RIFT VALLEY UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTEMENT OF BUSINESS ADMINISTRATION

ASSESMENTS OF PROSPECTS AND CHALLENGES OF EMPLOYEE

PERFORMANCE MANAGEMENT SYSTEM IN CASE OF
COMMERCIAL BANK OF ETHIOPIA IN ROBE BALE TOWN

BY:Abduljelil Ibrahim

A PROPOSAL SUBMITTED TO : MY ADVISOR Gosa Lema(Assistant PH)

ROBE BALE ETHIOPIA

JUNE,23,2020
INTRODUCTION

In this section of the study, the researcher included back ground of the study, background of the
company, statement of the problem, basic research questions, general and specific objectives of
the study, operational definition of terms, study significance ,scope of the study, limitation of the
study and organization of the study.

Background of the Study

Organizations with motivated and talented employees offering outstanding service to customers
are likely to pull ahead of the competition, even if the products offered are similar to those
offered by the competitors. Customers want to get the right answer at the right time and they
want to receive their products and services promptly and accurately. Only people can make these
things happen and produce a sustainable competitive advantage (Aguinis, 2009).

Human resource management is fundamental to all management activity in that it is a series of

activities which: first, enables working people and the business which uses their skills to agree
about the nature and objectives of their working relationship; and, second, ensures that the
agreement is fulfilled. Performance Management as one of the aspects of human resource
management is a process of advancing the performance of the organization to the higher
expectation by developing the performance of individuals and teams in a systematic way
(Armstrong, 2009).

Performance management systems are key tools that can be used to transform people’s talent
and motivation into a strategic business advantage (Aguinis, 2009). It is the process of cascading
the goal of the organization down to teams and individuals with the aim of getting a better result
(Armstrong, 2009). In an effective performance management system, it is easy for managers to
evaluate and measure individual performance and increase productivity by aligning individual
and strategic objective, providing visible and clear performance expectation, documenting
individual’s performance for future decision and focusing on skill development plan.
Having the right performance management system is a concern of every organization because it
is an important gear of any organization to be a front runner in the market by evaluating and
developing employee performance in order to get enhanced organizational success. As indicated
from the company manual, starting from November 2010, the Commercial bank of Ethiopia has
initiated the institutionalization of the balanced scorecard as a strategic management tool that
would enable it to formulate and implement its strategy and track its performance accordingly.
Since then, it has successfully implemented it in terms of achieving objectively measuring the
contribution of processes, districts and branches towards the realization of the annual goals and
targets proposed at the respective levels. This has created a fertile ground to link employees’
performance with organizational objectives and goals. This in effect has brought about the
creation of a mechanism that helps to visualize explicitly their contributions at corporate level as
well. However, the integration of corporate performance indicators and measuring the outcomes
at the individual level was missing. Following this, the implementation of employee performance
management system was begun with the main aim of aligning the strategic objectives of the bank
to that of individual level so that each individual employee performance will be tracked in
relation to the targets or goals given to the respective place of assignment. It is also implemented
to provide a context in which the development need of the job holders can be addressed and
allows the bank to manage its resources within a strategic framework and achieve better
performance so that the bank can realize its vision to become a world class commercial bank by
the year 2025. Cognizant to this, the main aim of the research is to assess the prospects and
challenges of employee performance management system in the bank.

Background of the Organization

Commercial Bank of Ethiopia is the leading and Pioneer bank to introduce modern banking to
the country which was established in 1942. Since its establishment it has made a lot of
improvements and currently it has more than 1000 branches stretched across the country. It is the
leading African bank with an asset of 311 billion Birr as on September 30 th 2015. CBE plays a
catalytic role in the economic progress & development of the country. It is the first bank in
Ethiopia to introduce ATM service for local users and currently it has more than 11 million
account holders. CBE has strong correspondent relationship with more than 50 renowned foreign
banks like Commerz Bank A.G., Royal Bank of Canada, City Bank, HSBC Bank, and it has a
SWIFT bilateral arrangement with more than 700 others banks across the world. CBE combines
a wide capital base with more than 22,000 talented and committed employees. CBE is the
Pioneer to introduce Western Union Money Transfer Services in Ethiopia early 1990s and
currently working with other 20 money transfer agents like Money Gram, Atlantic International
(Bole), Xpress Money. It has opened four branches in South Sudan and has been in the business
since June 2009. CBE has reliable and long-standing relationships with many internationally
acclaimed banks throughout the world (www.cbe.com.et)

Vision and Mission of the bank

The vision of CBE is: To become a world-class commercial bank by the year 2025. And its
mission is ‘’Being committed to best realize stakeholders' needs through enhanced financial
intermediation globally and supporting national development priorities, by deploying highly
motivated, skilled and disciplined employees as well as state-of-the-art technology. They
strongly believe that winning the public confidence is the basis of our success’’.

Statement of the Problem

The reason for the existence of performance management system in an organization is to

improve organizational result, deploy a culture that will attract and develop employees, create a
good relationship between leaders and employees, enhance meaningful work cooperation among
employees, generate an opportunity for growth and development and to make clear on an
understanding of work objectives. Effective performance management systems have a
wellarticulated process for accomplishing evaluation activities, with defined roles and timelines
for both managers and employees. Especially in organizations that use performance management
as a basis for pay and other HR decisions, it is important to ensure that all employees are treated
in a fair and equitable manner (Pulakos, 2004).

The commercial bank of Ethiopia has implemented employee performance management system
in order to aligning the strategic objectives of the bank to that of individual level. However, as
shown in the performance management system follow-up report of the bank (2014), the
implementation has been encountered different types of challenges like; unbalanced goals and
targets were assigned for employees assigned at different assignments while they are at the same
job grades, un alignment of performance management system with benefit packages and two
extreme appraisal score (1 and 4) for internal business process target have been given. There is a
tendency of evaluating individual performance on the target not actually given for them in the
bank.
Through a well developed and motivated staff, achieving its vision and mission means a lot for
the bank. As a result commercial bank of Ethiopia needs a well designed and implemented
performance management system to enhance the performance of its employees who are
responsible in serving variety of customers.

