varma, 2008; Dhiman & Maheshwari, 2013) and findings from these studies further emphasize the need for more research to understand perceptions of performance appraisals and their outcomes in India. This is more accentuated in the Indian banking sector which in the wake of competitive dynamics of the global market faces multifarious challenges like sustaining and improving profitability, increasing operational effectiveness and increasing customer base. As banks have undergone changes in response to the dynamic external environment their HR practices are challenged to attract and retain talent. As performance appraisal is a key HR practice this study aims to examine employee perceptions of fairness of appraisals in Indian banks. Furthermore, research needs to examine mechanisms through which perceptions of HRM practices influence employee outcomes and specifically to integrate the mediating role of satisfaction in HR practice-behavior relationships. According to Palaiologoa, Papazekos and Panayotopoulou (2011) satisfaction is one of the most important goals to achieve as it influences profitability, productivity and other employee outcomes. Also as justice is an emotion laden experience (Cropanzano et al. 2000), experience of unfairness in the appraisal process would lead to negative emotional states and fairness would lead to positive states like satisfaction with the process. These reactions would effect the outcomes of justice like attitudes and behaviors. This study examines the fairness perceptions of appraisals of employees, the resultant affective reactions of satisfaction and its effects on job satisfaction. While previous research has examined effects of fairness perceptions on positive outcomes like job satisfaction, organizational commitment, pro-social behavior etc, however, not much research has examined the fairness perceptions in the appraisal context. Previous researches on appraisals in India have examined the influence of firm ownership on appraisals or direct effect of appraisal justice on employee engagement. Thus, gaps remain in examining fairness perceptions of appraisals, its effect on employee outcomes and the mediating role of affect. This study attempts to fill this gap and examines this relationship in the fast changing banking sector in the Indian economy, where rapid changes in the HR practices make it necessary to examine the employee perceptions and reactions towards the same for identifying ways to improve employee productivity and leverage high performance.
Indian Banking Industry
Sharma, Budhwar and Varma (2008) note that Indian organizations have been forced to revisit their HR systems in response to globalization. The banking sector in India underwent significant improvements due to liberalization process in the early 1990s. The transformation under the aegis of banking and financial sector reforms resulted in the entry of new private sector banks in the banking industry on the recommendations of the Narasimhan Committee in 1991. Banks faced challenges both at the internal as well as external fronts to remain profitable with booming technology and establishing an international presence in competition with global banks necessitated overhauling HR policies and practices to meet challenges of workforce planning, training, performance evaluations, compensation and attracting and retaining talent (Leeladhar, 2006).
Previous researches on HR practices of Indian banks have identified the differences between public and private sector banks in terms of structure, operations, efficiency, background and culture. The public sector banks are regulated by the government, have a wide network of branches, largely concentrated in the rural and semi-urban areas as these were primarily established to meet the goals of socio-economic responsibilities while profitability remained a secondary goal. In contrast the private sector banks are not regulated by the government, are mainly concentrated in urban and metropolitan areas and work towards profitability (Bajpai & Srivastava, 2004). Furthermore, private banks have grown aggressively in a short span of time, by using highly competitive and innovative strategies and information technology. Kumar (2000) found that organizational climate of new private sector banks and foreign banks in India are perceived as significantly better when compared with public sector banks. The difference was seen on leadership, motivation, communication, interaction-influence, decision making, goal setting, and control processes. Recent SWOT analysis of private banks (Singh & Kohli, 2006) revealed that new generation banks ('new' private sector banks) are different from the traditional players (public sector banks and 'old private sector banks') in terms of good infrastructure, efficient payment systems, lesser bureaucracy and better at innovating new products.
Kumar & Sreeramulu (2007) in their study compared employee productivity and employee cost ratios between the traditional banks (public sector and old private sector banks) and modern banks (foreign and new private sector banks) from 1997 to 2008. The results indicated that the performance of the modern banks i: superior to the traditional banks and since researchers have identified employee productivity as an indicator of motivation (Kovach, 1980) it is important for organizations to identify factors that influence employee motivation and enhance their productivity. Performance appraisal is one such process in an organization, as appraisals are pivotal in various employee related decisions such as promotions, transfers, retention and employee development. Besides generating feedback on performance for employees, it also validates the selection and hiring procedures, influences employee-supervisor understanding and organizational...
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