THE EFFECT OF PERFORMANCE MANAGEMENT SYSTEM

ON EMPLOYEES PERFORMANCE: THE CASE OF AWASH BANK

S.C (hawassa area cluster)

PHARMA COLLEGE HAWASSA CAMPUS SCHOOL OF

GRADUATE STUDIES

A THESIS SUBMITTED TO PHARMA COLLEGE SCHOOL OF GRADUATES IN PARTIAL

FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS OF
BUSINESS ADMINSTRATION

By
ABRHAM MARKOS MATE
ID NO :- PHEMBA/939065/15

ADVISOR Dr.BANTEYERGU ENGIDA

JUNE, 2024

HAWASSA ETHIOPIA
 DECLARATION

I, the undersigned declare that this thesis is my original work, prepared under the guidance of Dr
Banteyergu Engida. All sources of materials used for the thesis have been duly acknowledge. I
further confirm that the thesis has not been submitted either part or in full to any other higher
learning institutions for the purpose of earing any degree.

Name: Abrham Markos

Signature: _________________

Date : _____________________
 Statement of Certification

This is to certify that this study paper titled " THE EFFECT OF PERFORMANCE
MANAGEMENT SYSTEM ON EMPLOYEES PERFORMANCE: THE CASE OF
AWASH BANK S.C(Hawassa cluster area) ", undertaken by Abrham Markos for the partial
fulfillment of Master of Business Administration from Pharma College is an original work and fit
for partial fulfillment for Masters of Business Administration Degree in Human Resource
Management.

Dr Banteyergu Engida ________________ ________________

Research advisor Signature Date

Pharma College, Hawassa June, 2024

 APPROVED BY EXAMINER

--------------------- ----------------------
Dean, Graduate Studies Signature

---------------------- ----------------------
Advisor Signature

---------------------- ------------------------
External Examiner Signature

------------------------- -----------------------
Internal Examiner Signature
 Acknowledgements

My entire work depends on the Almighty God, who give me the strength, health, courage and
inspiration throughout my education, and also parents, family and friends, for their advice,
support and encouragement towards my success in education. My sincere gratitude also goes to
my thesis advisor Dr Bantiyergu engida for his academic guidance throughout the completion of
this Paper.

My sincere thanks go to employees and management of AB S.C. I would like to thank all for their co-
operation and sincerity in providing access to information and filling questionnaires.
Finally, I am indebted to thank Ato Solomon bezu , Manager – Performance & Result Division of
Awash Bank S.C(Hawassa cluster area), for his optimism for facilitating opportunity for success

in this journey.
 Table of Contents
List of Tables ................................................................................................................................
III
List of Figure.................................................................................................................................
III
ACRONYMS ................................................................................................................................
IV
ABSTRACT ...................................................................................................................................
V
CHAPTER ONE .............................................................................................................................
1
INTRODUCTION ..........................................................................................................................
1
1.1 Background of the Study .................................................................................................. 1
1.2 Profile of Awash Bank S.C .............................................................................................. 3
1.3 Statement of the Problem ................................................................................................. 3
1.4 Research Questions .......................................................................................................... 4
1.5 Objectives of the Study .................................................................................................... 5
1.5.1 General Objective ...............................................................................................................
5
1.5.2 Specific Objectives .............................................................................................................
5
1.6 Significance of the Study ................................................................................................. 5
1.7 Scope of the Study............................................................................................................ 6
1.8 Definition of Terms .......................................................................................................... 6
1.9 Organization of the Study ................................................................................................ 7
CHAPTER TWO ............................................................................................................................
8
LITERATURE REVIEW ...............................................................................................................
8
2.1. Introduction ...................................................................................................................... 8
2.2. Performance Management Model (PCER) ...................................................................... 8
2.3. Performance Management System ................................................................................... 9
2.3.1 Top Management Commitment ................................................................................ 9
2.3.2 Objective and Fair Standard of Evaluation ............................................................. 10

I
 2.3.3 Agreement on Performance Metrics ....................................................................... 11
2.3.4 Training and Awareness ......................................................................................... 12
2.3.5 Regular Review of Performance Management ....................................................... 12
2.3.6 Cultural Change Aspect .......................................................................................... 12
2.3.7 Feedback System .................................................................................................... 13
2.3.8 User Friendliness of Performance Appraisal Form ................................................ 13
2.3.9 Bias in Performance Appraisal ............................................................................... 14
2.4. Employees experiences with the PMS ........................................................................... 15
2.4.1. Suitability of PMS................................................................................................... 15
2.4.2. Employee Perceptions of PMS ............................................................................... 15
2.4.3. Integration between organization objectives and individual objectives ................. 16
2.4.4. PMS for career growth ............................................................................................ 16
2.4.5. Employee Engagement ........................................................................................... 17
2.4.6. Clarity in Tasks and Duties ..................................................................................... 17
2.4.7. Evaluation on Pre-determined Parameters .............................................................. 18
2.4.8. Evaluation of previous PMS objectives .................................................................. 18
2.5. Empirical Evidences ....................................................................................................... 19
2.6. Summary ........................................................................................................................ 22
2.7. Conceptual Framework .................................................................................................. 23
CHAPTER THREE ......................................................................................................................
24
RESEARCH DESIGN AND METHODOLOGY ........................................................................
24
3.1 Research Design ............................................................................................................. 24
3.2 Population and Sampling Design ................................................................................... 24
3.3 Types of data to be collected and method used .............................................................. 25
3.4 Method of Data Analysis................................................................................................ 26
3.5 Reliability ....................................................................................................................... 26
3.6 Validity ........................................................................................................................... 27
3.7 Ethical Considerations.................................................................................................... 28
CHAPTER FOUR .........................................................................................................................
29

II
RESULTS AND FINDINGS ........................................................................................................
29
4.1. Introduction .................................................................................................................... 29
4.2. Response Rate ................................................................................................................ 29
4.3. Demographical Data of Respondents ............................................................................. 30
4.4. Effect of Performance Planning on Employee Performance ......................................... 31
4.5. Effect of Performance Management System on Employee Performance ...................... 32
4.6. Effect of Reward System on Employee Performance .................................................... 33
4.7. The Effects of Performance feedback on Employee Performance ................................ 34
4.8. Perception on Improvements of Performance Management System ............................. 34
4.9. Discussion on findings ................................................................................................... 36
CHAPTER FIVE ........................................................................................................................
396
CONCLUSION AND RECOMMENDATION ..........................................................................
397
5.1 Introduction .................................................................................................................. 398
5.2 Conclusion .................................................................................................................... 409
5.3 Recommendations .......................................................................................................... 40
APPENDICES ..............................................................................................................................
49
APPENDIX A: Letter of Introduction ......................................................................................
49
APPENDIX B: Answer to Questionnaire ................................................................................
54
APPENDIX C: Sample PMS ...................................................................................................
49

List of Tables

Table 1 Reliability test ..................................................................................................................

27
Table 2 General Response Data ....................................................................................................
30
Table 3 Demographic data of respondents ....................................................................................
31

III
Table 5 The Effect of Performance Management system on Employee Performance .................
32
Table 6 The Effect of Reward Systems on Employee Performance ............................................
33
Table 7 The Effect of Performance Feedback on Employee Performance ..................................
34

List of Figure

Figure 1 Performance Management System and Employee Performance ....................................

23
Figure 2 Table for determining sample size from a given population ..........................................
25

ACRONYMS
PA ------------ Performance Appraisal

PF ------------ Performance Feedback

PMS ------------ Performance Management System

IFB ------------ Interest Free Banking

BSC ------------ Balance Score Card

MBO ------------ Management by Objectives

HR ------------ Human Resource

IV
 ABSTRACT

The main objective of the study is to identify the effect of performance management system on
employee performance in Awash Bank S.C(Hawassa cluster area). It also tries to understand
effects of planning, feedback, and reward on employee’s performance and answering the most
important question, perception of employees on the performance management system. The study
was done based on primary data sources gathered from questionnaires distributed to selected
branch workers of Awash Bank S.C. they are selected considering the experience in PMS and
representative of the four grades of the bank’s branches. During the research process, the
population of study comprises selective 20 branches and South Region Offices staffs (Awash
Bank S.C). A self-administered structured questionnaire was designed to collect the relevant
information from the respondents. In course of investigation, instrument used were structured
questionnaire distributed to 400 respondents of Branch Managers, BDM (Business Development
Manager) Operational Manger, Customer Service Manager, Relationship Officer and
Portfolio/credit analysts of which 356 were retrieved. Descriptive research methods were
followed and correlation coefficient in the form of frequency and percentage was used to
investigate the relationship between all variables of the study. The findings concluded that a
revised performance management system should close the missing gaps and have a stronger
emphasis on proper communication, managing, monitoring and reporting, as well as rewarding
or correcting high or low performance respectively. The study recommends that Awash Bank
should make the employees to participate on the Planning stage of the PMS and a frequent
feedback is necessary to enable the employees be aware of what exactly is expected from them.