Research Questions

Considering the importance of employee performance management system and some above
mentioned implementation problems in the bank, the main aim of the study is to assess the
prospects and main challenges of employee performance management system in Commercial
Bank of Ethiopia through addressing the following basic research questions;

1. What are the benefits gained from the implementation of employee performance
management system in CBE?
2. What are the major challenges that affecting the employee performance management
system?
3. What are the perceptions of employees towards employee performance management system
in the bank?
4. Does the processes of performance management being conducted in an objective manner?

1.5 Objective of the study

The overall objective of this study is to assess the prospects and challenges of employee
performance management system in Commercial Bank of Ethiopia and to forward possible
solution for the actual problems. Specifically, the researcher has addressed the following specific
objectives;
1. To identify the benefits gained from performance management system is implementation in
the bank.
2. To find out employees perception toward employee performance management system of the
bank.
3. To explore the challenges encountered while implementing employee performance
management system.
4. To assess whether the processes of performance management practiced objectively or not.
5.
Operational Definition of Terms

Performance: is the level of output or result accomplished against a given targets and the way
how it accomplished.
Employee performance management system: a mechanism designed to aligning the strategic
objectives of the organization to that of individual level so that each individual employee
performance will be tracked in relation to the targets or goals given to the respective place of
assignment.
Challenges: referstolimitations, drawbacks or shortcomings that restrict smooth
implementation of employee performance management system in the organization
Prospects: refers to achievements or success obtained as a result of employee performance
management system implementation.

Significance of the study

The study has assessed the prospects and challenges of employee performance management
system practiced in commercial bank of Ethiopia.
Furthermore, the study will enable;
1. The commercial bank of Ethiopia to obtain the necessary feedback and take corrective
measure to ensure the successful implementation of performance management system.
2. To broadens the knowledge of the researcher about the subject matter with a range of
practical application of performance management system.
3. It might be an input for other banks who are interested in designing and implementing a
performance management system.
4. To trigger other study in the area and can be used as an input for further research.
5. To add something on the literature regarding the performance management system.

Delimitation of the Study

This study would be more important, if all private and government commercial banks included.
However, it would be practically unattainable to conduct due to different constraints. Therefore
this study has focused only on an assessment of the prospects and challenges of employee
performance management system implementation at commercial bank of Ethiopia particularly in
Addis Ababa area.

Limitation of the Study

This study was conducted within an organization where the researcher is an employee of the case
organization and a participant in the performance management system. This may imply a certain
level of subjectivity based on the researcher’s own perceptions for the system and his personal
experience of such a system. However, care was taken to reduce such biases through the
enhancement of trustworthiness and quality and following scientific research procedures.

The study also focuses on commercial bank of Ethiopia (Addis Ababa area), and this presents a
limitation in that the findings may not be generalized to other organizations, government and
private sector industries in Ethiopia.

Organization of the Study

The study has been a composed of five chapters. The first chapter deals with the introduction
part includes the background of the study, statement of the problem, objectives of the study ,
operational definition of terms, significance of the study, delimitation/ scope and time schedule
of the study. Chapter two has included related literature review where detail discussion about the
topic has been undertaken. The third chapter has presented the research design and methodology.
In the forth chapter data presentation, analysis and interpretation have been discussed. The last
chapter covered the summary of major findings and conclusions drawn from the findings and
also the possible recommendations has been forwarded by the researcher.
RELATED LITRATURE REVIEW

In this part of the study, the researcher has reviewed related literatures. This chapter includes the
theoretical review, empirical review from previous related works and finally conceptual
framework has formulated. Furthermore, lessons drawn from literature were forwarded.

2.1 Theoretical Literature Review

2.1.1 Definition of Performance
Performance can be defined as ‘the act or process of performing a task or an action that involve a
lot of effort’ (Oxford Advanced Learner Dictionary, 2006). According to Smither and London,
2009 it can be also defined as a combination of both results (what need to be achieved) and
behaviors (how to be achieved). In a simple way performance can be also regarded as a record of
an outcome or accomplishment achieved by a person or a team (Armstrong, 2009). Therefore it
is possible to say that when managing performance both inputs (behavior) and outputs (results)
need to be considered since they are interrelated. And, behaviors emanate from the performer
and transform performance from abstraction to action.

2.1.2 Performance Management

Performance management can be defined as a systematic process for improving organizational
performance by developing the performance of individuals and teams (Armstrong,
2006).Performance management is a continuous process of identifying, measuring and
developing performance in organizations by linking each individual’s performance and
objectives to the organization’s overall mission and goals (Aguinis, 2009). Therefore
performance management is a tool which enables to improve organizational performance by
clearly aligning the general objectives and mission of the organizations with each individual/
team goals. In most cases performance management system and performance appraisal are
interlinked with each other. However, performance management is the broader one which
identifies measure, manage and develop performance of the human resource in an organization
whereas performance appraisal is the sub set of performance management in which we use it for
evaluating the competence of employee’s (Robert and John, 2013). Performance management is
a process of improving the performance of an organization by helping individuals and team to
develop their capacity to reach the intended destination (Armstrong, 2006). Smither and London,
2009 also define performance management as it is a “continuous process of identifying,
measuring, and developing the performance of individuals and teams and aligning performance
with the strategic goals of the organization”.

Performance management is an integrated and systematic process of sustaining the success of

organization by improving the performance of the people who work in them and also it is
developing the capacity of individuals and team who contribute to the organization. It is also a
strategic process in a sense that it deals with the broader issue of the organization efficiency to
meet the market demands and long term goal (Armstrong, 2000). When we say performance
management is an integrated process, first it is linking of the organization objective with the
teams and individual core competences as well as integration of different aspects of human
resource management including, organizational development, human resource development,
reward and recognition to ensure excellence in the management and development of people.
Performance management is based on the agreement of objectives, knowledge, skill and
capability (competence) requirements, performance improvement, and personal development
plans. It involves the joint and continuing review of performance against these objectives,
requirements and plans and the agreement and implementation of improvement and further
development plans. Many factors will impact the effectiveness of an organization’s performance
management system, but three are most important. First, the system needs to be aligned with and
support the organization’s direction and critical success factors. Second, well-developed,
efficiently administered tools and processes are needed to make the system user friendly and well
received by organizational members. Third, and most important, is that both managers and
employees must use the system in a manner that brings visible, value-added benefits in the areas
of performance planning, performance development, feedback and achieving results (Pulakos,
2004).

