Abstract

This study assesses the effect of performance appraisal on employee performance in the Buea municipality. The objective of this study was to examine the effect of performance appraisal on employee performance in MFIs in the Buea municipality.  With the specific objectives as; To investigate the relationship between 360-degree feedback and employee performance in MFI in the Buea municipality, To analyse the effects of management by objective on employee performance in MFI in the Buea municipality and To assess the effect of self-assessment appraisal on employee performance in MFI in the Buea Municipality.

Data used for the study was collected through questionnaires from 50 employees of MFIs in the Buea municipality. This study has used both descriptive and inferential statistics using simple regression analysis.

The study findings show that there exists a direct relationship between performance appraisal and employee performance in micro finance institutions in Buea. The study recommends that micro finance institutions in Buea should implement different types of performance appraisal techniques but should focus more on self-assessment appraisal because they have high positive and significant effect on employee’s performance.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Maximizing the performance of organizations is the main issue for an organization (Bob cardy, 1997). Good organization performance refers to the employee’s performance, the Satisfactory performance of employees does not happen automatically. Managerial, standards, Knowledge, Skill, Commitment and Performance appraisals effects employee’s performance. Employee’s performance is a critical aspect of organizational success. It refers to the degree to which employees achieve their goals and objectives (Kane & Kane 2013). Employee performance is influenced by a range of factors, including individual characteristics, job characteristics, and organizational factors (Campbell, 1990). In today’s fast-paced and competitive business environment, organizations are under increasing pressure to improve employee’s performance and productivity (Pulakos, 2009). This has led to a growing interest in understanding the factors that influences employee performance and developing strategies to improve it. Despite the importance of employee performance, it remains a major challenge for many organizations. One key factor that influences employee performance is performance appraisal.

Performance appraisal is systematic process of evaluating an employee’s job performance and providing feedback to improve future performance (Kane & Kane, 2013). The history of performance appraisal is quite brief. Its roots can be traced in the early 20th century to Taylor’s pioneering time and motion studies. The performance appraisal system starts in practiced mainly in the 1940s and with the help of this system; merit rating was used for the first time near the Second World War as a method of justifying an employee’s wages (Lillian & Sitati, 2011). However, performance appraisal is a very important process but it deemed to be the “weak point” of managing human force (Pulakios, 2009). Therefore, performance appraisal is important to manage employee’s work effectively. (Armstrong, 2001) tells performance as behaviour – the way in which organization’s teams and individuals get work done. (Mooney, 2009) suggested that performance is not only related to results but it also relates with activities and behaviours of employees that they adopt to achieve their given goals. Performance appraisal serves several purposes in an organization such as evaluating employee’s performance, providing feedback, and developing employees.

Also, the relationship between performance appraisal and employee performance is multifaceted. Research by (Locke & Latham, 2002) indicates that, performance appraisal sets clear performance standards and provide feedback that significantly enhances employee motivation and performance. They emphasized the goal setting theory where clearly defined goals and feedback contributes to higher levels of performance. Again, according to (Kluger & Denisi, 1996), feedback provided during performance appraisal is critical for performance enhancement. Their meta-analysis suggests that, when delivered appropriately, feedback can lead to significant improvement in employee performance. Furthermore, effective appraisal can identify training and development needs ultimately supporting career growth and aligning individual goals with organizational objectives. Through performance appraisal, managers can identify skills gap and training needs. Providing developmental strategies that are directly linked to performance appraisal outcomes can lead to skills enhancement which in turn boosts employee performance.

Globally, performance appraisal has been recognized as an essential tool for improving employee performance and organizational success. In today’s fast-paced and competitive business environment, organizations are constantly seeking ways to improve constructive employee’s performance and achieve goals (Bersin, 2016). One of the widely used tools for improving performance is performance appraisals (Denisi & Pritchard, 2006). Additionally, the global workforce diversity necessitates culturally sensitive appraisal practices that accounts for different values and motivation. Organizations in the world are now moving towards more dynamic and flexible appraisal systems that incorporate continuous feedback rather than solely relying on the traditional annual reviews. This shift reflects a broader understanding of employee engagement and the importance of fostering a culture of open communication where feedback is timely and constructive. Furthermore, the integrating of technology into performance appraisal is noteworthy; this approach allows more personalized feedback and development plans tailored to individual’s needs. Overall, the world’s approach to performance appraisal is evolving to a more holistic, integrated and continuous framework that prioritizes employee’s development.

