Performance Management and IHRM

Performance Management and IHRM By: Chenoy Ceil Chenoy Ceil Table of Contents 1. Introduction ............................................................................................................................ 3 2. Performance Management ...................................................................................................... 4 3. Performance Appraisal ........................................................................................................... 6 4. Cultural Factors Affecting Performance Management............................................................ 7 5. Conclusion ............................................................................................................................ 11 References ................................................................................................................................ 13 Page | 2 Chenoy Ceil 1. Introduction The role of international managers in the world is increasing as companies tend to expand all over the world. However, with the growth in industries, there is also need of human resources to manage such industries and global conglomerates. International Human Resources Management (IHRM) regulates the human resources in international organizations, including expatriate nationals and host-country nationals. However, understanding and measuring the performance of expatriate employees under host-country defined rules often leads to employee discomfort. Under such circumstances, performance management and performance appraisal plays crucial role in defining the strategic approach that would lead to organisational success. According to Armstrong (1998), performance management includes developing the capabilities of employees through various processes that would ultimately lead to growth of the organisation. However, measuring performance in international organisations is a difficult task as the parameters of measurement depends on various cross-cultural factors. Performance management of expatriate population often focuses on individual performance rather than concentrating on all the various factors and environment interacting with such employees. This study focuses on the paper written by Woods (2003), to understand why performance appraisal of expatriate managers and employees have failed to truly evaluate the performance rate of such population. The cross-cultural challenges that managers face in international environment is often unnoticed and this should not be the case while designing performance appraisal systems for international managers and employees. From this paper it can be assessed that performance rating criteria, number of performance raters and the overall cultural diversity should be taken into consideration by Human Resources department while designing the performance appraisal for expatriate Page | 3 Chenoy Ceil managers. Research conducted by Woods (2003) and Hempel (2001) showcases why expatriate managers from foreign nations struggle to perform in host nations. The employment and firm regulations also differ from one country to another and the same criteria cannot be utilized to judge all managers operating within different socio-cultural settings in different countries. 2. Performance Management Performance management must first take into consideration the definition of performance. In Western research, performance is often defined in terms of the trait and characteristics exhibited by persons. However, performance rating in Western culture is based on the performance and not on the qualities exhibited by the person. It is believed that the performance of any employee should be optimized to maximize the organizational outcome (Hempel 2001). However, it is necessary to understand the context in which the performance is measured. Cross-cultural factors are an important determining factor for performance evaluation. For example, in West for performance evaluation, employees should always work towards growth of the company. However, in Chinese companies, human values and morality plays a critical role in defining employee actions. It is seen, that performance appraisal in China is often based on upholding family traditions and organizations support continuation of family control over businesses (Hempel 2001). Performance management utilizes indicators that measures different dimensions of corporate performance, such time, cost and quality (Moller 2010). However, performance management of employees by HRM should take into account the individual values of the employees as well as the cultural factors that regulate organizational transactions within that particular country (Budhwar and Sparrow 2002). Performance management aims at developing the capabilities of individuals and teams within an organisation (Armstrong Page | 4 Chenoy Ceil 1998). There must be integration of individual performance and development of the organisation. The manager’s performance within a multi-national organisation is of critical importance because their duty is not only to follow the instructions provided by the company owners but they also have to manage cultural factors and government regulations that are specific to particular countries (Fraser 2001). Expatriates working in multinational companies, away from home, often have to adapt to the cultural changes and environmental changes (Adler & Bartholomew 1992). Performance management for multinational companies should follow a divergent approach where the diverse conditions of expatriate managers with respect to local nationals should be taken into consideration while evaluating them (Audia and Tams 2002). It has been seen that if performance appraisal of expatriates are conducted by taking into consideration the local cultural factors then the overall performance level of managers significantly increased which in turn increases the overall growth of company (Moller 2010). It has been found that performance management of expatriates often focuses on performance appraisal based on the success rate of overseas subsidiary companies in which the expatriates are posted (Brewster 1991). However, Armstrong (1994) argues that performance appraisal of managers should focus on the achievements and behaviour of the managers. The day to day behaviour of managers can significantly alter while working in foreign nations. These factors should be taken into consideration while designing the performance evaluation. Finally, the feedback from such reports should be utilized to work on the performance management and development of managers and employees in host countries. Page | 5 Chenoy Ceil 3. Performance Appraisal Performance appraisal is a form of measurement of performance. It is utilized to understand how well employees are doing their work and the kind of motivation that is required for optimal performance (Stone 2002). Understanding managerial performance appraisal is key to