Research Paper on Performance Management Systems

The expression “performance management” (PM) appeared in the late 1980s and can be regarded as an extension of “performance appraisal” – a practice used to evaluate an individual employee’s past performance. Today, however, performance appraisal is considered as one of several key elements of PM (Tahvanainen, 1998), the others being the communication of company strategy through individual objective setting, links to training and development planning, and possibly compensation.

Despite the fact that much of the research has been performed within the U.S. context, little research has been carried out on PM in international settings and even less so in MNC subsidiaries operating in diverse cultures.

This dearth of research means that we know little about the effects of PM on job satisfaction among employees in MNC subsidiaries where the majority of the work force are of host-country nationality, and where the host-country’s culture may differ substantially from that of the MNC’s home country.

Moreover, our limited knowledge of the impact of PM on job satisfaction is indicative of the paucity of research concerning the attitudes of host-country employees (Dowling et al., 1999) and especially of nonmanagerial employees in MNC subsidiaries.

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It is well known that employees with negative attitudes are likely to perform poorly, cause disruptions in operations, and eventually jeopardize the viability of the organization.

Furthermore, it has been documented that job satisfaction is related to turnover. As Bjorkman, Lasserre, and Ching (1997) have noted, job satisfaction and turnover are increasing challenges for MNCs operating in developing countries (e.g., China), whose labor market lacks managerial and technical talent.

Various aspects of PM have been studied in both the international and comparative contexts. For instance, scholars have addressed such issues as the impact of national culture on management by objectives, differences in management style and performance appraisal in the United States, Indonesia, Thailand, and Malaysia, and national culture and its impact on PM/performance appraisal in Hong Kong, Taiwan, Singapore, Great Britain, Japan, Korea, the United States, Malaysia, the Philippines, India, and China.

The majority of these studies, especially the ones with comparative attitudinal data, have provided evidence that cultural differences influence elements of PM and that the transferability of PM between countries cannot be assumed. However, little international and comparative research has examined actual effects of PM per se on host-country employees. Consequently, while we know that MNCs commonly adopt standardized PM policies and practices at both their home country and in overseas subsidiaries (Bjorkman, 1997), we do not know what effect such standardized PM has on host-country employees.

The effects of PM have received greater attention in domestic settings, but even there the research is limited. Most studies have commonly concentrated on individual elements of PM in isolation–for example, on objective setting, on employee participation in objective setting, and on conveying performance feedback.

Even though it could be assumed that multiple elements of PM would influence employee job satisfaction, only a few studies have presented evidence that the presence of such multiple elements (job objectives, performance feedback, subordinate participation in PM, and the presence of a career discussion) produces a positive change in employee job satisfaction (Fletcher and Williams, 1997). The remainder of this section defines job satisfaction and examines its relationship with PM.

Research on job satisfaction is derived from human-relations theory and argues that individuals develop positive job attitudes if their jobs allow them to fulfill their needs. Various factors have been shown to affect employees’ job satisfaction–for example, the nature of the work, promotion opportunities, equitable rewards, supervision, supportive working conditions, and colleagues (Robbins, 1998).

Employees are motivated not only by extrinsic needs but also, more importantly, by positive job-related factors such as skill variety, task identity, task significance, autonomy, and feedback. It has been argued that if skill variety, task identity, and task significance exist in a job, the incumbent will view the job as important, valuable, and worthwhile. In addition, if the job grants autonomy, it gives the employee a feeling of personal responsibility for the results, and, if it provides feedback, the employee will know how effectively he or she is performing (Robbins, 1998).

PM is an important process for influencing both the extrinsic and intrinsic motivations of employees, that is, increasing employees’ perceptions and understanding of job tasks and subsequently their job satisfaction. For example, elements of PM may provide the employee with a more accurate understanding of job tasks (task identity and task significance) through objective setting, leading to a clear sense of direction.

PM also serves to focus employee efforts and attention on critical tasks through the use of performance feedback, which therefore assists employees in reducing job errors and minimizing the risks of learning through trial and error. In addition, where employees desire jobs that allow them to make good use of their skills and talents, PM increases job task “fit” (skill variety) through the identification of training and development needs that are consistent with individual and organizational goals. In examining the impact of PM at MNC subsidiaries, this study tests three hypotheses. Each is related to a specific element of PM: organizational and job objectives, performance evaluation and feedback, and development discussion.

Performance management commonly emphasizes the communication of organizational goals by integrating them into departmental and, more specifically, individual-level goals and job objectives (Fletcher and Williams, 1997). It could therefore be assumed that host-country employees at a MNC subsidiary are, via PM, made fully aware of the organization’s goals, and that, where these become part of their personal job objectives, they would influence their job satisfaction.

However, there may be differences in how objectives are set. Some scholars have suggested that the method by which objectives are set (with or without subordinate involvement) is not important, since both styles increase goal commitment. Other scholars have argued that the goal attainment of employees may be higher where they are able to contribute to the formulation of job objectives since their understanding of how to attain the objectives may thus be increased. Employee understanding of organizational goals and job objectives is positively related to job satisfaction in MNC subsidiaries.