2.1.3 Processes of Performance Management

Most authors have agreed on the meaning of performance management that, it is a continuous
process that engages both the manager and an employee to set out how they can best work
together to achieve the required results. As a result performance management system has its own
process in order to execute the system effectively. Even though there are different processes of
performance management system indicated by different authors, the most common and concrete
one is a process which encompasses four phases which are performance planning, performance
execution, performance assessment and performance review stages. Each phase will be discussed
briefly as follows.

2.1.3.1 Performance Planning

According to Smither and London (2009), the performance planning cycle of performance
management system is the first stages where employees will be enable to have a clear knowledge
about the system. It is the first cycle where supervisor and employee meet to discuss and agree
on what is to be done and how it is to be done by combining the result, behavior and
development plan. By results we mean the outcomes that an employee must perform quality
products and services with time in accordance to personal accountabilities. On the other hand,
behavior is an important measure of results on how employees do their job by discussing on
competencies, which are measurable clusters of knowledge, skills, and attitudes (KSAs) that are
critical in determining how results will be achieved. The third component of a planning phase is
development plan. It is identifying areas of improvement and setting goals to be achieved in each
area. It usually includes both results and behaviors. Such plans highlight an employee’s strengths
and the areas in need of development, and they provide an action plan to improve in areas of
weaknesses and further develop areas of strength. And it helps employees to identify how
continually learn and grow, to see the possibility of being better in the future and helps them to
avoid performance problems faced in the past.

To show the difference between result and behavior Grote, (2002) identified that, results include
actual job outputs, countable products, measurable outcomes and accomplishment, and
objectives achieved. It deals with what the person achieved. However, behaviors include
competencies, skills, expertise and proficiencies, the individual’s adherence to organizational
values, and the person’s style, manner and approach. Behaviors deal with how the person went
about doing the job.

Performance planning is a discussion between supervisor and employee with the agenda of
coming to agreement on individual’s key job responsibilities, developing a common
understanding of the goal and objective that needs to be achieved, identifying the most important
competencies and creating an appropriate individual development plan (Grote, 2002). While
conducting the performance planning cycle, there are some responsibilities which will be
expected both from the supervisor and the employee before the discussion and during the
discussion. The responsibilities of the supervisor before the meeting is first to review the
organization’s mission, vision and values statement and department’s goal, the second one is
reading the individuals job description and thinking about the goals and objectives which the
employees is expected to achieve in the appraisal period. The third and the forth responsibilities
of the supervisor is identifying the most important competencies and determining what
consideration should be taken to the successfulness of performance in each area respectively. In
addition to these during the meeting the supervisor will be responsible to discuss and come to an
agreement with the individual on the most important competencies, key position responsibilities
and goals and also he/she is responsible to come to an agreement on the development plan of an
employee. On the other hand the employee has also the same responsibilities while conducting
the performance planning stage in order to make the performance management system effective
and successful.

Components of Performance Planning

Performance planning is the process of setting goals in relation to the key accountabilities
associated with your role. Commonly, setting performance goals involves having an
understanding of your key accountabilities, setting goals in relation to these accountabilities, and
deciding how you will measure the achievement of your goals (L. Kirkpatrick, 2006).

In general according to Armstrong (2009) performance planning among others includes:

agreement on goals/objectives, performance standards, performance measures, key result areas,
and agreement on personal development needs.
1. Goals/ objectives
According to Grote, 2002 goal setting is one of the key elements of performance planning. In
addition to identifying the key responsibilities of the individual’s job and the competencies or
behaviors that the organization expects everyone to display, another critical element is setting
appropriate goals for the upcoming year.

2. Performance standards
Performance standards are management approved expressions of the performance threshold(s),
requirement(s), or expectation(s) that employees must meet to be appraised at particular levels of
performance (United States Office of Personnel Management, January 2001). Standards of
performance are different from objectives. Objectives should be set for an individual, rather than
for a job. Therefore, a manger who has several employees who do the same job will have one set
of standards for the job but may have different objectives for each person (for mediocre or
outstanding), based on that person’s experience , skills, and past performance
3. Performance measures
In identifying what the key responsibilities of a position are; the manager and the individual need
to discuss how the person’s performance will be measured and evaluated. There is a difference
between output measures and outcome measures. An output is a result that can be measured
quantifiably, while an outcome is a visible effect that is the result of effort but cannot necessarily
be measured in quantified terms. According to Grote, 2002) there are four general measures of
output: Quality, Cost, and Timeliness. Armstrong (2009) suggested that measures of outcome
include: changes in behavior; completion of work/project; acquisition and effective use of
additional knowledge and skills etc.
4. Key performance indicators
KPIs define the results or outcomes that are identified as being crucial to the achievement of high
performance.

2.1.3.2. Performance Execution

Once the performance-planning phase has been completed, it’s time to get the job done to
execute the plan. Performance execution is the second phase of an effective performance
management process. For the individual, the critical responsibility in phase two is getting the job
done achieving the objectives. Even if the line share of this phase will be taken by the employee,
but the appraiser have also two major responsibilities: creating the conditions that motivate, and
confronting and correcting any performance problems. In an effective performance management
system, performance execution also includes a midterm review to ensure that performance is on
track (Grote, 2002).
Smither and London (2009), has also mentioned the following responsibilities of supervisor in
the execution stage of performance management system.
 1. Observation and documentation: - it is an observation and documentation of
employee’s performance in a daily basis which helps to keep track of both good and poor
performance.

2. Updates: - when there is a change in organizational goal, supervisors must update and
revise the initial planned objectives, standards, key accountabilities and key competencies
accordingly.