the success of an organisation, although overall team performance also plays a major role in deciding the success or failure rate of multinational organisations (Black et al. 1999). Research conducted by Woods (2003) suggests that expatriate managerial performance appraisal is task oriented and it fails to take into account the contextual issues such as cultural, social and economic considerations prevalent in the subsidiary country. There is clearly no universal performance criteria to rate managerial performance universally through different nations. For expatriate managers to operate effectively in global companies, they have to adopt either an ethnocentric approach or integrative approach. While in ethnocentric approach, the parent company dictates the IHRM practises in the host country according to the prevalent rules and regulations in the parent country, but in the adaptive integrative approach, the IHRM policies are open to adopting and localising the HRM practices of the host country (Harvey et al. 2001). Understanding performance evaluation according to the changes in the HRM practices within different multinational companies presents several challenges. However, research suggests that adoption of divergent approach is the best method of performance management as it fair to both host country nationals and expatriates working together in multinational companies (Audia and Tams 2002). Research conducted by Black et al. (1992) identifies that invalid performance criteria, rater incompetence and rater bias are the three most critical factors that create challenges in designing international performance appraisal. Multinational companies need to operate in several nations where the languages are different, the culture is different and in fact the Page | 6 Chenoy Ceil business practices are also different. For example, in China, business organisations try to maintain the hereditary structure in businesses and keep the family running the same business while in Western culture, businesses operate in a democratic structure. One of the most prominent performance appraisal system that has been utilized in several multinational setting is the 360 degree evaluation that has been made popular by Black and others (Woods 2003). However, the system may create bias when the performance rater is aligned to a particular national culture. Woods (2002) suggest that performance appraisal should be conducted by multiple raters to avoid any occurrence of bias. Research conducted by Dawkins et al. (1995) showcases that Australian expatriate managers working in Asian businesses have often be found to be lacking in understanding of the business and cultural practices of Asian conglomerates. Performance evaluation of Australian managers has revealed that most managers were even unwilling to adapt the local culture of Asian businesses which significantly impacted the overall growth of the Australian companies operating in Asia. However Woods (2003) research also showcases that Singaporean expatriate managers working in Australia often perform better than their Australian counterparts in China because they receive a lot of support from their home country. Performance appraisal should always take into account all these different factors to better manage the performance of employees and managers operating at a global level. 4. Cultural Factors Affecting Performance Management Performance management in multinational companies should follow the divergent approach and adopt the cultural diversity and economic practices prevalent in the host country to effectively measure expatriate managerial performance. It has been found that cultural factors can significantly alter the performance of a managers when made to work in diverse situations. Performance appraisal should create a unique criteria for the expatriate Page | 7 Chenoy Ceil managers to take into account their relation with cross-cultural activities, relationship with parent nation and adaptability in diversified global environment (Audia and Tams 2002). Research conducted by Woods (2003) also showcases that Asian nations often allow subordinates to negotiate the performance appraisal criteria and the parent company engages in continued discussion with their expatriate managers working abroad. However, Australian expatriate managers are often left out of sight out of mind to operate in diverse cultural settings without any backing or help from their parent Australian company (Woods 2003). This again shows how cultural factors significantly define the performance of managers. Different nations have different cultural values and it is the adaptability and crosscultural interpersonal skills that defines the performance of an expatriate manager (Moller 2010). However, modern research suggests that individual performance evaluation may not always correctly help in improving performance management because individuals have to work in a team setting. In 2002, research conducted by Suutari and Tahavanainen (2002) suggested that Finnish expatriate engineers were found to be more effective when they followed team goals rather than focusing on improving their individual performance. Managers can perform effectively when they integrate the local culture and work as a team with host country nationals. Performance management of expatriates not only involves performance appraisal but also performance evaluation and utilization of the same for the development of the organisation. It has often been found that most performance appraisal criteria or methods has been criticised for lacking in important considerations. The survey of 209 expatriate Chinese managers by Entrekin and Chung in 2001 showcased that most managers wanted multisource evaluation so as to avoid rater bias. However, in Chinese culture, rating by subordinates of higher managers is often seen as disrespectful as it is against their Page | 8 Chenoy Ceil paternalistic culture. These cultural differences should also be taken into account while evaluating the performance of expatriate managers working in foreign nations. Another important factor that significantly impacts performance management is employee compensation (Moller 2010). It has been found that when expatriates work with host employees and receive different compensation compared to host employees and managers, a sense of discomfort often arises within the organisation that may lead to poor performance (Moller 2010). Commitment of employees and their motivation is dependent on the compensation system and multinational companies often fail to bring uniformity in the compensation system of host and foreign expatriate employees. Compensation varies in countries where expatriate managers are sent to work. It has been found that employee compensation can be significantly impacted based on the host country’s standard of living (Nazir, Shah and Zaman 2014). Expatriate performance is directly related with expatriate performance