Performance management commonly entails a formal performance evaluation as well as informal performance feedback about progress toward objectives. Several scholars have argued that effective PM is dependent on employees’ perceptions that they are receiving fair performance evaluations. However, perceptions of fair performance evaluations are contingent not only on the outcome (e.g., the performance rating), but also on the employees’ understanding of the process by which their performance is evaluated.

It has also been shown that informal performance feedback is strongly correlated with job satisfaction. This has led to the assertion that performance feedback, where it is conveyed frequently and together with support from the manager, increases the acceptance of PM and satisfaction with the manager. Moreover, performance feedback conveyed frequently and give n immediately after good or bad performance has been shown to lead to higher job satisfaction and performance. Employee perceptions of fair performance evaluations and frequent performance feedback are positively related to job satisfaction in MNC subsidiaries.

Performance management commonly includes a definition of training needs in order to increase future performance as well as the identification of the employees’ career development aspirations and opportunities. Discussions with an employee about his or her development are necessary when it is recognized in connection with objective setting that an employee needs additional capabilities in order to achieve objectives, and/or when it is noticed in the performance evaluation that an employee did not attain objectives due to insufficient capabilities (Tahvanainen, 1998).

Previous studies have demonstrated that an identification of the employee’s training and career development correlates with job satisfaction and performance. In contrast with feedback that is directed at the performance of the work itself, discussions regarding training and career let people know where they stand by focusing on how performance can lead to desired outcomes. It has also been shown that discussions of future plans, where they are carried out within the ambit of PM, have positive effects on employee attitudes. Employee perceptions of personal development opportunities are positively related to job satisfaction in MNC subsidiaries.

The element of PM concerning the individual’s training and career development proved to be a substantial predictor of job satisfaction for employees in all subsidiaries. Once again, the results obtained from the U.S. and U.K. subsidiaries corroborated these employees’ preferences for individual achievement (high individualism) and career progression (high masculinity).

These findings are in line with a recent study by Snape et al. (1998), which argued that PM in the United Kingdom is commonly development focused. Surprisingly, the study suggests that Chinese and Thai employees in MNCs are eager for personal development, thereby revealing a change from collectivist toward individualistic values on the part of Chinese (Bjorkman et al., 1997) and perhaps also Thai employees.

The findings differ substantially from earlier studies on employees in Chinese–Western joint ventures demonstrating Chinese employees’ unwillingness to take on promotions, which was attributed to a collectivist orientation. In addition, it may be hypothesized that Thai employees are embracing more masculine values in view of the increasing interest in career development.

A preference among German employees for personal development may be attributed to the relatively high importance of career in German society (high individualism, high masculinity). There seems to be some consistency among different subsidiaries between the personal development element of PM and job satisfaction. This is in line with previous suggestions that employees generally prefer PM that is oriented toward their development, rather than PM that concentrates on their past performance (e.g., Snape et al., 1998).

The results obtained from the U.S. also demonstrated the importance of a good interpersonal relationship between the manager and the subordinates as a determinant for job satisfaction. This suggests that the job satisfaction of host-country employees in individualistic and low power-distance countries may be influenced by their interpersonal relationship with their manager.

However, the results from China, Thailand, and India did not indicate that host-country employees were less satisfied with their managers–rather, that the variance was too high to determine this relationship. We may then only offer tentative suggestions for why this is the case by looking at the greater proportion of expatriate managers in these subsidiaries. A high number of such expatriates may limit the promotion opportunities of host-country managers, which may result in lower job satisfaction (Dowling et al., 1999). In addition, when different nationalities fro m different cultures work together, conflicts are likely to occur because of differences in cultural backgrounds.

While national culture sheds light on any national differences regarding PM’s impact on job satisfaction in the MNC’s subsidiaries, this should not detract from the study’s overall finding that PM has a broadly similar impact on the job satisfaction of host-country employees in different subsidiaries. This is, in fact, somewhat surprising, if we consider the cultural diversity of the countries in which the subsidiaries are located.

There are two possible explanations. First, the MNC’s PM system may be perceived by host-country employees as a cultural artifact of the MNC and this may facilitate its transfer and implementation in subsidiaries (Murphy and Cleveland, 1991). As such, the MNC’s corporate culture may, to a certain extent, explain the similarities in the impact of PM on job satisfaction, since corporate cultures may harmonize the behaviors, beliefs, and values of employees in organizations. Second, it may be that the presence of expatriates in the subsidiaries activates the diffusion of standardized PM since these expatriates may serve as carriers of corporate culture in MNCs.

It is recognized that the generalizability of these findings is open to question. They may have been influenced by the case-study MNC’s overall corporate culture, which may have facilitated the diffusion of PM in the subsidiaries. This may be explained by the presence of a large number of expatriates in some of the subsidiaries, who transferred both corporate culture and PM.

Further research should focus on the relationship between PM and job satisfaction in additional MNC organizations’ subsidiaries. However, having data from the same company helps to control for organizational factors (e.g., differences in PM systems) that might have affected the results. It may also be that the standardized PM system has been implemented in different ways in the case-study MNC subsidiaries. If so, it is necessary to assess how standardized HRM practices are actually implemented by subsidiary managers in MNCs.

Moreover, the research suggests that there is a need to examine the style of setting job objectives in high power-distance countries and to determine which style is perceived as more efficient by host-country managers and employees. The same would apply for practices related to the conveying of performance feedback and to using performance evaluations.

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