3. Feedback: - in order to improve performance, feedback should be provided regularly

before the time of assessment and also supervisors should coach and mentor employees every
time.

4. Resources: - without sufficient resource it is difficult for employees to achieve the

planned objective. Thus supervisors have a responsibility of ensuring the availability of the
necessary supplies and funding to perform the job properly.

5. Reinforcement: - supervisors must let employees know that their outstanding

performance is noticed by reinforcing effective behaviors and progress toward goals. Also,
supervisors should provide feedback regarding negative performance and how to remedy the
observed problem. Observation and communication are not sufficient. Performance problems
must be diagnosed early and appropriate steps must be taken as soon as the problem is
discovered.
As the responsibility of supervisors was cited by Smither and London, Dick Grote states the
responsibilities of employees as follows.
1. Get the job done: - performing the agreed objectives, competencies and development
plan at the performance planning stage is solely the responsibility of the employee by
carrying out them on a daily activity.

2. Solicit performance feedback and coaching: - even though giving feedback is the
responsibility of supervisors, employees have to also ask for feedback on their performance
and plead for coaching and mentoring while they face some problems in executing their day
to day job.
 3. Communicate openly with appraisers on progress and problems in achieving
objectives: - at the performance execution stage, employees should feel free to communicate
with their supervisors regarding their progress as well as problems while trying to achieve
their objectives.
4. Update objectives as conditions change: - whenever there is a change in organizational
objective, employees should update their objectives as well in order to comply with the new
change.

5. Complete the development plan: - once employees put their development plan in the
planning process, they have to complete it before the performance assessment stage. This is
because without employees’ development, performance management system is like a bird
with one wing that does not able to fly.

6. Keep track of achievements and accomplishments: - employees should register their

achievements and accomplishments while performing their job. This will help them to point
out the major achievements at the time performance assessment with their supervisors.

7. Actively participate in the midterm review meeting: - this is the chance where
employees can reach on an agreement with their supervisors about their performance in the
past and the areas of improvement for the future.

2.1.3.3. Performance Assessment

In the assessment phase, both the employee and the manager are responsible for evaluating the
extent to which the desired behaviors have been displayed, and whether the desired results have
been achieved. Although many sources can be used to collect performance information (for
example, peers or subordinates), in most cases the direct supervisor provides the information.
This also includes an evaluation of the extent to which the goals stated in the development plan
have been achieved. It is important that both the employee and the manager take ownership of
the assessment process. The manager fills out his or her appraisal form, and the employee should
also fill out his or her form. The fact that both parties are involved in the assessment process
provides better information to be used during the review phase (Smither and London, 2009).
When both the employee and the supervisor are active participants in the evaluation process,
there is a greater likelihood that the information will be used productively in the future.
Specifically, the inclusion of self - ratings helps emphasize possible discrepancies between
selfviews and the views that important others (that is, supervisors) have. It is the discrepancy
between these two views that is most likely to trigger development efforts, particularly when
feedback from the supervisor is more negative than are employee self - evaluations. The benefit
of self-appraisal is to reduce an employee’s defensiveness during the assessment meeting and
also in increase employee’s satisfaction and trust in the performance management system. The
time for the formal performance appraisal nears, the manager reflects on how well the
subordinate has performed over the course of the year, assembles the various forms and
paperwork that the organization provides to make this assessment, and fills them out. The
manager may also recommend a change in the individual’s compensation based on the quality of
the individual’s work (Grote, 2002). Habitually, people think that performance appraisal is an
event required by the personnel department in which the manager fills out the form and then uses
it to give feedback which is totally wrong. Rather performance assessment is one of the most
important processes in performance management system in which supervisors are assessing their
subordinates regarding their performance in the past which lays a ground for keeping the strength
and improving on the weaknesses and working on the development plan for the future. Managers
often complain that evaluating someone’s performance is difficult. The reason that they find it
difficult is usually that they have not done a good job of performance planning at the beginning
of the year. If a manager has not held a planning discussion at that time, it’s difficult to evaluate
performance at the end of the year.

Methods of Assessment
According to Armstrong, 2006 there are seven ways of assessing performance:
1. Overall analysis of performance:
An overall analysis is a form of assessment, as it will reveal strengths and, possibly, weaknesses,
which indicate where development can usefully take place.
2. Narrative Assessment
A narrative assessment is simply a written summary of views about the level of performance
achieved. This at least ensures that managers have to collect their thoughts together and put them
down on paper.