Key Words: Performance Management, Performance Appraisal, Employee Performance,

Feedback, Performance Management Practice and Reward system

V
CHAPTER ONE
INTRODUCTION

1.1 Background of the Study

Performance Management System (PMS) is defined as, strategic and integrated approach of
conveying continued success to institutions by developing the people in a way that improves group
and personal performance (Armstrong & Baron, 1998).Being the most important aspect performance
management system is failing to deliver the expected result. An increasing number of profit and non-
profit organization are turning towards PMS for their organizations in order to achieve better results
and better psychosomatic outputs (Gupta & Upadhyay, 2012).

In performance measurement, periodically, staff performance is appraised. Performance appraisal is

a formal, structured system of measuring and evaluating an employee‟s job, related behavior and
outcomes to discover how and why the employee is presently performing on the job and how the
employee can perform more effectively in the future so that the employee, organization, and society
all benefit. It is a formal system of periodic review and evaluation of an individual‟s job
performance by immediate supervisor. It also involves communicating to an employee how he or she
is performing the job.

The following are some of the uses of performance appraisals:

• To create and maintain a satisfactory level of performance;

• To identify employees‟ needs for training and thus contribute to their growth and development;

• To facilitate fair and equitable compensations based on performance;

• To provide essential data for assessing employees‟ potential for promotion and also for making
administrative decision relating to salary increment, terminations, demotions, etc;

The Ethiopian banking sector have immense potential as can be evidenced from the existing private
and government banks profit growth plus the upcoming of several conventional and IFB( Interest
Free Banking) banks to join on the sector . Considering this legitimate facts, the existing banks
including Awash Bank S.C (The leading and pioneer private bank under the study) should evaluate
their employee‟s performance with a state of the art new plat forms to cope up and to stand in equal
footing within the sector.

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Performance management system is considered to be one of the strongest tools for developing
human asset as it lays the foundation for training, promotion, career planning and competency
mapping etc. (Gupta& Upadhyayn, 2012).

The purpose of performance measurement is to assist making decisions and to understand progress
towards meeting the outcomes of the Strategic and Action Plans. It is concerned with the ongoing
monitoring and reporting of a progress towards reaching organizational goals. It is made up of an
internal system that collects, organizes and reports on workflows, outputs and outcomes. To help in
encouraging performance among employees, result of performance appraisal is communicated to
indicate how they‟re doing and feedback are given to change in behavior, attitude, skills or
knowledge. It also gives clear indication of what is expected of employees.

Therefore, the bank has implemented a PMS for effectively measuring branch employees‟
performance and rewarding them based on their performance. Therefore, this study aspires to add a
significant amount of information and knowledge on the effect of the performance management
system on employee performance working for the organization.

Awash Bank S.C Branches had been using a traditional performance appraisal method for the first
two decades. However, the previous performance appraisal form, could not serve the purpose since
it only measures required characteristics and competencies of employees than practically measuring
what they contributed in exchange of what the bank pays them. Currently, it is upgraded to
modernized application system that assumed to serve as a tool for strategic planning. In modern
performance measurement systems, targets will be set for branches and then cascaded to each
respective employee. Periodically, the actual performance versus targets will be compared to check
the status of the branch‟s staff and actions that needs to be taken, as required. In addition to
measuring performance based on the KPI for respective job positions at branches and alignment of
performance with reward as an individually needs are explicitly stated.

As could be depicted from its title, the current study is planned to assess the effect of performance
management systems on employee performance in one of pioneer private bank that comes into
operation after the falling down of the Socialist regime. Awash Bank S.C is selected as the target
organization for the intended study.

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 1.2 Profile of Awash Bank S.C
Awash Bank S.C was established by 486 founding shareholders with a paid-up capital of Birr 24.2
million and started banking operations on Feb. 13, 1995. As of end of June 2023, the number of
shareholders and its paid-up capital increased to over 5400 and Birr 10.3 billion, respectively.
Likewise, as of end June 2023, the total assets reached Birr 215 billion with over 900 branches
across the country, Awash Bank S.C continues to be a leading private commercial Bank in Ethiopia.

Awash Bank S.C duly recognizes strategic importance of its workforce in achieving its business
objectives. According to 2022/23 annual year bulletin, the bank has 20000 total workforces, making
the Bank one of the leading employees among private banks.

Vision:

“To be the best and preferred financial services

provider where customers feel valued”
Mission:

“To provide the most Innovative and accessible banking services to our customers using the most
relevant technology, and motivated & talented staff to maximize stakeholders value and influence
the life of society positive”

1.3 Statement of the Problem

As mentioned on the introduction part, Awash Bank S.C Branches had been using traditional
performance appraisal methods which have some gaps in measuring actual performance. In order to
bridge the gaps observed in the existing traditional PMS and due to the prevalent stiff competition
among banks and in order to maintain the dominant pioneer private bank in Ethiopia as well as to
achieve the long run strategic objective of the bank which is “To be the First Choice World Class
Bank” implementation of modern PMS becomes obligatory.

Since the implementation of performance management systems, the progress attained and
implication on the organizational cultures so far is not evaluated. Performance planning, coaching,
and review are the foundation of any well designed performance management system as outlined by
(Reynolds, 2009).

The studies conducted in the past have identified the need to have a good performance management
system in place. According to Cook, (2003), Supervisors and employees are falling short in meeting

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the expectations of the organization. There are gaps on how to execute the performance management
system to benefit both the organization and the employees.

An effective Performance Management process establishes the groundwork for excellence by linking
individual employee objectives with the organization‟s mission and strategic plans or outcomes
(Drewitt, 2013). The employee has a clear concept on how they contribute to the achievement the
overall business objective. Supervisors need to conduct regular discussions throughout the
performance cycle which include coaching, mentoring, feedback and assessment (Lee, 2006)

Performance appraisal properly describes a process of judging past performance and not measuring
that performance against clear and agreed objectives. Performance Management shifts the focus
away from just an annual event to an on-going process (Bruce, 2014)

Therefore, the focus of this study is aligned on employees‟ perceptions on the newly implemented
the performance management system used by Awash Bank S.C and to find out how employees see,
make sense of and interpret their everyday experiences with such system and its values to Awash
Bank S.C with the aim of developing a sustainable performance management system.

Hence, since the adoption of the performance management systems, what result is achieved and how
the employees attitude towards the system. The capacity of the system to align its functions to help
achieve an organization's strategic goals was also examined.

1.4 Research Questions

The research questions intended to addressee the following major questions:

1. What is the effect of Performance Management System on employee performance?

2. What is the effect of Performance planning on Employee Performance?

3. What is the effect of reward system on employee performance?
4. What is the effect of feedback on employee performance?

5. What is the perception of employees toward performance management system?

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 1.5 Objectives of the Study
1.5.1 General Objective

The main objective of the study is to identify the effect of performance management system on
employee‟s performance in (Awash bank S.C(Hawassa cluster area).

1.5.2 Specific Objectives

The study was intended to achieve the following specific objectives

1. To understand the effects of reward system and feedback on the employees performance
2. To identify the effect of performance planning on employees performance;
3. To verify perception of employees on performance management system;
4. To find out the effects of performance management system on employees performance;

1.6 Significance of the Study

This study will help the bank to identify gaps and to provide recommendation on the effects of
performance management system, relationship of planning, feedback and rewards on employee‟s
performance. Employees will be made to understand the role they will play in order to achieve
organizations objectives. The management should aware that a standardized performance
measurement is actively implemented in accordance with the bank‟s applicable laws and principles.
Thus, issues of performance measurement activities such as, the essence of performance
measurement, steps to be followed in branch performance measurement, actions to be taken based
on performance result, should be investigated and reported for further enhancement and follow-up.

In the process of evaluating performance of branch staff, parties involved shall have actively
participated on the system. Cascading financial (quantitative) and non-financial (qualitative) targets
using the cascading template to all staff fairly and equitably based on their positions. Additionally,
the study helps to investigate whether the supervisors are providing the staff with the necessary
resources (material and time) to help them in accomplishment of their targets. Furthermore, based on
the findings, recommendation are framed for re-engineering of the criteria/scorecards considering
the volatility of the banking industry and thereby to achieve the banks strategic objectives.

5
 1.7 Scope of the Study
Currently there are 30 private and 2 governmental banks in the country and which calls also others to
join the sector due to profitability of the business. Among these, the study only focus on Awash
Bank S.C as a research base. The core emphasis of the current study is identifying the effect of
PMSs on the performance of employees working at Awash Bank S.C(Hawassa cluster area).

The respondents of this study are staff members of Awash Bank S.C working at Hawassa and
selective branches located in Hawassa cluster area only. The total number of employees in South
Regional are close to 1,780 so sampling is made to target only 400 employees. Considering one
branch only holds an average of 20 employees and the mere presence of a grading system for each
branch, we use 20 branches selected from each grade based on purposively.

1.8 Definition of Terms

Performance Management

Performance Management is defined by Armstrong, (2006) as “a means of getting better results from
a whole organization by understanding and managing within an agreed framework, performance of
planned goals, standards and competence requirements”.

