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1.1 Background to the Study
In the turbulent business environment, with changes in customer demands the main aim of every manufacturing organization is to improve its productivity but this can never be possible without the efficient performance of employees and one of the major challenges facing many countries has been the need to improve the performance of employees. Therefore, Performance Management (PM) came into effect as a human resource management reform to address and redress concerns organisations had about performance (Amir, 2012; Sharif, 2002). Performance management has been seen as a tool which focuses on managing the individual and work environment in such a manner that an individual or team can achieve set organizational goals (Esu & Inyang, 2009; Fletcher, 2001). However, performance management has come to signify more than a list of singular practices aimed at measuring and adapting employee performance. Rather, it is seen as an integrated process in which managers’ work with their employees to set expectations, measure and review results and reward performance, in order to improve employee performance, with the ultimate aim of positively affecting organisational success (Mondy & Noe, 2008; Mondy, Noe & Premeaux, 2002).
Performance Management has been used as a tool to enhance employees productivity by managing their performance (Poister, 2003) specifically, PM intends to improve accountability, performance, communication, efficiency and productivity among employees. Sheriff, Alibaba, and Aliyu (2012) gave an understanding to the concept of employee productivity that implies the level or degree of output achieved from a defined input, it is rather more serious as it has been found that it forms the core of achievement of corporate goals and objectives, production, market, and sustainability of organizations in the manufacturing industry. Effective utilization of performance management is critical to enhance organizational performance, so as to achieve a competitive position in global marketplace (Kovacic, 2007; Neely, 2005; Neill & Rose, 2006; Franceschini., Galetto & Turina, 2009)
In the last 30 years, Performance Management has remained a static process that consisted primarily of an annual appraisal. Today, Performance Management is one of the principle tools executives, line managers, and employees are able to use to achieve their collective goals (Potgieter, 2004).The 1990’s saw widespread and rapid adoption of performance management requirements in U.S. states. The adoption of these reforms continued through the 2000’s, albeit at a slower rate. By 2004, 33 states had performance management statutes on the books, and the remaining 17states had administrative requirements (Melkers & Willoughby 2005). By 2008, a survey of the states found that 39 states had performance budgeting laws, and 6 other states had some sort of management requirement (Lu, Willoughby, & Arnett 2011). The majority of such laws were adopted in the 1990s and 2000s. Many countries have experimented with performance management initiatives but most of these were limited to the introduction of performance-oriented staff appraisal systems. These have not been very successful because in these systems promotions are linked to performance, while in many developing countries promotion is still linked to seniority or to relations (Waal, 2007).
Although performance management is relatively unknown in many African countries, the interest in such an improvement tool is growing among African organisations and in specific African countries. Despite this growing awareness, performance management is not widespread yet in Egypt (Abdel Aziz et al., 2005), in South Africa, the term ‘performance management’ is relatively new in the field of management (Motswiane, 2004), in Kenya, performance management was traditionally defined as the process of financial control, in which the mission and strategy are translated into budgets, and subsequently results are compared with budgets (Malinga, 2004), in Ethiopia, there are some developments for the benefit of performance management (Tessema, 2005) and in Uganda, there were inadequacies in setting performance targets and performance management planning were hardly done (Lutwama, Roos & Dolamo, 2013). However, the overall lack of management skills and expertise often makes it not viable for developing countries to develop complex structures such as sophisticated performance management systems (Waal, 2007). And the lack of precise definition and no consensus on an appropriate strategy for initiating and sustaining PM is a factor that sometimes militates against the unity of purpose required to make performance management initiatives work in the public service in Africa (Balogun, 2002).
Although there is a plethora of studies on the reasons why businesses failed, it was argued that most public sector businesses and industries have failed because of ineffective and inefficient implementation of performance management (Esu, 2003).The performance of these businesses is predicated on several factors. Many businesses have failed to meet the objective or purpose of its formation. This has been the experience in all economies. It is more worrisome in the developing economics of the world where managers lack the requisite managerial skills in management. It is one thing to formulate individual and organizational objectives, and another thing is to achieve the set targets, sustain task-level and later improve on performance. The fact that most of the businesses (both large and small scale business) that we saw in our communities, states and country are no more in existence, means that something is wrong somewhere especially in the absence of performance management which was determined to contribute to the high rate of business failures in Nigeria(Ellis & Chinedu, 2011; Esu & Inyang, 2009). Hence, the foregoing sets the pace for an understanding of the effect of performance management on productivity.