3. Rating
A rating scale is supposed to assist in making judgments and it enables those judgments to be
categorized to inform performance or contribution pay decisions or simply to produce an instant
summary for the record of how well or not so well someone is doing. Rating scales can be
defined alphabetically (a,b,c etc) or numerically (1,2,3 etc). Initials (ex for excellent etc) are
sometimes used in an attempt to disguise the hierarchical nature of the scale. The alphabetical or
numerical scale points may be described adjectivally, for example a = excellent, b = good, c =
satisfactory and d = unsatisfactory.
Alternatively, scale levels may be described verbally as in the following example:
Exceptional performance: exceeds expectations and consistently makes an outstanding
contribution that significantly extends the impact and influence of the role.
Well-balanced performance: meets objectives and requirements of the role; consistently
performs in a thoroughly proficient manner.
Barely effective performance: does not meet all objectives or role requirements of the role;
significant performance improvements are needed.
Unacceptable performance: fails to meet most objectives or requirements of the role; shows a
lack of commitment to performance improvement, or a lack of ability, which has been discussed
prior to the performance review. The number of rating levels can be three, four, five or even six
levels.
4. Forced distribution
Forced distribution means that managers have to conform to a laid-down distribution of ratings
between different levels.
5. Forced ranking
Forced ranking is a development of forced distribution.
Rankings can be generated directly from the assignment of employees to categories (eg A, B and
C) or indirectly through the transformation of performance ratings into groups of employees.
6. Quota systems
Quota systems lay down what the distribution of ratings should be and adjust the ratings of
managers after the event to ensure that the quota in each level is met.
7. Visual methods of assessment
An alternative approach to rating is to use a visual method of assessment. This takes the form of
an agreement between the manager and the individual on where the latter should be placed on a
matrix or grid,
In the performance assessment stage supervisors have the following major responsibility which
helps them to evaluate their subordinate effectively and fairly.
1. Review the original list of competencies, goals, objectives, and key position
responsibilities: -since performance assessment is made based on the goals, objective and
competencies listed in the performance planning stage, supervisors should review them so
as to cascade the assessment from them.
2. Prepare a preliminary assessment of the employee’s performance over the entire
year: - it helps to have a clear picture on the performance of the employee while
accomplishing their planned objective as well as achieving organizational goal.
3. Review the individual’s list of accomplishments and the self-appraisal: - assessing the
accomplishment made by the employee and referring to self-appraisal will help supervisors
to remind every accomplishments and failure so as to make an accurate evaluation
accordingly.
4. Prepare final assessment of the employee’s performance: - after reviewing the data
gathered through self-appraisal, peer appraisal and self-evaluation made by supervisors,
the final assessment should be prepared with fair judgment.
5. Write the official performance appraisal using the appraisal form
6. Review the appraisal with the manager and obtain concurrence: - the assessment filled
on the appraisal form should be reviewed by the higher supervisors in order to cross check
the fairness of the evaluation.
7. Determine any revisions needed to the employee’s key position responsibilities, goals,
objectives, competencies, and development plans for the next appraisal period: -
based on the past performance point out the areas which needs revision on the
responsibilities, objectives, goals, competencies and development plans. This is highly
appreciated when performance gap is identified.
8. Prepare for the performance review meeting: - employees and supervisors should have
a meeting to talk about the assessment as well as performance review for the next period.
Likewise supervisors’ individuals have also the above stated responsibilities in the
performance assessment phase of the process.
Rating errors which is encountered during performance evaluation process
Rating errors are faults or factors that influence supervisors to have a wrong judgment in
evaluating employees’ result and behavior and making a wrong decision on the quality of
someone’s job performance. According to Armstrong there are different types of errors while
rating employee’s performance. Among them; attractiveness effect, attribution bias, central
tendency, first impression error, halo/horns effect, high potential error, negative and positive
skew, past performance error, recency effect, similar-to-me effect and stereotyping.

2.1.3.4. Performance Review

The performance review stage involves the meeting between the employee and the manager to
review their assessments. This meeting is usually called the appraisal meeting or discussion. The
appraisal meeting is important because it provides a formal setting in which the employee
receives feedback on his or her performance. In spite of its importance in performance
management, the appraisal meeting is often regarded as the most difficult of the entire process
because many managers are uncomfortable providing performance feedback, particularly when
performance is deficient. This high level of discomfort, which often translates into anxiety and
the avoidance of the appraisal interview, can be mitigated through training those responsible for
providing feedback (Smither and London, 2009). Providing feedback in an effective manner is
extremely important because it leads not only to performance improvement but also to employee
satisfaction with the system. At this point, however, let’s emphasize that people are apprehensive
about both receiving and giving performance information, and this apprehension reinforces the
importance of a formal performance review as part of any performance management system. The
performance review meeting is the basis for assessing the three key elements of performance (the
three Cs), namely contribution, capability and continuous development. Such meetings are also
the means through which the five primary performance management elements measurement,
feedback, positive reinforcement, exchange of views, and agreement can be put to good use. A
performance review should be rooted in the reality of the employee’s performance. The latter is
concrete, not abstract, and it allows managers and individuals to take a positive look together at
how performance can become even better in the future and how any problems in meeting
performance standards and achieving objectives can be resolved. Individuals should be
encouraged to assess their own performance and become active agents for change in improving
their results. Managers should be encouraged to adopt their proper enabling role (Armstrong
2000). There should be no surprises in a formal review if performance issues have been dealt
with as they should have been, namely as they arise during the year. In one sense the review is a
stocktaking exercise, but this is no more than an analysis of where those involved are now, and
where they have come from. This static and historical process is not what performance
management is about. The true role of performance management is to look forward to what
needs to be done by people to achieve the overall purpose of the job, to meet new challenges, to
make even better use of their knowledge, skills and abilities, and to help them to develop their
capabilities and improve their performance. This process also helps managers to improve their
ability to lead, guide and develop both individuals and teams for whom they are responsible
(Armstrong 2000).
Objectives of performance review
Among different objective of performance review the followings are some of them which can be
mentioned as the most important one (Smither and London 2009).
i. It gives motivation to provide positive feedback, recognition, praise and opportunities for
growth; to clarify expectations; to empower people by encouraging them to take control over
their own performance and development.
ii. It encourages development by providing a basis for developing and broadening capabilities
relevant both to the current role and any future role that the employee may have the potential
to carry out. Note that development can be focused on the current role, enabling people to
enlarge and enrich the range of their responsibilities and the skills they require, and to be
rewarded accordingly. This aspect of role development is even more important in flatter
organizations, where career ladders have shortened and where lateral progression is likely to
be the best route forward.
iii. It gives a chance for communication to serve as a two-way channel for talking about roles,
expectations (objectives and capability requirements), relationships, work, problems and
aspirations.