Again, in developed countries a comparative analysis for performance appraisal has been used for decades. These systems have evolved overtime adapting to changing organizational needs and employee’s expectation. For example, in the United Kingdoms (UK), they use the balanced scorecard approach which assesses performance from multiple perspectives including financial, customer, and internal processes. Also, they use the 360-degree feedback which gathers feedback from multiple sources and lastly, they focus on development.  In developed economies such as the United States, Canada and many European nations, performance appraisals have evolved to compass a range of methodologies, from the annual review to continuous feedback mechanisms. In recent years, there has been a growing emphasis on transforming traditional appraisal systems into a more dynamic and inclusive process, reflecting the changing nature of work in developed countries. Many nations are adopting continues performance management practices that includes regular check-in and real time feedback, rather than relying solely on annual reviews (Agrawal, 2020).

Furthermore, Performance appraisals in developing countries face unique challenges and opportunities. They face opportunities such as adapting to technology, capacity building, partnership and collaboration and localization of performance appraisal systems. They also face challenges like; limited resources, cultural and social barriers, lack of infrastructures and brain drain. In India, research by (Varma et al, 2016) discusses the adoption of more participative appraisal approaches reflecting India’s diverse cultural land cape. In India, performance appraisal was used by organizations to evaluate the performance of their employees. It was designed to provide fair and objective assessment of an employee’s performance identifying areas of improvement and providing feedback which helps employee grow. They used appraisal methods such as the 360-degree feedback system, behavioural appraisal system, and result oriented system, with these practice, India’s performance greatly improve and also increased transparency and accountability and enhanced employee decision making. Research suggests that, the PAS available in developed countries may not be directly applicable in developing context, necessitating the adaptations to local conditions (Huaff et al., 2018)

Besides, In Cameroon, performance appraisal is still in its developmental stages. Many organizations particularly in the public sector have yet to fully implemented performance appraisal systems. There are several factors hindering the effective application and implementation of performance appraisal in Cameroon. These factors include; lack of standardization, limited resources, and managerial competencies. To improve the effectiveness of performance appraisal in Cameroon, organizations should; develop clear performance standards, link performance to reward and provide adequate training. However, research has shown that, in Cameroon there is a positive relationship between performance appraisal and employee performance, through the application of these practices varies widely across industries and institutions. A study by (Nwaeze, 2018) found out that well-structured appraisal system in Cameroonian organization led to improves motivation, increased job satisfaction, and productive work force

In addition, Performance appraisal is a critical concept of HRM particularly in the context of MFI, which plays a crucial role in promoting financial inclusion and supporting small enterprise in developing regions. In Buea, the unique socio-economic landscape demands a tailored approach to performance appraisal that accommodates local and cultural nuances and operational challenges. Despite the importance of performance appraisal in enhancing employee performance, many MFI in Buea face significant challenges. This includes inadequate appraisal framework, limited resources for training and evaluation, lack of alignment between appraisal goals and organizational objective. Furthermore, the informal nature of much small business served by MFI complicate the appraisal process requiring flexible and adaptive evaluation criteria. In MFIs in Buea, the role of performance appraisal becomes even more critical given the unique challenges faced by these institutions, including managing diverse client need, meeting financial targets and addressing socio economic challenges in their in their target market. Well conducted appraisal can align individual employee gals with the institutions mission, creating a more engaged and productive work force (Nkongho. T, 2015)

However, although performance appraisal is a good practice and it improves employee performance, there are also some controversies that exist between performance appraisal and employee performance. They include; Firstly, motivation and demotivation, performance appraisal can be a powerful motivator for employees as thy provide feedback and recognition for their achievements, however, poorly conducted appraisals can be demotivating. Furthermore, Bias and subjectivity, Performance appraisals are often categorized to be bias and subjective. Managers may bring their own biases and prejudices to the appraisal process which can lead to inaccurate and unfair evaluations (Kane & Kane 2013). Again, Fear and anxiety is another controversy, Fletcher in 2008 performance appraisal can lead to fear and anxiety among employees which can lead to decreased motivation and performance. Lastly, Lack of follow up, Performance appraisals are often not followed up with regular check-ins and feedback, which can make it difficult for employees to know if they are meeting expectations (London 2003)

1.2 statement of the Problem

The problem of inconsistency and unimproved employee performance in many organizations has been attributed to the ineffectiveness of performance appraisal systems, which are meant to evaluate, motivate and develop employees, but instead leads to demotivation, dissatisfaction, and decreased productivity, there by hindering organizational growth and success.