1.2 Statement of the Problem
The issue of employee productivity has suffered from high level of neglect as indicated by Gerhart and Milkovich (2010) that the level of employee productivity in Nigerian organizations has been on the decline over the years and this could be ascribed to poor performance management strategies put in place by these manufacturing firms. Watkins (2007) elucidates that some public sector business organizations like those in Delta State of Nigeria have not given adequate attention to performance management review as a tool for improving performance even when recent studies suggest that performance reviews benefit organizational performance in both private and public sectors.
Aidah, (2013) opines that an employee may have the ability and determination, with the appropriate equipment and managerial support yet such employee may be underproductive. According to Adeniji (2013) the missing factor in most cases is the lack of adequate skills and knowledge, which are acquired through training and manpower development that brings about increase in absenteeism rate, low output, poor quality and results. Bartel (2004) asserts that majority of governmental, private organization and international organizations have failed to recognize the importance of training, as when not done appropriately it tends to decrease the employee's productivity, those that attempt to conduct trainings for their employees do so in an ad- hoc and haphazard manner, and as such, training in those organizations is more or less unplanned and unsystematic (Nwachukwu, 2007). The absence of these major variables of PM which have been proven to improve employee productivity (Armstrong & Baron, 2005; Caruth & Humphreys, 2008; Edward, 2012; Greve, 2003; Moynihan &Landuyt, 2009; Thompson &McGraw, 2010) may have resulted in low productivity in Nigerian companies as established by Esu (2009) who attributed failure of businesses to ineffective and inefficient performance management.
Feedback is sometimes viewed as not accurate or useful by employees, potentially leading to feelings of discouragement and anger (Brett & Atwater, 2001). Feedback that directs the recipient’s attention to the task is more effective than feedback that directs the recipient’s attention to the self and away from the task. Negative feedback is often given to harass or punish the employees; it is typically misperceived or rejected. Caruth and Humphreys (2008) states that when performance feedback is not fair, timely and specific in highlighting the employees’ progress or, if participants in appraisal perceive the system to be unfair, the feedback to be inaccurate or the sources to be incredible, they are likely to ignore the feedback they receive which will however lead to the reduction in the levels of productivity. Feedback then becomes least useful when it is inaccurate or untrue, biased due to favoritism or politics (Levy & William, 2004).
Wright (2007) states that compensation, such as pay and promotion is not coupled to performance levels. This has however led to the failure of manufacturing companies to reach their set objective as it is understood that an organization’s success relies heavy on how much attention is paid to its employee compensation policies (Wright, 2007). Barton (2000) states that manufacturing industry over the years regard employees as additional cost, hence do not remunerate them appropriately; most times, employee’s compensation does not commensurate with the efforts and skills that workers put into the activities. However Broady-Preston and Steel (2012), establish it that compensation plans are not usually linked with performance of the employee; and when this is happens productivity in the organisation is threatened and as a result might have effect on the overall productivity. In some organizations, their employees are been under-remunerated whereas some organizations do not have good compensation administration programs which can be in form that the employee promotion does not come in time, or pay packages are not commensurate to the work they have done for the organization (Fein, 2010).
When performance appraisal is conducted, employees are always discontent with the report (Sudarsan 2009). Studies have observed that the reasons for this displeasure is that they see performance appraisal as a waste of time and believe it is filled with favoritism and inaccuracy, resulting in compromised assessment of employees’ accomplishments and capabilities (Cleveland & Williams, 1989; Cook & Crossman, 2004; Jawahar, 2007). Mone and London (2010) states that there is usually unfair evaluation of employee performance which makes them feel insecure or discouraged leading to the development of poor relationship between the employer and employee and thereby affects employee’s productivity. Line managers have frequently rejected performance appraisal as being time consuming and irrelevant. Employees have disliked the shallow nature with which appraisals have been conducted by managers who lack the skills required. According to Armstrong and Murlis (2005) also assert that performance appraisal too often degenerates into ‘a dishonest annual ritual, which nonetheless is inevitable and when tend to be biased will have a negative effect on employees and their level of productivity.
Therefore, in the light of these issues, could it then be said that the adoption of performance management can actually improve employee productivity of manufacturing industries in Nigeria?
1.3 Objective of the Study
The main objective of the study is to examine the effects of performance management on employee productivity of selected manufacturing firms in Lagos State Nigeria. Other specific objectives are to:
- determine the effect of performance appraisal on employee productivity of selected manufacturing firms in Lagos State;
- evaluate the effect of feedback on employee productivity of selected manufacturing firms in Lagos State;
- investigate the effect of training on employee productivity of selected manufacturing firms in Lagos State and
- ascertain the effect of compensation on employee productivity of selected manufacturing firms in Lagos State.