2.1.4 Principles of Performance Management System

Performance management is primarily concerned with performance improvement in order to
achieve organizational, team and individual effectiveness. Secondly, performance management is
concerned with employee development. Performance improvement is not achievable unless there
are effective processes of continuous development. This addresses the core capabilities of the
organization and the specific capabilities of individuals and teams. Performance management
should really be called performance and development management. Thirdly, performance
management is concerned with satisfying the needs and expectations of all of an organization’s
stakeholder owners, management, employees, customers, suppliers and the general public. In
particular, employees are treated as partners in the enterprise whose interests are respected, who
have a voice on matters that concern them, and whose opinions are sought and listened to
(Armstrong, 2006). Performance management should respect the needs of individuals and teams
as well as those of the organization, recognizing that they will not always coincide. Finally,
performance management is concerned with communication and involvement. It creates a
climate in which a continuing dialogue between managers and the members of their teams takes
place in order to define expectations and share information on the organization’s mission, values
and objectives. This establishes mutual understanding of what is to be achieved and a framework
for managing and developing people to ensure that it willbe achieved. Performance management
can contribute to the development of a high-involvement organization by getting teams and
individuals to participate in defining their objectives and the means to achieve them. Just like any
other profession performance management have principles which governs the entire system. The
following are some of them identified by Armstrong, 2000:
1. It translates corporate goals into individual, team, department and divisional goals;
2. It helps to clarify corporate goals;
3. It is a continuous and evolutionary process, in which performance improves over time;
4. It relies on consensus and co-operation rather than control or coercion;
5. It creates a shared understanding of what is required to improve performance and how this
will be achieved;
6. It encourages self-management of individual performance;
7. It requires a management style that is open and honest and encourages two-way
communication between superiors and subordinates;
8. It requires continuous feedback; Feedback loops enable the experiences and knowledge
gained on the job by individuals to modify corporate objectives;
9. It measures and assesses all performance against jointly agreed goals;
10. It should apply to all staff; and it is not primarily concerned with linking performance to
financial reward.
11. It is owned and driven by line management and not by the HR department; performance
management is not a packaged solution but something that has to be developed specifically
and individually for each particular organization;

2.1.5 Purposes of Performance Management System

The whole purpose of performance management is to get better results from the organization,
teams and individuals by understanding and managing performance within an agreed framework
of planned goals, standards and competency requirements. According to Smither and London,
(2009), Performance management system has many purposes but the major ones are discussed
below as follows;
Strategic:It links the organization’s goals with individual goals, thereby reinforcing behaviors
consistent with the attainment of organizational goals.
Administrative:It is a source of valid and useful information for making decisions about
employees, including salary adjustments, promotions, employee retention or termination,
recognition of superior performance, identification of poor performers, layoffs, and merit
increases.
Communication:It allows employees to be informed about how well they are doing, to receive
information on specific areas that may need improvement, and to learn about the organization’s
and the supervisor’s expectations and what aspects of work the supervisor believes are most
important.
Developmental:It includes feedback, which allows managers to coach employees and help them
improve performance on an ongoing basis.
Organizational maintenance:It yields information about skills, abilities, promotional potential,
and assignment histories of current employees to be used in workforce planning as well as
assessing future training needs, evaluating performance achievements at the organizational level,
and evaluating the effectiveness of human resource interventions (for example, whether
employees perform at higher levels after participating in a training program).
Documentation: It yields data that can be used to assess the predictive accuracy of newly
proposed selection instruments as well as important administrative decisions. This information
can be especially useful in the case of litigation. And also for Grote(2002), performance
management system has so many purposes like, providing feedback to employees about their
performance, determining who gets promoted, facilitating layoff or downsizing decisions,
encouraging performance improvement, motivating superior performance, setting and measuring
goals, counseling poor performers, determining compensation changes, encouraging coaching
and mentoring, supporting manpower planning or succession planning, determining individual
training and development needs, determining organizational training and development needs,
confirming that good hiring decisions are being made, providing legal defensibility for personnel
decisions and improving overall organizational performance.

2.1.6 The importance of performance management system

There are many advantages associated with the implementation of a performance management
system in the organizations. According to Aguinis, 2009, a performance management system can
make the following important contributions:
1. Motivation to perform is increased: Receiving feedback about one’s performance
increases the motivation for future performance. Knowledge about how one is doing and
recognition of one’s past successes provide the fuel for future accomplishments.
2. Self-esteem is increased: Receiving feedback about one’s performance fulfills a basic
need to be appreciated and valued at work. This, in turn, is likely to increase employees’ self-
esteem.
3. Managers gain insight about subordinates: Direct supervisors and other managers in
charge of the appraisal gain new insights into the person being appraised
4. The job definition and criteria are clarified: The job of the person being appraised
may be clarified and defined more clearly. In other words, employees gain a better
understanding of the behaviors and results required of their specific position. Employees also
gain a better understanding of what it takes to be a successful performer (i.e., which criteria
define job success).
5. Self-insight and development are enhanced: The participants in the system are likely to
develop a better understanding of themselves and of the kind of development activities of
value to them as they progress through the organization. Participants in the system also gain a
better understanding of their strengths and weaknesses, which can help them better define
future career paths.
6. Personnel actions are more fair and appropriate: Performance management systems
provide valid information about performance, which can be used for personnel actions such
as merit increases, promotions and transfers, as well as terminations. In general, a
performance management system helps ensure that rewards are distributed on a fair and
credible basis. In turn, such decisions based on a sound performance management system
lead to improved interpersonal relationships and enhanced supervisor–subordinate trust.
 7. Organizational goals are made clear: The goals of the unit and the organization are
made clear, and the employee understands the link between what he or she does and
organizational success. This is a contribution to the communication of what the unit and the
organization are all about and how organizational goals cascade down to the unit and the
individual employee.
Performance management systems can help improve employee acceptance of these wider goals
(i.e., organizational and unit level).
8. Employees become more competent: An obvious contribution is that the performance
of employees is improved. In addition, there is a solid foundation for developing and
improving employees by establishing developmental plans.
9. There is better protection from lawsuits: Data collected through performance
management systems can help document compliance with regulations. When performance
management systems are not in place, arbitrary performance evaluations are more likely,
resulting in an increased exposure to litigation.
10. There is better and timelier differentiation between good and poor performers:
Performance management systems allow for a quicker identification of good and poor
performers. Also, they force supervisors to face up to and address performance problems on a
timely basis (i.e., before the problem is too costly and cannot be remedied).
11. Supervisors’ views of performance are communicated more clearly: Performance
management systems allow managers to communicate to their subordinates their judgments
regarding performance. Thus there is greater accountability in how managers discuss
performance expectations and provide feedback.
12. Organizational change is facilitated: Performance management systems can be a useful
tool to drive organizational change. Employees are provided with training in the necessary
skills, and are also rewarded for improved performance so that they have both the knowledge
and the motivation to improve product quality and customer service.