Performance appraisal/evaluation
Performance evaluation is “a systematic process of measuring a person‟s performance in the job,
based on predetermined performance criteria” (Clake, 2011).

Performance measurement
A quantifiable indicator used to assess how well an organization or business is achieving its desired
objectives. (Liu, 2014)

Performance Management System

Performance Management System (PMS) is defined as, strategic and integrated approach of
conveying continued success to institutions by developing the people in a way that improves group
and personal performance (Armstrong & Baron, 1998).

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Performance Management Model (PCER)
The performance management process is intended to create an ongoing dialogue between the
supervisor and employee. The Division of Human Resources and Organizational Effectiveness
recognize the PCER (Plan, Coach, Evaluate, and Reward) model for facilitating the performance
management process

1.9 Organization of the Study

This thesis is classified into five main chapters. The first chapter refers introduction of the study
which includes the background, the problem statement, the research objectives, significance and
scope of the study.

The second chapter focuses on literature review. It contains relevant theories, conceptual and
empirical discussions leading to identification of research gaps and the conceptual framework. The
third chapter presents the research design, target population, sampling methods, sample size, data
collection instruments to be used as well as method of data analysis and presentation.

The fourth chapter presents demographic characteristics, descriptive and inferential statistics
analysis, findings and their interpretations. The last chapter consists of summary of major findings,
conclusions and recommendations of the research study.

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 CHAPTER TWO
LITERATURE REVIEW
This chapter reviews literature on the effect of performance management system on employee
performance and it provides theoretical foundation, empirical evidences and conceptual framework
of the study.

2.1. Introduction

This literature review has three important aims. It purposes to gain a full insight of the existing
literature on the research area. First, it will identify the key research areas on the perception and
experiences that employees have concerning performance management, second, to fully understand
the challenges of performance management system and to identify the types of performance
management system.

The differences in national cultures would contribute to the differences in the ways the Performance
Management Systems are implemented in organizations worldwide (Palethorpe, 2011). Moreover,
(Parker, 2013) stated that the major setback of evaluating the work performance of organizations
around the world has been to determine the performance criteria in relation to the objective set by
their organizations. According to (Slavin et al., 2014) it was justifiable to take a broad view or make
assumption that PMS measures for productivity would suit in all organizations worldwide. This was
because the decision-makers were not aware of the repercussion of the objectives until considerable
and careful examination was performed.

2.2. Performance Management Model (PCER)

The performance management process is intended to create an ongoing dialogue between the
supervisor and employee. The Division of Human Resources and Organizational Effectiveness
recognize the PCER (Plan, Coach, Evaluate, and Reward) model for facilitating the performance
management process.

• Plan: Performance Management begins when the supervisor reviews the employee's position
restriction, communicates competencies, creates goals, and discusses them with the
employee. This helps establish mutual understanding of the performance and behavioral
expectations.

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 • Coach: The supervisor provides coaching and feedback throughout the year to help their
employees successfully reach their goals. The goals and any other documentation created
during the Plan phase become a working document to be referenced, and revised if necessary,
throughout the performance review period. The supervisor and employee can each create
notes about employee performance at any time which are tracked outside the Workday
system.
• Evaluate: During the evaluation process, the supervisor may rely on multiple resources, such
as the employee self-evaluation, performance notes created during the year, accolades, and
customer feedback to assess the employee's performance. The supervisor meets with the
employee to discuss the performance evaluation, explain the ratings, and provide feedback
about strengths and areas for improvement. The supervisor then completes the evaluation in
Workday and sends it to the employee to review and acknowledge before formally closing
the review in Workday.
• Reward: The supervisor recognizes and rewards performance at year-end and during the
year as merited.

2.3. Performance Management System

Performance appraisals have always been carried out in a retrospective manner. The traditional
appraisal in many organizations occurs once a year with a few conducting it semiannually or
annually. There is usually a gap in months between establishing goals and reviewing them and also
the objectives that have been set when the year begins are usually referred to at the appraisal time.
According to (Lee, 2006), performance appraisal gives a chance to both the employee and the
supervisor to review the goals and targets that they set together and also to confirm whether the
employee is on course, how far they are from accomplishing their goals and also to identify any
possible challenges that the employee may face. According to (Bridger, 2014) the appraisal process
may be open to biased ratings.

2.3.1 Top Management Commitment

Top management should strive for servant leadership. This is virtuous, highly ethical and based on
the premise that service to followers is at the heart of leadership (Greiner, 2013) Servant leaders
exhibit the qualities of vision, caring for other people, selflessness, integrity, humility,
trustworthiness and interpersonal acceptance (Clardy, 2013). It can be realized from different
conceptualizations of servant leadership that service to followers and valuing followers are the basic
9
principles of a servant leader. When members of a team perceive that their leader is concerned about
their welfare, they will become more committed to the organization.

Organizations have a need for leadership styles that create favorable environments for teams to
function optimally. According to the findings of (Palethorpe, 2011), team leadership is a
fundamental process, focusing around the satisfaction of critical needs of a team with the goal of
enhancing team effectiveness. Clear performance by increasing resilience and productive time
reduce the negative factors such as exhaustion and absenteeism.

In the context of performance contracting, commitment is at two levels; top management and the
level of employees. Top management commitment may be viewed from willingness to be loyal and
focus all the energies to implementation process. Expectancy theory by Victor Vroom tells us that
employee commitment to organizational goals depends on the strength of expectation that doing so
will be followed by favorable outcome and the value that the individual attach to the reward.
According to (Muthaura, 2010) in a presentation on the role of Kenya‟s public service in a changing
environment argued that people will oppose change if they do not see clear and reliable gains. They
look at what is in it for me? This means that the commitment of the employees is dependent on their
perceived gains from implementing the system. (Trakoli, 2011) argues that unless performance
management system gain acceptance through encouraging people to collaborate because they want
to not because they have to, performance management system may actually lead to suboptimal
performance by making figures look appealing only on paper.

Commitment or leadership has been one of the challenges that have been found to be critical for
successful implementation of performance metrics. Top management involvement would help to
promote the restructuring of the business organization and to accelerate the management of change
and employee buy in (Martin, 2009).

2.3.2 Objective and Fair Standard of Evaluation

Performance standard is the measuring tool for determining the outcomes of employee‟s
performance. All necessary standard needs to be followed and spelt out for the staff. Stipulation of
standards is important because it helps the organization to achieve its goals; to motivate individuals,
teams and groups to a higher level of personal work behavior. Standards reinforce behavior,
promotes the consistency of employee‟s performance and it can also be used to weigh and measure
the impact of employee‟s performance (Greiner, 2013)

10
For employees to be productive optimally there must be knowledge and training to carry out a
particular job. Training and development enables employees to provide optimum output and also
reduce the chances of their being infected by soldiering and deliberately working slow to avoid
working full hours as highlighted by (Julnes, 2008).

2.3.3 Agreement on Performance Metrics

Management and employees depend heavily on the agreement of the performance metrics to be
used. Therefore, it has been found to be quite paramount for the employees especially at the
managerial level in organizations to understand the metrics before involving themselves in the
implementation processes. According to (Aguinis, 2009), one of the critical success factors in the
performance metrics implementation has to be the satisfaction of the customers and the quality
characteristics have been found to be emphasized upon. Therefore, organizations should give
priority to the clients by way of increasing the level of service quality and improving work related
attitude among the employees. According to (Sparrow, 2012), there are a number of reasons for the
failure of Performance management systems. More often than not, systems are used and supported
by top management. Supervisors view the system as an administrative burden and do not see the
benefits of energy invested in making the system work. Performance objectives are written so
subjectively that measurement is not possible. Performance objectives set at the beginning of the
year appear to be less important by end of the year if linked to certain projects that were not deemed
to be critical success factors. Managers are unable to give feedback and deal effectively and
constructively with the conflict generated by the assessment of employees‟ performance. During the
last two decades, an increasing number of organizations have implemented Performance
Management Systems that are based on Critical Success Factors and Balanced Scorecards. (Hetty,
2008) describe the results of a study that confirms organizations that balance financial and
nonfinancial measurements, but also link strategic measures to operational ones, they update their
strategic scorecard regularly and also communicate measures and progress to all employees, are
better performers. (Armstrong, 2003) stated that, „Performance management is not static. It will
change as performance issues vary, as marketing strategy changes, technologies and the means to
measure and record performance change over time.‟ Thus, the statement asserts that the knowledge
of BSC needs to be disseminated to Top management because they are responsible for planning and
organizing the company‟s strategy. Hence, once the top management is familiar with the BSC
concept, only then are they able to utilize the company‟s financial and operational information to

11
link its mission, vision, objectives and goals to develop the organization‟s KPIs (Drewitt, 2013).
This is one of the practical problems that have been raised in this research.