and if their expectations are not met by the employer then there can be significant change in the performance. Further, companies and IHRM must consider several factors that can create a positive impact on employee performance. It has been found that if the company is willing to pay for the housing of the expatriate managers then it can significantly improve the relationship of the company with their employees (Nazir, Shah and Zaman 2014). This in turn will boost the performance of the expatriate managers. However, if such considerations are not taken into account as pay rate significantly differs from one country to another and also depends on the prevalent exchange rate of money then it will definitely impact the performance of the expatriate managers (Nazir, Shah and Zaman 2014). There are significant other considerations too when expatriate managers are forced to leave their country and relocate for work. Employees not only look at the overall pay but also consider if the multinational organization would provide transportation costs, education Page | 9 Chenoy Ceil allowance for their children, and tax equalization benefits (Nazir, Shah and Zaman 2014). HRM must design global reward programs for expatriate managers to avoid disparities between home country employees and expatriate employees. There must be a sense of organizational justice to significantly boost performance management. Appraisal of expatriate managers should be considerate of these factors to design appraisal forms that taken into factor the relevant details. Culture plays an important role in determining what kind of compensation is suitable for the employees. For example, in China, employees are treated equally and often their compensation rate is similar. However, if an expatriate worker comes from Australia to work in China then that person’s expectations are more according to the standard of wage prevalent in Australia. However, the Chinese counterpart would be providing less amount of wage and this would create dissatisfaction and lowered performance. Again, research indicates that Chinese workers are prone to blame their own problems upon externalities and this is why sometimes their performance may not be optimum (Hempel 2001). Cultural changes can significantly impact performance for expatriate managers because the Western values are different from the Eastern values. Given the differences in culture between Western and other countries, expatriate managers should not be evaluated under the same guidelines that is applicable for others. It is believed that due to difference in culture, expatriate managers have differences in their cognitive constructs and they perform differently under given situations (Hempel 2001). All the above cross-cultural factors significantly impacts the employee performance appraisal and it is advised that specific factors must be taken into account while designing the performance appraisals. Page | 10 Chenoy Ceil 5. Conclusion In conclusion, it can be said that multinational companies need to come up with unique performance evaluation systems that takes into consideration several factors that are relevant to the environment and business setting within which the expatriates operate. Expatriation will continue to increase in future due to globalisation and the importance of managers with global and cross-cultural knowledge will significantly increase. However, performance evaluation of expatriate managers should not be limited to certain universal standards as there are several considerations that impact the performance of an individual in a foreign setting. Performance evaluation is utilized by some companies to understand how to develop performance management of employees while in other organisations, performance evaluation is utilized to identify the low performers and dismiss them from the organisation. In spite of different utilization, performance evaluation and performance management would continue to be utilized by IHRM practices to better manage multinational organisations. From this research study it is advised that performance evaluation criteria should be broadened to take into account the individual family attributes of the managers, job characteristics and complexity, degree of cultural difference between home and host country, business practices prevalent in host country and the manger’s previous exposure to crosscultural setting (Woods 2003). Evaluation of performance should also take into account the compensation package of expatriate managers and the organizational justice that is provided to host country employees and expatriate employees. A global rewards program must be introduced to effectively boost performance of employees. Performance management of employees does not only imply appraisal of employees to eliminate ill-performing employees but also to provide rewards to those who are performing well so that it motivates them to improve the overall performance of the organization. Page | 11 Chenoy Ceil In fact, there might be several other factors that can be taken into consideration while designing the performance appraisal. However, the key to improving performance management is to conduct performance appraisal with multiple raters to avoid any form of discrimination. Some of the best practices for performance appraisals in global companies is to utilize multiple raters who will take into account the different stakeholders, global setting and cultural differences. Not only higher level officials should be allowed to evaluate the performance but also lower level workers and co-workers must be given an opportunity to rate the performance of the manager. Performance management in global companies can only improve if the expatriates are happy with the performance evaluation and performance appraisal method. Expatriate managers are often concerned about the appraisal method because there is no clear methodology for the same. It has been found that managers often fail to perform in foreign states because they are so closely connected with home country values and business practices that they fail to adapt to the new country. In essence, it can be said that performance appraisal of managers in global industries is not really developed and suffers from several faults because most countries follow different set of rules and regulations. For all these reasons, it is best advisable for multinational companies to work on their performance appraisal forms so that they can develop something that is not biased or unjustly towards expatriate managers. To improve performance management of employees and managers, the company must develop a performance evaluation method that does not seem biased or untrustworthy. Besides, the organisation must work upon evaluating the overall performance appraisal and utilizing the results obtained from such tests for performance management practices. 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