2.1.7 Challenges of Performance Management System

The performance management challenge in organizations has many dimensions in today’s
business environment and creating focused initiatives to overcome these challenges is not a
silver bullet approach. In many cases remuneration schemes are driving the performance system,
which creates a number on long term consequences in organizational behavior and culture.
1. Lack of Alignment
The first challenge is the lack of alignment due to various organizational processes being created
in isolation. The link between Strategy development, budgeting and operational planning is
developed by different groups of people with different frameworks being used. The performance
management system lacks alignment between individual performance, departmental performance
and organizational delivery and so all systems default back to financial measurements.
2. Lack of Measurements
The second challenge happens at various levels of the organization in that poor measures are
developed, in many cases targets are set but no relevant measure is put in place. In other cases no
data can be collected or is kept as evidence to track performance.
3. Leadership and Management commitment
The Leadership and Management challenge has a huge impact on integrating and aligning a
management system to deliver a comprehensive performance management system. The
commitment and understanding of leadership and management of the requirements for achieving
a workable performance system is critical to performance success.
4. Managing of the performance system
Managing a performance system in an organization requires a disciplined framework; it requires
the organization to work off one master plan broken down into relevant parts and areas of
responsibility. The management responsibility at various levels needs to understand the
contracting, measurement development and appraisal process very well and apply it consistently.
Secondly management needs to appreciate that performance management is not an event but
something that is managed daily but recorded and reported at certain times through reviews and
appraisals.
5. Managing poor performance/ underperformance
The management of poor performance is normally a reactive action, but in many cases it is
delayed and therefore turns into a discussion that is difficult to make relevant. Another reason
poor performance is not managed on time is the lack of valid measurements and the collection of
required evidence and measurement data. (Adapted from a PhD dissertation ‘Integrated
Performance Management Systems’ by Dr Marko Saravanja)
2.2 Empirical Literature Review
In this section empirical evidence supporting the performance management system has been
presented. However, only few studies are undertaken, of which most of them are not on the
banking industry.
According to Munzhedzi (2011), performance management system in the organization has a
valuable impact if the system is well established and common understanding is created between
employees and managers and if objective of the organization cascaded accordingly. He has tried
to find out that, performance management has a great role on organizational productivity even if
it was on government offices other than banks. According to Matlala (2011) is that employees at
the organization have a negative perception of the fairness of their organization’s performance
management system. How ever since this study has made on in South Africa the context might
differ and the researcher has to be investigate the study. According to Boipono, Tsomele &
Mogadime (2014) a study made on implementation of performance management system (PMS)
in Schools states that, though PMS is faced with implementation challenges, participants
interviewed appreciated the need for a system like PMS that could be used to measure their
performance. However, the feeling is that the system should be redesigned to suit the context of
environment and not the current one size fit all approach. Effective communication and timely
feedback are also important success factors for a performance management system like PMS as
they are formative and help employees to continuously improve their processes towards achieved
their set objectives. According to Mughal and Akram (2014), their study has explored the issues
(weaknesses) related with performance management in banking sector. This research shows that
the performance management of Alfalah bank lacks motivation and proper reward system.
Performance management system is properly implemented in Alfalah but employees should
be involved in setting standards of performance management to evaluate the performance of
each employee.

Based on the literature reviewed above in this chapter the researcher has got a clear insight about
the concept and overview of employee performance management system. The researcher has
reviewed a number of performance management literature and almost all the literatures agree
that performance management is concerned with identification of organizational visions,
missions and objectives, bringing managers and employees on the same direction towards the
achievement of organizational strategic objectives/alignment, creating shared understanding,
provision of coaching and periodic performance review, final performance evaluation, attaching
results with reward system depending on the nature of result and creating a felt fair atmosphere
in the mind of all employees.

Therefore the researcher is interested to see the main challenges and prospects of employee
performance management system in commercial bank of Ethiopia.

2.3 Conceptual Framework

 Figure 2.1 Conceptual framework

Organizational Designing and Performance

Commitment: Application Planning
to Performance Of Appropriate  Target setting
Improvement PM system: creating  Agreeing on
shared understanding performance
review and
assessment criteria

Performance
Accountability:
Attaching
performance
result with
reward and
recognition
Performance Performance execution:
program
assessment:
Performance  feedback, and
Evaluation  inputs/resources

Source: Adopted from MA dissertation Dereje Kebede, (2015) with a modification to fit with the
title

From the conceptual frame work we can understand that, the first thing that we have for
implementing EPMS in the organization is organizational commitment to improve performance.
Then after, the appropriate PMS application will developed. And, then performance planning
will take place to reach an agreement regarding review and assessment criteria. Provision of
continuous support through couching, mentoring and providing resources to execute their jobs
will follow. Then periodic performance review and performance evaluation will be executed.
Finally, performance accountability where best performers will be rewarded and
underperformers will receive actions will be done. Efficiently doing all these processes has its
own contribution for performance improvement.

CHAPTER THREE
3. RESEARCH DESIGN AND METHODOLOGY
This Chapter of the study deals with the research design and methodology has employed for data
gathering as well as the relevant statistical analysis tools that have been employed for analyzing
the survey results that has been gathered during the study.

3.1 Research Design and Approach

This study has used a descriptive type of research through surveys to assess the prospects and
challenges of employee performance management system in Commercial Bank of Ethiopia. This
type of research helps to portray accurately the characteristics of a particular individual, Situation
or a group. The descriptive survey research design is appropriate choice, because the study is
aimed at assessing the implementation of the employee performance management system of the
bank (Creswell, 2003).

This study has applied both qualitative and quantitative approach (mixed method approach).The
core argument for a mixed methods approach is that the combination of both forms of data
provides a better understanding of a research problem than either quantitative or qualitative data
by itself. Mixed methods designs are procedures for collecting, analyzing, and mixing both
quantitative and qualitative data in a single study or in a multiphase series of studies (Creswell,
2012). Hence, by applying the mixed method the researcher has tried to ensure the strength of the
findings towards being more objective and generalizable to the entire population.