2.3.4 Training and Awareness

Another element of challenges in performance metrics implementation has been training and
awareness, because not all employees accept the changes that have occurred in their workplace.
Therefore communication between supervisors and subordinates must be good in order to enable the
organization to realize the desired mission of the organization. Training and awareness have been
found to play an important role in ensuring the success in the performance management
implementation (Tobin, 2008)

2.3.5 Regular Review of Performance Management

Lack of constant review of performance management system to align with changes in the
organization is a common phenomenon in many organizations. The performance management
system can be a good mechanism for quality assurance if implemented in the right manner and
enabling environment. According to (Newstrom, 2011) study, though limited in scope, clearly
showed that performance management systems need to be reviewed on a regular basis to make them
compatible with international trends of making businesses more responsive to the needs of the
clients. Most performance management systems, while well-intentioned, are fraught with numerous
challenges that impact on its implementation. This range from lack of regular system review, lack of
training on performance management, shortage of resources in organizations, abuse of the system as
well as lack of reward. These impediments need to be addressed with a sense of urgency if at all the
performance management system is to remain credible in the eyes of the stakeholders (Robbins,
2007).

2.3.6 Cultural Change Aspect

The cultural change aspect is also a major element that has requires the attention from the
management of the organization. Most literature reviews have stated that cultural changes could
have major impact on any implementation of performance metrics as argued by (Vukotich, 2014).
The organizational understanding of the work processes is an important characteristic in the Balance
Score Card (BSC) implementation as well as the ultimately customer satisfaction that has been the
main priority for most organizations. Therefore, the PMS used should be capable of tracking the
customer needs and wants according to (Bogetoft, 2012). In addition, (Berry, 2004) stated that
organizations should attach the success of any performance metrics implementation to the financial
12
benefits accrued. This is because it has been one of the four critical perspectives in the BSC
framework. However, (Clardy, 2013) proposed that clear performance metrics is an equally
important characteristic because quite often, the difficulty and problems in identifying what to
measure has created problems in the implementation of the performance metrics.

2.3.7 Feedback System

Employee‟s engagement behavior should be included in the performance management (Armstrong,

2012) the behaviors of the employee include persistence, the ability to be proactive, role expansion
and adaptability. The main activities of this component are performance appraisals and feedback
from supervisor. However, in order to enhance feedback, (Julnes, 2008) argues that it is important
that the employee feels that there is trust and justice in the system.

Competence based performance appraisal system was designed for higher education institutions by
(Gilmore & Williams, 2009). He found out that there were three competencies, namely core
competency, managerial competency, and technical competency. According to (Parker, 2013)
appraisal is "the process of periodically reviewing one's performance against the various elements of
one's job". His study described the purpose and developmental criteria of a performance
management program that assessed the performance of hospital employees on a regular basis.
(Slavin, 2014), examined the effect of performance appraisal politics on job satisfaction. The results
confirmed that performance appraisal politics acted as important predictors of job satisfaction in the
studied organization. (Martin, 2009) examined the effect of performance appraisal on individual as
well as on the organizations. The findings of the research showed that there was a noticeable effect
of the performance appraisal on the organizations as well as on the individuals.

The emphasis by (Trakoli, 2011) shows the need for maximum prosperity of employees ultimately
resulting in maximum prosperity of the organization. Taylor believes that proper remuneration keep
workers motivated and lead to better job performance.

2.3.8 User Friendliness of Performance Appraisal Form

Previous studies have indicated that performance appraisal needs to be user friendly to both the
supervisors and employees. (Gold, 2010) there are several factors to be considered to ensure that the
performance appraisal instrument is user friendly. The content should be properly rated on the
usability of the system, easy to answer questions, consistent document layout and free from
unnecessary questions. It should be time rated on the amount of time required to answer all the
13
questions, less questions means less time is needed to complete the form. It should be clear and not
ambiguous; the questions should be direct and be straightforward. The layout or format of the form
should be economical. The usage of ICT tools and devices may help to replace the traditional format
of the forms. There are systems that can be used to assist supervisors and managers with situation
assessment and long range planning as argued by (Bridger, 2014)

2.3.9 Bias in Performance Appraisal

One of the most difficult requirements of an effective performance management system is that it
should be as free as possible from bias. People cannot deny the involvement of bias in their decision
making on performance of theaters. The only thing that the raters can do is to minimize the level of
unfairness as much as possible. Work professionalism plays an important role for the reliability of
the assessment process. There are many types of bias that creep into performance management
system according to (Tobin, 2008) and the most reported are recently effect, halo effect, central
tendency and prejudice. The main issue in the practice of performance appraisal activity is the
fairness of the evaluation decision by supervisors. Raters have problems evaluating the performance
appraisal in a proper way. Performance of individual employees that is not measured accurately can
lead to dissatisfaction with the system.

One of the factors that contribute to employee’s dissatisfaction is that raters do not have the required
skills to appraise staff. This will affect the process of evaluation because bias, unfairness and
unreliability may happen. As much as there is a formal evaluation form and a set of rules and
standards to be followed, employees often do not trust the tools of evaluation. Subjectivity in the
performance evaluation in the public and private sector is quite common. Managers are encouraged
to be as objective as possible but during the implementation of performance appraisal, the evaluation
becomes subjective. The subjectivity of the evaluation discourages employees on supporting the
measurement of performance management system and this reduces the objectivity of the
performance appraisal (Sparrow, 2012). The quota system that is practiced in some organizations
creates dissatisfaction among employees. A small fraction of the employees get salary increment
either vertically or diagonally. Therefore, although the employees may perform well, they might not
be rewarded because salary increment depends on the quota system. This will therefore lead to
decrease in work performance, self-esteem and loyalty. The appraisal decision is confronted with a
great deal of criticisms and comments from the employees. There are several issues that have been

14
brought forward such as the rater’s ability to conduct performance appraisal, accuracy of the system,
fairness, discrimination and quota system.

Performance management should suit the organization’s culture. Research findings strongly suggest
that multinational company’s manager should carefully design the appropriate performance
management system for foreign operation based on the different cultural factors of the country.

2.4. Employees experiences with the PMS

2.4.1. Suitability of PMS

Performance management system as referred to by (Cook, 2003) is the process of achieving

organizational objectives by making productive use of people. Other scholars say that performance
management includes the process of designing formal systems that ensure the efficient and effective
use of human talent to achieve organizational objectives (Burgess et al., 2007). One of the key
functions in Human Resource Management is performance evaluation. According to Baker, (2013)
performance evaluation is the key difference between organizations just managing to survive and
high performing organizations. Performance evaluation aligns itself to the organization strategies
and also provides a lively link to general and specific human resource functions (Vukotich, 2014).
However, performance evaluation is casually done in organizations where the business strategies are
not properly aligned. (Tobin & Pettingell, 2008) emphasize that HR as a function should not impose
the idea of performance evaluation because it is everyone‟s responsibility in an organization.

2.4.2. Employee Perceptions of PMS

There is a negative perception the employees have concerning Performance Management System.
They believe that the system is influenced by subjectivity, according to the investigation done by
(Newel, 2000) concerning the perception that employees have of performance management system.
There is very little employee involvement in formulating criteria, agreeing performance standards
and objectives when designing performance systems. Management selects a few top representatives
to develop the system in the absence of staff.

According to (Makori, 2014 ) on a study that he carried out on employee perceptions of performance
management, the employees in the hotel industry believed that they performed better in their daily
tasks but there was no significant relationship between their individual performance and the
perception they had of the initiatives that the hotel had put in place for performance appraisal. The
15
study therefore concluded that employee perception on performance management was not
necessarily influencing individual performance in the hotel industry.

2.4.3. Integration between organization objectives and individual objectives

A good and functional performance management system should be able to exhibit integration
between organizational, functional and individual evaluation systems. The views of (Cooper, 2005)
are that integration can be achieved in an organization through agreement on performance objectives
and performance definitions at all functional levels in the organization. Moreover, performance
management system should facilitate an individual in an organization to visualize how their
individual objectives and evaluation measures lock into organizational perspective. (Manville &
Great banks, 2013) emphasizes that if the measurement systems in an organization are unable to
meet conclusions and facilitate decision making it becomes a futile exercise and a redundant process
of no value. In the ideal state, performance management should be able to deliver an overall
performance evaluation being based on individual or functional numbers contribution in the
organization. This will also enable an organization in future decision making and planning. Well
executed and setup performance measurement frameworks facilitate an organization to enjoy
vertical and horizontal functional collaboration to achieve organizational excellence (Longo &
Cristofoli, 2007).

Performance Management System provides feedback to an organization about its functional and
individual achievements. These qualitative or quantitative substitute measures further provide a
roadmap for how future organizational objectives can be attained. (Van Soelen, 2013) argues that
past performances do not ensure better or similar future outcomes.