1.4 Research Questions
The proposed study would answer the following research questions:
- To what extent does performance appraisal affect employee productivity of selected manufacturing firms in Lagos State?
- What way does feedback affects employee productivity of selected manufacturing firms in Lagos State?
- How does training affect employee productivity of selected manufacturing firms in Lagos State?
- What is the effect of compensation on employee productivity of selected manufacturing firms in Lagos State?
The hypotheses for the proposed study tested at 0.05 level of significance are as follows:
H01: Performance Appraisal has no significant effect on employee productivity of selected manufacturing firms in Lagos State.
H02: Feedback has no significant effect on employee productivity of selected manufacturing firms in Lagos State.
H03: Training has no significant effect on and employee productivity of selected manufacturing firms in Lagos State.
H04: Compensation has no significant effect on employee productivity of selected manufacturing firms in Lagos State.
1.6 Operationalization of Variables
The variables of this study are operationalized in order to show the functional relationships between them as follows:
X= Independent Variable
Y= Dependent Variable
Where X = Performance management
Y= Employee productivity
X = (x1, x2, x3, x4)
Where: x₁ = Training (T)
x₂ = Feedback (F)
x₃ = Compensation (C)
x₄ = Performance Appraisal (PA)
Y= f(x1, x2, x3, x4)
Y = α0 + β1x1 + μ ………………………………………….. Equation 1
Y = α0 + β₂x₂ + μ ………………………………………….. Equation 2
Y = α0 + β₃x₃ + μ ………………………………………….. Equation 3
Y = α0 + β₄x₄ + μ ………………………………………….. Equation 4
Y= α0+ β1x1+ β₂x₂+ β₃x₃+ β₄x₄+ μ
This study focused on the effects of performance management on employee productivity of selected manufacturing firms in Lagos State. Identified variables of performance management was examined hence, because of the wide scope of manufacturing industry in Lagos State; the researcher therefore limited the research to the following sector group of manufacturing companies listed in the Nigeria Stock Exchange, namely Cadbury Nigeria Plc, Dangote Sugar Refinery Plc, PZ Cuzzons Nigeria Plc, Unilever Nigeria Plc, Honeywell Flour Mills Plc. The reason for this choice is due to the fact that they have large number of employees; they have survived the so called harsh operating environment in Nigeria and have continued to dominate the Nigerian manufacturing industry.
The target respondent consists of the total number of staff operating within the firm. The total estimated figure for the population is given at (6,026) personnel as at September 2015 by the Nigeria Stock Exchange List (2016). Information regards this population number was sourced from the human resource department (HRD) of the firms. Using Yamane (1967) formula for the sample size determination, the study is able to arrive at a sample size of 490 respondents including a provision of 30% non response rate. Sampling method to be used in this study is the stratified sampling technique simply because of the stratification variables included in the scope of the study. The study is based on manufacturing corporations that are listed and operating on the Nigerian Stock Exchange as at June 2016. Lastly the study would be carried out using descriptive survey design.
The general understanding of this study would serve as a useful guide to management, human resource practitioners, executive corporate managers and administrators most especially in the manufacturing industries to understand how performance management can enable organization in sensing any possible changes in the level of productivity; thereby figure out strategies for identifying, encouraging, measuring, evaluating, improving and rewarding employees ‘performance at work.
The findings of this study would also be helpful to the manufacturing industries when setting policies on their specific performance management system in order to adopt PM practices that are consistent with the requirements of these policies and that best fit the nature of the work performed and the mission of the organization.
This study would also enable the government create better policies and regulations with regard to the research variables in a way that can create an enabling environment for companies to survive.
Finally, the study would be of immense benefits to the society by contributing to the body of knowledge and stimulate more researchers’ interest in this field of study.
1.9 Operational Definition of Terms
The proposed operational definitions of terms for this study are:
Performance appraisal: This is the process of assessment carried out by a superior employer or supervisor to evaluate and judge the work performance of an employee.
Feedback: This is a helpful information or criticism that is given to an employee in respect to work done (input) to improve performance (output).
Training: This is identified as the organized activity aimed at imparting information and instruction to improve the employee’s performance based on feedback report given as at the time.
Compensation: It is the monetary or non-monetary rewards given to employee based on result of training activities and respective improvement in performance of said employee.
Performance Management: This is the performance appraisal, feedback, training and compensation process and techniques used by an organization to achieve work objectives or goals.
Employee Productivity: It is the degree at which work done brings about increase in performance of employee to achieve set goals.
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