Globally, organizations are facing challenges in improving employee performance which is critical for achieving organizational goals and objectives (Bersin, 2016). One of the key tools used to improve employee performance is performance appraisal. In today’s competitive global economy, organizations are increasingly focused on optimizing employee performance to drive overall business success.

Effective HRM practices, particularly performance appraisal systems are critical in aligning individual employee goals with organizational objectives. However, the effectiveness of performance appraisal in improving employee performance is not well understood, and there is also the need to investigate this relationship.

In developed countries, the  problem of low and depleted employee performance has led to the adoption of sophisticated performance appraisal systems such as 360 degree feedback which gathers input from multiple sources, has been linked to enhance employees motivation, clear communication and a more holistic view of performance (London & Smither, 1995).similarly, MBO, a result oriented approach has-been shown to improve productivity by aligning employee goals with organizational objectives (Hofstede, 1980). In countries like the United States and the United Kingdom, where the labour markets characterized by advanced performance management systems, studies in indicate that, well-structured performance appraisal can significantly enhance employee performance. However, there are concerns about the potential negative effect of subjective biases (Eisenberge et, al., 1986) and the implementation of appraisal systems that do not account for individual differences and employee feedback. This raises questions of how performance appraisal can be optimized in developed economies.

Also, developing countries face a decline in employee performance because of the ineffective implementation of performance appraisal, for instance, 360-degree feedback may be less effective in hierarchical cultures where power distance influences the willingness to provide honest feedback (Hofstede, 1980). Self-assessment while beneficial may be hindered by limited access to training and development resources in many developing countries (Tennenbaum & Yukl, 1992). In developing countries, such as those in Africa and Asia, performance appraisal is not widely used as it is in developed countries (Agarwal, 2014).

However, there is a growing recognition of the importance of performance appraisal in improving employee performance and organizational success (Kuvaas, 2006). Even with this recognition, they still face many challenges like, limited resources, lack of training for managers on conducting appraisals, cultural factors that may affect the acceptance of feedback.

In this context, the effect of performance appraisal on employee performance is not understood, necessitating research to identify best practices that could lead to improved employee outcomes.

In Cameroon, the problem of employee performance is a major challenge facing many organizations due to the minimal use of performance appraisal practices (Nji, 2017). Performance appraisal is not widely used in many organizations in Cameroon, and there is need for research to investigate the impact of performance appraisal on employee performance in the country. Many organizations in Cameroon lack a clear understanding of the importance of performance appraisal in driving employee performance.

They lack well-defines appraisal criteria and adequate training g fir managers, resulting in inconsistent and ineffective evaluation (Nfor, 2018). These challenges not only undermine the intended purpose of performance appraisal but also contribute to employee dissatisfaction and reduced productivity. In Cameroon, both public and private organizations have implemented various performance appraisal systems.

However, the effectiveness of these systems in improving employee performance is questionable, as they are often plagued by subjectivity, inadequate feedback, and lack of alignment with organizational objectives (Tambe et al., 2021).

Despite the critical role that micro finance institutions plays in promoting financial inclusion and promoting poverty in Cameroon, many MFI in Buea are facing a lot of challenges in improving employee performance. One key factor used to improve this is performance appraisals. However, the effectiveness of these systems in driving employee performance is often debated. In many MFIs appraisal outcomes are not significantly linked to training, promotions, or reward, leading to employee disengagement and lack of motivation to improve performance (Tambe et al., 2021). This study aims to analyse the extent to which appraisal systems impact employee performance in MFI in Buea.

Despite the crucial role of performance appraisals in enhancing employee performance, controversies surrounding the effectiveness of performance appraisal systems in MFI in Buea have raised concern about their impact on employee’s performance Due to controversies that exist such as biases and subjectivity, fear and anxiety, lack of follow up, motivation and demotivation, this research seeks to answer the following questions;

1.3 Research Questions

1.3.1 Main Research Question

What is the effect of performance appraisals on employee performance in micro finance institutions in the Buea Municipality?

1.3.2 Specific Research Question

1. What is the effect of 360-degree feedback appraisal on employee performances in MFI in the Buea Municipality?
2. To what extent does management by objective influence employee performance in MFI in the Buea Municipality?
3. What are the effects of self-assessment appraisal on employee performance in MFI in the Buea Municipality?

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