2.4.4. PMS for career growth

According to changing nature of career and unstable employment, there is an increasing idea that
individuals‟ career progression is the responsibility of themselves, not the organization‟s
responsibility (Greiner & Sakdapolrak, 2013). Predominantly, highly educated people are capable
and able to manage their own career (Abston & Kupritz, 2011). Individual employees who are
graduates can encourage themselves to remain employable and marketable, not only for developing
a career in a particular organization, but also for developing lifelong transferable skills in job market
(Boyatzis, 2008). Based on the concept of individual career management employees are the central
actors in managing their own careers (Cooper, 2005). They determine which career direction they

16
will take. ICM enhances individuals‟ perceptions of control over their careers, which in turn leads
to career satisfaction (Garber, 2011) Career satisfaction has been regarded as a key factor for
individual and organizational success (Lee, 2006).

A study that was carried out by (Abston & Kuritz, 2011) shows that proactive personality and
selfcontrol is the predictors of a successful career. Studies conducted by (Bridger, 2014) and (Clardy,
2013) found that individuals proactive personality can promote their career success. Employees who
are proactive are more likely to engage in improvement opportunities and innovative behaviors that
are significantly related to career success (Greiner, 2013).

2.4.5. Employee Engagement

Employee engagement in Performance Management is vital. Promotion of employee engagement
can be used as a means to increase the performance (Byrd, 2013). The engagement management
model has three arms. These are Performance agreement, engagement facilitation and performance
management and feedback to the employee which will lead to improved performance (Cook, 2008).
However, since this model has not been tested empirically, there is a lack of conceptual and
empirical work on how Performance management systems can enhance performance by fostering
employee engagement.

2.4.6. Clarity in Tasks and Duties

Perceptions principally relate to social contacts rather than to procedures. In order to develop
positive perceptions organizations should ensure that their processes are clear in relation to the key
performance indicators and rewards, consistent feedback and clear explanations about performance
management processes by Managers (Palethorpe, 2011). Recognition and rewards are one of the
primary objectives that need to be aligned with the overall organizational strategy. In order for a
performance management to be successful, there need to be a collaborative process between
supervisors and employees. A performance management cycle should begin with a discussion of
employee and supervisor to discuss results, the expected behaviors and developmental aspects for
better future performance (Aguinis, 2009). This collaborative aspect of performance management
process lets supervisors understand the story from a subordinate‟s perspective (Robbins, 2007). This
will therefore provide a forum to elaborate the expectations for employees. It also provides
information for future decisions about promotion or rewards as well as providing a platform to attain
the desired employee behaviors for better performance. Human Resource tasks such as performance
management impact and include employees as well as supervisors. This inclusion will influence the

17
quality of the relationship and also improve on perceptions as pointed out by (Manville &
Greatbanks, 2013). The organization perceptions that are possessed by an employee are largely
contributed by supervisors as researched by (Greenberg & Haviland, 2008). This can be a key factor
in transmitting an organization‟s perceptions to outsiders as well as stakeholders (Reynolds, 2009).

2.4.7. Evaluation on Pre-determined Parameters

Evaluating employee‟s performance on pre-defined parameters as stipulated by (Armstrong, 2009)

has been highlighted as a differentiating factor among the market leaders and survivors (Lawler &
Garber, 2007). This difference emanates from evaluation processes and their results as these
influence employee satisfaction and talent retention in an organization. The evaluation process needs
to be in sync with organizational objectives and reward systems along with strategic direction
(Hirsh, 2004) Synchronization feedback mechanisms will address developmental gaps so as to
improve future performance according to (Aguinis, 2009).

Today, the business environment is dynamic and very volatile. Organizations have become contented
with their performance management practices leading to failure. Consequently strategies need to be
revamped as the changes in the environment are quite dynamic.

2.4.8. Evaluation of previous PMS objectives

The concept of management emphasizes the need for getting things done right through people
efficiently and effectively (Robbins & Judge, 2007). This also raises the question of what systems
the businesses use to evaluate whether things are heading in the right direction or not. In order to
solve this puzzle, organizations are highly encouraged to evaluate their previous performance and
align it to their future objectives. The process of this evaluation does not end with the good
performance of an organization. The process needs to trickle down to individual levels. According to
the findings by (Van Soelen, 2013) indicates, Organizations use performance management systems
for all business drivers from individual to functional, shareholders and customers. However,
(Aguinis 2009) believes that there is a substantial gap that lies between practical orientation of
performance management and the literature. This gap exists because researchers target other
researchers as their audience rather than organizations (Wong & Shi, 2014).

Performance Management, as defined by (Armstrong 2009) is a process designed to improve

organizational, team and individual performance and this is owned and driven by the line manager.

18
(Aunis 2009) views performance management as a continuous process of identifying, measuring and
developing performance of individual teams and aligning performance with the strategic goals of the
organization. It also evaluates the improvement being made towards the achievement of
organizational strategic business objectives (Bridger, 2014). Performance Management will not
provide the desired outcomes if an individual’s performance and objectives are not aligned with the
strategic objectives of the organizations. In addition, in cases where the individual or functional
objectives are aligned and not rewarded properly, the end result is a disconnect syndrome, swaying
an organization away from its objectives. In order to avoid the disconnect syndrome,
synchronization in objectives should be ascertained.

2.5. Empirical Evidences

Many researchers did a research on the effect of performance management system on employees‟
performance/productivity. Among the researchers, (Odhiambo 2015), (Gupta and Upadhyay 2012),
(Chioma 2015), (Ayanyinka and Emmanuel 2008),(Ying 2012) and (Maina 2015) are found.

A study carried out by (Odhiambo, 2015), examined the effect of performance management practices
on employee productivity with a focus on Schindler Limited Company in Nairobi, Kisumu and
Mombasa branches in Kenya.

In the study, the researcher considered dependent variables including performance appraisals, reward
systems and performance feedback, and the implications on employee productivity as the
independent variable. This study used the descriptive research design. The study adopted a
quantitative approach on the effects of performance management practices on employee
productivity. Descriptive statistics was used as a data analysis tool. Inferential statistics such as
correlation and regression analysis was used to establish the relationship between dependent and
independent variables.

The study concluded that effective performance management practices gives employees opportunity
to express their ideas and expectations for meeting the strategic goals of the company. Performance
management practices could be an effective source of management information and renewal. The
use of reward system has been an essential factor in any company's ability to meet its goals.
Effective feedback on performance measurement may translate to improved employee productivity.
Feedback enables the employees to be made aware of what exactly is expected from them.

19
The researcher concluded the study by recommending the following: “the performance management
practices should be optimized to improve employee performance. Performance reviews should be
focused on the contributions of the individual employees to meet the organizational objectives. For
every opportunity possible, the manager should formally recognize good employee efforts for
enhanced work performance. Effective performance management practices that edify appraisal
reward and feedback should be used to achieve organization goals and enhance employee

productivity.”

(Gupta &Upadhyay, 2012) conducted research on Effect of effectiveness of performance

management system on employee satisfaction and commitment. In their findings, they indicated that
there is significant correlation between performance management system and satisfaction and
moderate correlation between employee job satisfaction and commitment. The researchers
concluded that “effective performance management system is only mantra to build the loyalty index
of the employee to keep them happy as happy mind work best.”

(Chioma, O. 2015) studied to investigate the effect of appraisal system in Niger Delta University on
employee productivity. The methodology employed was a survey study design. The findings
revealed that there was a significant relationship between performance appraisal and employee
productivity and that effective appraisal system could boost the morale of workers especially when
they are rated adequately. The findings also revealed that performance criteria also affect the
relationship between performance appraisal and employee productivity.

(Ayandele, 2013) studied on the effect performance management system on employee’s job
commitment, an empirical study of selected companies in Nigeria. Primary data was gathered using
a Likert scale questionnaire format. Data analysis was carried out using simple linear Regression.
Findings revealed that performance management system effects on employee’s commitment to the
organizational set goals. The study concluded there is a positive relationship between employee’s
participation in the designing of an organization’s performance management system and employee’s
commitment to the organizational set goals. The study recommended among others that employees
should be carried along in designing the performance management system and the organizations.
Performance management system should be clear, objective and easy to understand.

There is a view that the inappropriate job performance and behavior such as lack of service delivery,
fraud and corruption at the BCMM could be attributed to lack of capacity (Mawonga, 2012; Benya
2011). It suggests that the number of available personnel is insufficient and lack capacity and thus
20
need to be appropriately trained and provided with relevant tools and infrastructure (Mntengwana,
2013); (Bengeza, 2013); (Gourrah, 2011); (Buffalo City Metropolitan Municipality, 2010). Lack of
capacity could indeed be the cause of inappropriate job behavior and performance due to ignorance
and misunderstanding of organizational policies. Erroneous discharge of duties by workers is
understandable in an environment such as the BCMM where some workers are “overworked due to
staff shortages” (Gourrah 2011, p. 3).

