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The study examined the impact of performance management on the profitability of manufacturing firms in Nigeria. 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. It is in light of this, that this study aims to examine the effect of performance management on employee productivity among Nigerian manufacturing firms. Descriptive survey research design was adopted for the study. The population was 6026 comprising of the entire staff of five selected manufacturing companies in Lagos State. Taro Yamane formula was used to derive the sample size of 490. A structured questionnaire was administered resulting in a response rate of 97.5%. The instrument was validated and the Cronbach’s Alpha used for the Pre-test Reliability Analysis of the major constructs ranged between 0.778 and 0.879. The data gathered was analyzed with the aid of Statistical Package for Social Sciences (SPSS) version 21.0 software involving frequency distributions, linear and multiple regressions. Findings showed that indeed the four context of performance management had a significant effect on employee productivity. Detailed simple linear regression analysis showed that performance appraisal (F = 39.60, R Square = 0.077, P < 0.05) at 7.7%; performance feedback (F = 142.726, R Square = 0.231, P < 0.05) at 23.1%; employee training (F = 7.803, R Square = 0.016, P < 0.05) at 1.6% and compensation (F = 297.643, R Square = 0.385, P < 0.05) at 38.5% had a significant effect with employee productivity, however, performance feedback and compensation had the strongest relationship on employee productivity; multiple regression analysis also showed performance management (F = 79.482, R Square = 0.402, P < 0.05) at 40.2% had significant effect on employee productivity. The study concluded that Performance Management when well implemented improves employee productivity especially when more emphasis is placed on positive feedback and compensation which was proven to have a higher influence on productivity of employees. It was recommended, among others, that manufacturing firms should encourage their members of staff by giving them regular positive feedback and compensate them fairly to improve productivity.
1.1 Background to the Study
The concept of performance management has come into limelight in recent years. Performance management is among the human resource management practices and an important aspect of management and organizational theory. The increasing interest of researchers and managers in performance management and its associated concepts such as performance appraisal, performance measurement, performance evaluation and performance assessment can be attributed to the fact that no concept in management theory seems so difficult to objectively and effectively implement and yet so important to employee development, organizational growth than evaluating and managing individual’s performance (Banjoko, 2005). Successful performance management system helps to evaluate and enhance individual and organizational performance against predetermined business strategies and objectives (Kumar & Nirmala, 2015). Performance management helps to manage organizational performance as well as employee performance and provides the platform for their integration.
Performance management involves many stage of assessment, and is connected to the assessment of human resources as well as performance of organizations. Performance management encompasses performance based mission and goals, performance based reward system, planning, performance appraisal, training and development and performance review (Bevan, 2005).
Performance management assists an organization to realize the effectiveness of the people who work in it. Performance management is beneficial to employees and organizations as it provides individual feedback and helps to collect data which can be used for human resource planning and program evaluation. In reality, the mention of performance management reflects negative perception from all parties involved. Inspite of the negative perception about performance management, majority of organizations have continually engaged in performance management as a potent human resource strategy. Performance management has received attention in the world of management due to the fact that business environment is dynamic as a result of increased legislation, technological advancement, competition and extraneous factors (Price, 2011). Competitive pressures have compelled organizations to pay great attention to develop the quality of their workforce to ensure increased productivity and performance. Performance management has been identified as one of the human resource strategies to achieve improved productivity and performance (Ime & Umeh, 2015).
Boxall and Purcell (2003) submitted that performance management is the process of creating a work environment in which people are enabled to perform to the best of their abilities. It is the main channel through which managers communicate what is expected of employees and give feedback on how well they are achieving their job goals (Armstron & Baron, 1998; Ime & Umeh, 2015). Performance management system ensures that an organization meets its obligations to stakeholders such as employees, suppliers, partners, public, trade unions, trade associations, media and shareholders. Performance management harmonizes the elements that constitute the practice of people management and learning and development. Performance management brings about common understanding of what is to be achieved and provides an approach to leading and developing people to ensure that stated goals are accomplished. Performance management is therefore an essential element of manager’s responsibilities and supports healthy relationship with individuals and group of individuals. 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.
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:
1. determine the effect of performance appraisal on employee productivity of selected manufacturing firms in Lagos State;
2. evaluate the effect of feedback on employee productivity of selected manufacturing firms in Lagos State;
3. investigate the effect of training on employee productivity of selected manufacturing firms in Lagos State and
4. 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:
1. To what extent does performance appraisal affect employee productivity of selected manufacturing firms in Lagos State?
2. What way does feedback affects employee productivity of selected manufacturing firms in Lagos State?
3. How does training affect employee productivity of selected manufacturing firms in Lagos State?
4. 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
1.7 Scope of the Study
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.
1.8 Significance of the Study
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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