Purpose and stakeholders

Before discussing the design of a PES it should be acknowledged that PES´ may serve different purposes since, in general, there are several stakeholders to the evaluation of employee performance, who do not necessarily share the same expectations or intensions. Hence, the different stakeholders and varying purposes of a PES will be investigated in more detail in the following sections.

4.1.1 The Stakeholders of a PES

With his widely recognized publication “Strategic Management: A Stakeholder Approach” Freeman (1984) established the beginning of what today is understood as “stakeholder theory”. The general rationale of the stakeholder theory is the recognition of the fact that several stakeholders are voluntarily or involuntarily contributing to the performance and the success of the organization (Post et al., 2002). Although this concept supplements and enhances the resource-based view and gained wide recognition among researchers and practitioners in business-related areas like accounting, finance and marketing, it has not received much attention from the field of HRM and PM yet (Freeman et al., 2010). More recently, in the evolving field of sustainable HRM (see chapter 3.1.2), research suggests that more consideration should be put on stakeholders. Thus, several researchers emphasized the importance of considering stakeholders' impact and wellbeing while still achieving financial outcomes for the organization. Mariappanadar (2014) developed a stakeholder harm index, based on a framework for capturing and assessing the externalities of HRM practices on an organization´s stakeholders. Kramar (2014) provides a comprehensive model for sustainable HRM, pointing out that HR

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practices cause effects on four levels: on organizational level, on individual level, on social level and on ecological level. To evaluate organizational performance, adequate measures should address the impact of stakeholders from different levels. Thus, sustainable HRM challenges the supremacy of one stakeholder´s interest. For evaluating individual performance, the measures need to be cascaded down to all employees (Kramar, 2014). To identify all relevant stakeholders, several authors provided overviews including Ferrary (2009), Cohen (2012) and Kramar (2014). While the overviews differ considering classification levels or the number of stakeholders, it becomes evident, that they can generally be grouped into internal and external stakeholders. Since the affiliation to the category of external stakeholders depends on factors like the economic environment, the industry and the level of competition, the provided overviews are of limited usability for the individual organization. Merely, they provide an orientation. However, there is broad agreement, that management, supervisors and employees are generally among the internal stakeholders. In organizations where employees interests are represented by a workers´ council, their members also form a group of internal stakeholders (E. Cohen et al., 2012). Performance Evaluation Systems traditionally were focused on the interests of managers and supervisors. In consequence, research into PM and evaluation of different PM approaches was mostly limited to managers´ perceptions whilst employees´ interests and attitudes often were neglected. However, more contemporary approaches should adopt a broader view, taking into account a variety of stakeholders´ interests among them those of their employees. Therefore, research also needs to focus on incorporating the views and experiences of the wider workforce (Keeble-Ramsay and Armitage, 2015; Kramar, 2014).

4.1.2 Purposes of a PES

An organization may pursue different aims by implementing a PES. On a strategic level, the organization aims to achieve its business objectives by linking organizational performance to organizational objectives (Aguinis, 2009). On individual level, organizations typically use the PES information for two main purposes: administrative and developmental purposes (Kondrasuk, 2012; Meyer, 1991; S. L. Thomas and Bretz, 1994).

Administrative purposes focus on the use of a PES to inform administrative decisions such as pay decisions, decisions on job reassignment, promotion or rewards. Performance evaluations also serves developmental purposes including the provision of performance feedback as a basis for a joint analysis of strengths and weaknesses, for identifying areas of improvement and for individual development plans or learning

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contracts (Armstrong and Taylor, 2014) . The figure below provides an overview on the major purposes and their inherent sub-purposes.

Figure 16: Purposes and uses of PES information (Kondrasuk, 2012; Meyer, 1991; S. L. Thomas and Bretz, 1994)

As noted by Shields (2015), the relationship between developmental and administrative purposes is frequently troubled. Among the most discussed issues is the conflicting role of supervisors if they employ PM information for both purposes. Acting on the administrative purpose puts the supervisor in the role of a judge in a parent-child-type of exchange. By using the performance evaluation for developmental purposes, the supervisor adopts the role of a counselor. Trying to fulfil both roles simultaneously will create conflicts in the relationship of supervisor and employee and therefore is incompatible. A person that is being judged is very likely to hide potentially damaging information and will act rather defensively. On the other hand, employees tend to openly admit weaknesses that could be rectified when the supervisor clearly acts as a counsellor (Kondrasuk, 2012). In a study observing nearly 100 appraisal interviews, Meyer (1991) reports that whenever salary decisions and suggestions for performance improvement were communicated during the same interview, employees´ defensive reactions were very common. They actually were so powerful that attempts to counsel the employee after the salary decision was communicated were mostly futile (Meyer, 1991).

A more recent issue is the change in priorities during the last decade that has been noted by several HR scholars. As Cappelli and Tavis (2016) illustrate in a historic narrative, the

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priorities of performance evaluation have regularly shifted over the past decades which prompted different PM approaches. They argue that the current calls for abandoning traditional performance evaluation entirely (see chapter 3.2.6) are a result of changing priorities considering the performance evaluation´s purpose. They claim that advanced economies have a greater need for development and agility rather than for individual accountability (Chartered Institute of Personnel and Development, 2016a). There is indeed a lot of current research indicating that developmental purpose should be privileged over the administrative purpose (Shields et al., 2015). Considering the administrative purpose of performance evaluation, Star et al. (2016) report on a study by Eker and Eker (2009) who found that organizations which employ PM exclusively for monitoring and legitimization usually have a control-oriented top-down culture. Further, many authors claim that using individual performance evaluation as basis for determining performance-related pay or rewards can be the cause of serious practical and ethical concerns – as it was the case in precipitating the GFC (Cascio and Cappelli, 2009; Shields et al., 2015). In contrast, Takeuchi et al. (2009) list a number of studies that found that developmental focused performance evaluations are indicative of motivating employees and foster the perception of a supportive work environment. Further, Kim and Holzer (2016) argue that the developmental use of performance evaluation contributes to trusting relationships between employees and supervisors and heightens the acceptance. Hence, a developmental-oriented performance evaluation seems to be the preferred approach today. This assumption was confirmed by a 2009 UK survey of performance management practices by the CIPD asking “what other HR processes ought to link to performance management?”. 85 per cent of the respondents opted for “learning and development”. In 2004, only 71 per cent of respondents opted for this category. Similar results were found in a study with Australian participants (89 per cent of respondents indicating the determination of training and development as an important purpose of their performance management practices) (Shields et al., 2015).

However, despite the rise of relative importance of the developmental purpose, in their comprehensive study the CIPD (2016a) found no evidence that would suggest to drop performance evaluation for administrative purposes entirely. Rather, they conclude that both purposes are valid. Performance discussions serving different purposes should be separated and it should be clear to employees when each purpose is occurring. For developmental purposes, like potential improvements or discussing immediate concerns, more frequent check-ins are helpful. For administrative purposes including discussions of past performance and how this will affect pay or promotion, annual (or less regular) meetings should be scheduled (Chartered Institute of Personnel and Development, 2017).

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