On the other hand, purposeful inappropriate job behavior and performance is often committed with
some level of understanding of the wrongfulness of the act and with the capacity to prevent or avoid
it. That is why it is ironical when workers‟ job behavior and performance is inappropriate although
they are capacitated, through formal education, to perform well and be productive in their respective
occupations. The qualification-occupation link is, however, highly debatable because the issue of
matching qualifications with jobs is complex. For instance, occupations like being the country‟s
president involve significant levels of administration and management, but such appointments are
generally made on political rather than academic merit as no one goes to school to enroll for a
course on becoming a president. The importance of using formal education credentials as the basis
for appointment is often diminished by the fact that inappropriate job behavior and performance has
been manifested by those appointed both on political and academic grounds. On the basis of
disappointed expectations from formal education, some scholars have concluded that “education is
useless” (Cottom, 2003, p. 1). Widespread inappropriate behavior of fraud and corruption, by even
those with formal education, calls into question the effect of education on job behavior and
performance. The BCMM workers‟ inappropriate job behavior and performance is a serious setback
for functionalist claims about education as even some of those appointed on academic merit do not
reflect appropriate ethics, attitudes and values.

(Ying, 2012), examined the relationship between performance management systems with employee
performance. The research strategy is based on quantitative research. Data was analyzed using a
package STATA for windows. The results show that the performance management system has a
positive but no significant relationship with employee performance.

(Maina, 2015) analyzed the effect of Performance Management system on employee performance in
FAO. The research questions were: How do employees interpret their experiences with the
Performance Management System? What are the challenges of performance management system?
What are the performance review processes? The research design was descriptive. Data was

21
collected using structured questionnaires. The data was analyzed using the Statistical Package for
Social Sciences (SPSS) into frequency distribution and percentages.

The major findings of this study are: that employee feel there is a great need for a performance
management system in FAO. The system should have inputs from the staff members through staff
involvement, it should have fair monitoring structures and reward staff who are high performers. It
should also have stronger emphasis on proper communication and reporting. Employees also felt
that there was limited transparency and minimal communication. The revised performance
management should close the missing gaps. It should also reward high performers and correct the
low performers. The study recommends that 360-degree feedback was deemed to be the best
performance management system for FAO. It involves employees receiving feedback from people
whose views are considered helpful and relevant.

The study concludes that the perception of employees towards performance management practices is
very critical in all organizations as this motivates them to achieve the goals set by the organization
and the respondents pointed out to the various aspects of performance management practices in line
with the planning and employee expectation, observing performance management practices,
developing the capacity of performance management practices to perform and evaluate performance
management practices which are crucial to managing the output given by the employees.

In addition, the study concludes transparency should be encouraged, performance management to be

carried out regularly, perform job design in order to match staff qualifications to the right job, boost
staff morale by giving them longer contracts, create job growth path for staff and orient new staff on
performance management and engrave it to the organization policy.

2.6. Summary

In summary, the studies reviewed above emphasized the importance of performance management
system. Implementation of performance management system is still a problem in almost all
organizations. It is therefore easy to understand how the correct implementation of the performance
management system facilitates growth and health in the organization. It is imperative that the
managers implementing the system have the right perception and attitude towards it and understand
the benefits entrenched in it. Continuous training of both supervisors and employees is important so
that quality of service is provided. Policy review on performance management is also required.

22
 2.7. Conceptual Framework

Based on the reviewed literatures, Performance appraisal, Feedback and reward system were
considered as factors affecting employee performance which form the framework for this project.
The selected framework was adapted from the study conducted by (Odhiambo, 2015), and I included
performance planning as an additional factor. Most of the findings of the reviewed literatures show
consistency that PMS has a great effect on employee performance/productivity. In this research,
Employee performance is the dependent variable and the independent variables are performance
planning, performance appraisal, reward system and performance feedback. This project intended
to examine the effect of PMS on employee performance. The four factors considered to have effect
on employee performance are performance planning, performance appraisals, reward systems and
performance feedback.

Figure 1 Performance Management system and employee performance

Performance Planning Performance Feedback

Employee Performance

Performance Appraisal Reward system

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 CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
In order to achieve the objective of this paper, using of appropriate methodology that helps to
approach the research scientifically is the priority attention given by the researcher. Therefore, this
chapter includes research design, sample and sampling technique, instrument for data collection,
procedure of data collection, method of data analysis, reliability and validity and ethical issue.

3.1 Research Design

According to (Geoffrey et al, 2005) descriptive research is a research type which describes
phenomena as they exist and it is used to identify and obtain information on the characteristics of a
particular problem or issues. Based on the above definition, descriptive type of research design is
best to achieve the aim of this research since the study is focus on assessing of performance
management practice in Awash Bank S.C( Hawassa cluster area) . It is an approach that is used when
researchers want to know regarding events, who were involved, what happened, and where did
things take place.

3.2 Population and Sampling Design

According to 2023/24 annual year bulletin, the bank has 20,000 total workforces out of which 1,780
of them are working in South Region. For this study, the researcher use sample from the total
population due to time, resource and proper organization of data. One basic requirement for
inclusion, one year and above experience employees had been taken in to consideration. The
rationale of selecting these employees as a target population is because they have at least one time
experience of the performance management system in Awash Bank S.C. Since the population of the
study are many in number it was difficult to use census, and also imitating the sample size of similar
studies was not possible because it was difficult to gate this kind of research that is done in Awash
Bank S.C or other banks. Therefore, the researcher has used table for determining sample size,
because it is easy and developed by experienced scholars like (Krejcie and Morgan, 1970).

24
Based on the figure 2, the appropriate number of sample for a 5% margin of error is 356 out of the
total population. Considering a margin for non-returning questionnaires and improper answering, we
targeted 400 sample populations. As the study was delimited to South Region and each branch on
average hold 20 employees, dividing by a population size of 400, we have selected twenty branches
including Hawassa.

As mentioned above, sample is taken from twenty selected branches based on their grade level
(Grade 1 to Grade 4)in South Region Namely Hawassa, Tabor, Fura, Chambalala, Alamura,
Dato, Shafeta, wondo basha, Hawassa Menaria, Daye bensa, Hawassa industry park, Alito, Areb
sefer, Yirba,Aleta wondo, Aleta chuko, bishan guracha, Yirgalem, Yirgalem industry park and Leku.

Figure 2 Table for determining sample size from a given population

Source; the NEA Research Bulletin (1960), Vol 38.99

3.3 Types of data collection and method used

This study uses questionnaire as main method for data collection technique. The answers we get
from these questionnaires are quantitative in nature. The questionnaire was divided into six sections.
The first part of the questionnaire is to gather the general information about the respondent including

25
demographic and educational level. The second part of the questionnaire is focused on the effect of
PMS in planning of performance targets. We aim to gauge the level of support and understanding
employees have regarding PMS. The third part of the questionnaire focuses on understanding the
effect of PMS in employees‟ performance.

The next two sections of questionnaire targets the reward and feedback loop of PMS and the effect
they have on employee performance. Finally, the sixth part of the questionnaire tries to understand
the perception of employees on ways to improve the current level of PMS.

The questions were meant to be answered by all employees including managerial/supervisor and
clerical details of which is described hereunder. This was with the aim of understanding employees‟
perception regarding PMS in Awash Bank S.C. Likert- type scale of questions were set where the
respondents were asked to rate the level of their agreements towards a given statement.

Answering such type of questions is given by ticking 1, 2, 3, 4 or 5 to respond to the statements to

what extents you agree or disagree with each. (1= Strongly Disagree, 2=Disagree 3=Neutral,
4=Agree, 5=Strongly Agree), the higher agreement rate indicates, the higher level of satisfaction
regarding the statement associated and vise-versa. The research also granted permission by HR
directorate of the bank to conduct and to collect data regarding the PMS as they see it helpful in their
measuring practice of employees‟ performance.

3.4 Method of Data Analysis

Descriptive statistics was used to run the basic statistical measures such as the mean, median, and
standard deviation. The mean is a measure of central tendency which provides an arithmetic average
for the distribution of scores (Coolican, 1999). Descriptive statistics namely measures of central
tendency and measures of dispersion are used to organize the data through closed ended questions
with the help of SPPS version 16.analaysis has been done according to the objective of the study.
Summary of statistics has organized in the form of qualitative and quantitative measures by using
frequencies and percentage.

3.5 Reliability

Reliability is consistency of measurement over time or stability of measurement over a variety of

conditions, the most commonly used technique to estimate reliability is with a measure of
association, the correlation coefficient, often termed reliability coefficient (Kothari, 2004).
26
Reliability tested using Cronbach‟s alpha values for the items in each construct. According to
(Sekaran and Bougie, 2016) reliabilities less than 0.60 are considered to be poor, those in the 0.70
range, acceptable, and those over 0.80 are good.

The internal consistency of the questions measuring PMS planning, employee performance, reward
for their achievement and proper and timely follow-up along with their personal improvement views
are presented on the table below

Table 1 Reliability test

Cronbach's Alpha No. of Items

Planning 0.876 5
Performance 0.764 9
Reward 0.71 10
Feedback 0.87 7
Improvement 0.836 7
Source; own survey 2024

The table shows that Cronbach‟s alpha for PMS planning, feedback and improvement views are
0.88, 0.87 and 0.84 respectively. This value indicates the internal consistencies of these three
sections are good. The Cronbach‟s alpha value for employee performance perspective and feedback
they perceive has a value of 0.76 and 0.71 respectively. Which is a clear indicator that the value we
get from employees are acceptable to be reliable.