3.2 Types of Data Collection

According to Adams, Raeside and White (2007), there are two types of data, primary and
secondary. The primary data are those which are gathered for the first time and afresh and thus
collected for the case at hand. Secondary data is a data collected by someone else and there is a
great deal available to researchers from books, libraries and on the web. For the purpose of this
study in order to obtain relevant information both primary and secondary data were used.
Primary data has collected using questionnaires and interviews from the employees of the
Commercial Bank of Ethiopia in robe town . The questionnaire was based on the mentioned
research questions. This is because questionnaires are advantageous in collecting large number
of data from large number of respondents and help respondents to fill the questionnaires at their
convenient time without the interviewer bias. And the study also has used interview because
interview have a higher response rate and it clarify the questions well if the questions are not
clear, since questionnaire doesn’t.

The secondary data sources were collected from different published and unpublished materials
such as reference books, journals and the internet. In addition company reports, annual reports,
and HR manuals of the bank has also used as a secondary data sources.

3.3 Method of Data Collection

The study has used questionnaires compiled from: book (Armstrong, 2009), and from MA and
PhD dissertations (Dereje Kebede, 2015; Marie B Walsh, 2003) by making a modification to fit
for this study. The questionnaire has included closed-ended questions that has been measured by
a five-point Likert scale (from strongly Agree to strongly disagree) and some open ended
questions to elicit the respondents feeling.

First the reliability and validity of research instrument has checked, then after questionnaires
have distributed to the participants of the study. After the questionnaires are carefully filled, the
researcher personally has collected and arranges the completed questionnaires and compiled for
data discussion and analysis. Finally, the collected data have inserted into data set and make
ready for data analysis and discussion by using statistical package for social sciences (SPSS).

Semi structured interview has also scheduled to gather information on the subject from the
district human resource and business managers and the human resource development
officer/expert of the bank. As a final point the result has summarized, tabulated and interpreted
appropriately and lastly conclusions and recommendations has also forwarded.

3.4 Reliability and validity of the instrument

3.4.1 Validity
It is the strength of our conclusions, inferences or propositions. It involves the degree to which
you are measuring what you are supposed to, more simply, the accuracy of your measurement
Adams et al, (2007). To raise the validity of the research, questionnaires have distributed and
collected by the researcher himself in order to maintain its validity.

3.4.2 Reliability
It estimates the consistency of the measurement or more simply, the degree to which an
instrument measures the same way each time it is used under the same conditions with the same
subjects. Reliability is essentially about consistency Adams et al, (2007). To make sure that the
data collection methods were error free and to minimize the instruments’ biases the researcher
undertook the following:

1. The researcher has made a pilot test on 16 employees and got a result of Cronbach’s
Alpha .75 before questionnaire has been distributed to all sample size.
2. Some important questions have re-asked in different place in a different order.
3. The researcher, when collecting the questionnaires, has tried to make sure that it is the
respondents who have complete the questionnaire through making the distribution and
collection time gap short an as much as possible.

3.5 Sampling Design and Sampling Techniques

3.5.1 Target population
As discussed above, this research is aimed at assessing the prospects and challenges of employee
performance management system practiced in the commercial bank of Ethiopia in Robe bale
town. So the total population of the study was employees of the bank found in Robe bale town
which is 228. Though, incorporating all employees’ idea on the analysis would have been better
for conclusion and generalization, economically and operationally it would be very difficult to
contact all employees in the research. Therefore, taking a respective sample of the population of
the employees’ has found to be feasible.
3.5.2 Sampling Method
Because of that the target population of the study was employees of commercial bank of Ethiopia
found in Robe bale town, the researcher used stratified random sampling method to select
samples from the target population. As it is mentioned in (Kothari, 2004) stratified sampling
result in more reliable and detailed information and enable to get more representative samples.
The Robe bale town the seven strata that have been used to collect data. Simple random
sampling technique has employed once the five different strata’s are identified by registering all
members for each stratum using excel. This is because all the 7 branch in a given stratum are
homogenous (have same level of educational background and level of job categories) and all
employees who are within the same divisions have an equal access and information about
employee performance management implementation of the organization. A purposive sampling
technique has also used to select interviewees (seven branch HR and business managers and
Human Resource Development officer in the organization. This is because of that, these seven
participants are the main actors of the system and their role and closeness tothe subject they
believed to be having a better knowledge on the subject.

3.5.3 Sample Size

The researcher has tried to calculate the sample size after determining the target population.
Therefore, by using Yamane (1967:886) as quoted in Israel, 2013 sample size calculation
formula, the researcher has determined the total sample size and for respective divisions

proportionally. n=
Where n is the sample size, N is the population size, and e is the level of precision. With the
level of precision e= 7% and N= 228;

Therefore the total sample for this study is 203employees.

Table 3.1 sample size distribution

 Divisions Sampling Frame Sample size

Sofumer branch 72 32
Alnur Branch 25 14
Meda walebu Branch 27 12
Sinana Branch 33 13
Woleshe Branch 27 10
Goba Robe Branch 26 12
Siko Mendo Branch 18 8
Total 228 101
Source: CBE HR report

3.6 Methods of Data Analysis

Once the required data are collected from the primary and secondary sources, it was analyzed
through quantitative and qualitative data analysis methods. And, descriptive statistic helps to
describe the general level of agreement of respondents. It reveals the conformity of respondents’
response about employee performance management system in CBE in Robe bale. In addition,
frequency and percentage was used to present the data. And table and charts have also used to
ensure easily understanding of the analysis. Finally, the result of statistics analysis have be
summarized, tabulated and interpreted appropriately.

Responses found from the interview have reported in line with the questions forward to the
interviewees. And then these findings have combined and summarized together with the
quantitative data findings to triangulate the results accordingly.

3.7 Ethical Consideration

The researcher has obtained the consent of the organization for the study. Employees who have
completed the questionnaire were informed about the purpose of data collection, analysis and the
covenant to maintain privacy of their responses. Participants have informed about the purpose of
the study and their privacy and dignity also maintained. Confidential information of the bank has
not disclosed and the collected data have used for the purposes of the study only. Regarding
published and unpublished materials used in the literature review and throughout all part of the
study, all citations from copy right holder has made properly.