For this study to ensure reliability, we also taken the following steps

• The data collection and analysis procedures are discussed clearly;

• The profile of participants are defined and explained clearly;
• Questions used to collect data are clearly prepared and attached at annex part

27
 3.6 Validity

Validity refers to the extent to which a test measures what we actually wish to measure. Reliability
has to do with the accuracy and precision of a measurement procedure (Kothari, 2004). Validity is
concerned with the meaningfulness of research components. When researchers measure behaviors,
they are concerned with whether they are measuring what they intended to measure. The issue of
validity was addressed through the review of literature and adapting instruments used in previous
research works.

3.7 Ethical Considerations

The study has attempted all the necessary precautions to protect the study participants from such sort
of problematic encounters by applying certain measures. Accordingly, the respondents were notified
not to mention their identity, particularly their names while filling questionnaire. Moreover, they
have been assured that no meaningful damage would be inflicted on them because of their
participation in this particular study by boldly explaining to them the apparent purpose of the study
(which is actually for academic purpose) and ensuring the confidentiality of their identity and whole
part of the information they provided for the purpose of undertaking this study.

The organization’s code of ethics was taken in to account without significantly compromising
findings of the study. Also it may not be ethical to ask employees to answer questionnaires while
they are at their work responsibility. Hence, enough time was given to respondents so that they can
either take the questionnaire to their home or use their break time.

28
 CHAPTER FOUR RESULTS AND FINDINGS
4.1. Introduction
This chapter presents the findings of the research and discussion on each objective questions. On the
first part we analyze demographic and response rate of questionnaires. Then explanation on the
results according to the nature of the questionnaires has done, PMS with regard to planning,
employee performance, reward and feedback. On the second part there is a discussion on the
findings of the study with respective of one another and aligning with employees‟ suggestion for
improvements.

4.2. Response Rate

Data was collected by use of structured questionnaires, and analysis done using SPSS and excel.
Questionnaires were sent to all the 400 staff members of 20 selected branches including South
Region and 356 responded accordingly, excluding non-returned and improperly filled
questionnaires. This translated to 89% response rate. According to Babbie (2002), any response rate
of 50% and above is adequate for analysis and therefore, the response rate of 89% is more than
satisfactory and the total numbers of questionnaires are also above the minimum required to assure a
controlled error rate of 5%. The rate of rejection for grade 1 branches are calculated and indicates
that out of 126 questionnaires distributed, only 7 questionnaires are rejected, indicating a response
rate of 94.4%. For Grade-2 branches, a total of 102 questionnaires are distributed with a response
rate of 83.3% which is the lowest of all branches. For grade 3 and 4 branches, 93 and 79
questionnaires are distributed with 11 and 9 questionnaires were rejected respectively. These ensures
a response rate of 88% for Grade 3 branches and 88% for Grade 4 branches.

29
Table 2 General Response Data
Number Of Rejected or
Targeted Returned non-returned
Branch Questionnaire
Population Questionnaires Questionnaires
Distributed

Hawassa 31 31 31 0
Branches
Grade-1

Tabor 24 24 23 1
Hawassa Menaria 25 25 23 2
Alamura 22 22 20 2
Areb sefer 24 24 22 2

Chambalaalla 21 21 17 4
Branches
Grade-2

Dato 19 19 16 3
Daye Bensa 22 22 19 3
Wondo Basha 21 21 19 2
Hawassa Industry park 19 19 14 5

Aleta Wondo 19 19 18 1
Branches
Grade-3

Bishan Guracha 17 17 16 1
Shafeta 21 21 16 5
Yirgalem 17 17 14 3
Aleta Chuko 19 19 18 1

Yirba 17 17 15 2
Branches
Grade-4

Alito 18 18 17 1
Yirgalem Indusry Park 15 15 12 3
Leku 16 16 14 2
Fura 13 13 12 1
TOTAL 400 400 356 44

Source; own survey 2024

4.3. Demographical Data of Respondents

The target population of the study includes 400 people, all of them were approached by
questionnaire. From 400 questionnaires distributed, 356 were returned. Accordingly, the
questionnaires (89%) results are summarized in tables below. Demographically, the respondents
were dominated by female (59.9%) and the remaining 40.1% were male with a majority (77%) of
them having an educational background of BA Degree. Moreover, majority of the respondents are
working at branch and the remaining 20.5% are staff members of South Region. The implication for
percentage increment at branch level since the PMS is designed mainly for resource mobilization,

30
 deposit, account increment and foreign currency generation and hence branches are focus area for
such activity.

Table 3 Demographic data of respondents

Gender Male Female
Frequency 143 (40.1%) 213 (59.9%)
Educational Qualification Diploma Degree Masters
Frequency 41 (11.6%) 274(77%) 41(11.4%)
Work Unit South -Region Branches
Frequency 31(20.5%) 325 (79.5%)
Source; own survey 2024
As noted here above, Branch Manager, Operation Managers, Business Development Managers,
Accountant, Relation Officer and Customer Service Officers are the main target area at Branches
levels while Credit Analyst, Officers at various directorates are consider at South Region office
level. Branches are the focus area of the study as the percentage reveals since the PMS is designed
mainly for resource mobilization.
4.4. Effect of Performance planning on Employee Performance

Table 4 the Effect of Performance Planning on Employee

1 2 3 4 5
Performance
The consultation process in the development of the
6 9% 15% 24% 45% 7%
performance planning is highly appropriate
7 The performance planning process is participatory 12% 38% 13% 22% 15%
Participating in the planning process motivates me highly to
8 18% 23% 14% 35% 10%
perform towards achievement of planned targets
The discussions between branch managers and subordinates
9 16% 12% 18% 14% 40%
are appropriate for accomplishment of planned targets
Frankly, I don‟t like my performance targets as they are
10 imposed by a person who have little knowledge on my 14% 18% 20% 32% 16%
specific work or qualification
Source; own survey 2024
Form the above table; we can clearly see that 45% of the respondent confirmed that during
development of the performance planning, discussion with the employees has positive impact on the
achievement of cascaded plan. On the other hand,38% the result reveals that the performance
planning process is not participatory which indicates planning is prepared centrally with less
involvement of the employees and requires attention of the management in order achieve
organizational objective.
31
On the same understanding, 35% of the respondent affirms that participating on planning process
motivate them to attend the cascaded plan accordingly. The discussion among branch managers and
other staff members has strong impact to accomplish the planned target as 40% the respondents
strongly agree. 32% of the respondent believes that the targeted planned should be developed by
experts who have good understanding on banking operation.

4.5. Effect of Performance Management System on Employee Performance

Table 4 The Effect of Performance Management system on

1 2 3 4 5
Employee Performance
Performance management system encourage me to
11 11% 13% 21% 42% 13%
accomplish my task effectively
I‟m more focused to work towards my performance targets
12 14% 19% 17% 42% 8%
rather than the banks strategic goals
If I don‟t agree with performance management system score,
13 38% 15% 18% 12% 17%
there is an appeal process
Performance management system makes me better
14 21% 17% 47% 8% 7%
understand what I should be doing
I regularly use performance management system as a
15 24% 10% 41% 13% 12%
decision making tool in my work.
Performance management system influences my individual
16 21% 17% 14% 45% 3%
performance positively
My individual Performance is valuable more than anything
17 10% 15% 20% 49% 6%
to the overall performance of the bank
I try to understand the Performance targets of my
18 7% 39% 20% 19% 15%
subordinates
The mere presence of performance management targets
19 13% 16% 11% 40% 20%
limited my ability to work flexibly
Source; own survey 2024
The above table clearly indicates that (42%) of the respondent positive accepted that performance
management system encourages them to accomplish their task with additional effort since it has
pushing factor. On the other hand 42% of the respondent believes that the PMS has a direct impact
to focus on specific individual targets rather than other organizational other activities such as
projects that increase the efficiency of the bank. 38% of the respondent further confirmed that there
is less room to present appeal if there is an attainment of lower score. Focusing on attainment of
individual performance has positive attitude to achieve their goals as 45% of the results reflects. This

32
can be witnessed also on our nearby branches competing among themselves to approach same
customers which indicate that there is a gap on corporate thinking of our branches.

4.6. Effect of reward system on employee performance

Table 5 The Effect of Reward Systems on Employee Performance 1 2 3 4 5

The performance management system in my organization
20 13% 17% 6% 38% 26%
reward good performance and discourage poor performance
The rewards provided by my organization motivate me to
21 5% 24% 20% 32% 19%
exert more effort in my work
I would prioritize strategic activities of the bank than my
22 12% 17% 44% 8% 19%
performance targets requirements
The bank influenced my productivity by linking reward and
23 10% 17% 24% 39% 10%
promotion with performance targets
The rewards motivate me to be timely in completing my
24 3% 21% 13% 55% 8%
duties
25 The rewards are varied but satisfactory 8% 14% 17% 43% 18%
Reward opportunities encourage staff to be creative in
26 15% 20% 7% 36% 22%
accomplishing tasks
In my branch, everyone is focused on accomplishment of
27 12% 4% 20% 42% 22%
their performance targets for their own benefits
28 Appreciation by managers increases my satisfaction at work. 13% 17% 38% 17% 15%
Rewards for my performance are neither fair nor reflective of
29 9% 15% 60% 13% 3%
my overall effort
Source; own survey 2024
The third object question is designed to answer the effect of reward systems on employee
performance. Accordingly, 38% the respondents confirmed that the performance management
system reward those employees achieve their target whereas discourage poor performance.
Additionally, 32% of the respondent believes that the rewards provided by the bank motivate them
to exert more effort in their work. Furthermore, 43% of the respondent confirmed that the rewards
are varied based on top, middle and lower level position but it is satisfactory and they confirmed
also reward creates opportunities, encourage staff to be creative in accomplishing their tasks.
Moreover, 42% of the respondent believes that the rewards motivate them to accomplish their task
timely. However, duet to unfair allocation of rewards, staffs are consider it as neither fair nor
reflective their overall effort.
33
 4.7. The Effects of Performance feedback on employee Performance

Table 6 The Effect of Performance Feedback on Employee

1 2 3 4 5
Performance
Manager/Supervisors gives me fair feedback on my
30 10% 15% 49% 19% 7%
performance
Manager/Supervisors discusses job performance result
31 6% 20% 43% 17% 14%
regularly
Feedback received from manager/supervisors has a direct
32 12% 15% 16% 51% 6%
impact to improve my effort
Feedback is emphasize for good performers than criticizing
33 12% 37% 18% 7% 26%
the poor ones.
I agreed with the feedbacks receive from
34 10% 40% 16% 5% 29%
managers/supervisors against actually achieved
Feedback received by subordinates for their performance is
35 21% 54% 10% 13% 2%
fair compared to their effort
Feedback generated by performance Management system is
36 20% 47% 14% 7% 12%
reflective of my effort
Source; own survey 2021
The fourth pillar the research objective is to verify and answer Effect of Performance Feedback on
Employee Performance. Accordingly, 49% of the respondent are neutral that their supervisors are
not discusses on feedback on my performance regularly. Moreover, 51% of the respondent
confirmed that feedback received from manager/supervisors has a direct impact to improve their
effort. As discusses earlier, the system should requires update regularly due to this fact employees
have no confidence on the feedback generated by performance Management system.

4.8. Perception on Improvements of Performance Management System

There is a negative perception the employees have concerning Performance Management System.
They believe that the system is influenced by subjectivity, according to the investigation done by
(Newel, 2000) concerning the perception that employees have of performance management system.
There is very little employee involvement in formulating criteria, agreeing performance standards
and objectives when designing performance systems. Management selects a few top representatives
to develop the system in the absence of staff.

34
The final objective question to be accessed is regarding management perception on improvements of
performance management system. Accordingly, 38% of the respondent affirms that the
scorecard/parameters are not aligned with their current duties and responsibilities which indicate that
there is a gap on result achievement on the system. Furthermore, 41% of the respondent confirmed
that the scorecards are not review considering with the implementation of new products which also
implies that the product development team should have to work closely with the HR directorate to
rectify the gap.

Table 8 perception on Improvements of Performance

1 2 3 4 5
Management System
The PMS parameters (scorecard) are aligned with my
37 17% 38% 26% 6% 13%
current duties and responsibilities
The bank timely review the scorecard considering the
38 implementation of new products 16% 41% 15% 13% 15%

39 The existing PMS builds strong sprit of team work 10% 44% 17% 12% 17%
40 The PMS take in to account the quality of service 13% 48% 22% 16% 1%

41 The PMS requires Regular updates 3% 15% 17% 45% 20%

42 The PMS criteria is well aware by all bank unites 4% 21% 39% 13% 23%

43 Staff are willing to be assessed by the existing PMS criteria 19% 10% 23% 43% 5%
Source; own survey 2024
Moreover, 44% of the respondent confirmed that the PMS parameters lack team sprit scorecard
criteria which also derive employees to focus on individual effort. Additionally, the findings reveals
that 48% of the respondent noted that the PMS does not take in to account the quality of service, it
give sizable emphasis on quantitative results this can be witnesses from the enormous number of
inactive accounts plus artificially figures which could affect management to take incorrect decision.

The other major objective question address about PMS updates and 45% of the respondent noted
that it should be revised considering the bank’s new product and banking sector. Moreover, 43% of

35
the respondent agree that staff are not willing to be assessed by the existing PMS criteria this implies
that there have been unnecessary pressure on the employees subsequently affect work-life balance.

4.9. Discussion on findings

The first part of the research objective is to analyze the effect of performance planning on
employee’s performance. Initially (45%) employees are confirmed that the consultation process in
the development of the performance management system is highly appropriate. In another part of the
questions, (38%) of the respondents confirmed that the performance management system process is
not participatory which clearly indicates that the bank‟s cascade plan is entirely developed to keep
the bank‟s interests. Similarly 40% of the result reveals that participating in the planning process
motivates me highly to perform towards achievement of planned targets.

Accordingly to the findings, majority of the respondent confirmed that performance targets are set
and cascaded by a person who have little knowledge on my specific work or qualification and thus
in order to achieve individual targets as well as organizational strategic goals plan should be
reviewed and consulted by the nearby supervisors.

The second part of the object is the effect of performance management system on employee
performance and the result indicates that 123 (37%) and 88 (27%) agreed and strongly agreed
respectively to the fact that performance management system has strong impact on individual
performance instead of team work positively.

Based on question three, 81 (25%) percent of total employee’s replied to either uncertain or agree
and strongly agree from the fact regarding to low work performance due to low understanding of
appraisal performance. This outcome is supported by (Kawavanagh and Brown, M., 2007) who
observed that there is a positive relationship of job satisfaction with employee productivity.

The finding further reveals that the performance management system adopted by the bank does not
bring synergy and team work since the financial targets are cascaded to the employees without
considering groups effort as a collective. Due to this fact, the employees are focusing to achieve
their quantitative target and has shown less involvement in other major activities. Moreover, the
performance management system provide the opportunity for managers and employees to assess the
degree to which performance goals have been achieved, engagement appraisals provide the
36
additional opportunity to assess the extent to which employees have demonstrated behavioral
engagement.

37
The third object question is designed to answer the effect of reward systems on employee
performance. Accordingly, 38% the respondents confirmed that the performance management
system reward those employees achieve their target whereas discourage poor performance.
Additionally, majority of the respondent believes that the rewards provided by the bank motivate
them to exert more effort in their work. Further result reveals that employees noted that the
rewards are varied based on top, middle and lower level position but it is satisfactory and they
confirmed also reward creates opportunities, encourage staff to be creative in accomplishing
their tasks. Moreover, 32% of the respondent believes that the rewards motivate them to
accomplish their task timely. However, duet to unfair allocation of rewards staffs are consider it
as neither fair nor reflective their overall effort.

The fourth pillar the research objective is to verify and answer effect of performance feedback on
Employee Performance. Accordingly, 49% of the respondent agree that Manager/Supervisors are
not discusses on feedback on my performance regularly. Moreover, 51% of the respondent
confirmed that feedback received from manager/supervisors has a direct impact to improve their
effort. As discusses earlier, the system should requires update regularly due to this fact
employees have no confidence on the feedback generated by performance Management system.

The final objective question to be accessed is regarding management perception on

improvements of performance management system. Taking into account this fact, questioners are
forwarded to HR directorate and officers who are directly responsible on the implementation of
and follow-up of the performance management system. Accordingly, 38% of the respondent
affirms that the scorecard/parameters are not aligned with their current duties and responsibilities
which indicates that there will be a gap on result achieve on the system. Furthermore, most of the
respondent noted that the scorecards are not review considering with the implementation of new
products which also implies that the product development team should have to work closely with
the HR directorate to rectify the gap.

Moreover, the finding on questioner three under discussion indicates that the existing PMS
parameters lacks team sprit scorecard criteria which also derives employees to focus on
individual effort. Additionally, the findings reveals that 48% of the respondent noted that the
PMS does not take in to account the quality of service, it give sizable impasses on quantitative

38
results this can be witnesses from the enormous number of inactive accounts plus artificially
figures which could affect the banks top management to formulate strategic plan.

The other major objective question address about PMS updates and 45% of the respondent noted
that it should be revised considering the bank‟s new product and banking sector. Moreover, 39%
of the respondent agree that staff are not willing to be assessed by the existing PMS criteria this
implies that there have been unnecessary pressure on the employees subsequently affect worklife
balance.

CHAPTER FIVE
CONCLUSION AND RECOMMENDATION

39
 5.1 Introduction
This chapter presents discussions of the key findings presented in chapter four, conclusions
drawn based on such findings and recommendations on performance management systems on
staff performance. This chapter is, thus, structured into short summery of the research,
conclusions and recommendations.

The purpose of this study was mainly focused to examine the effect of performance management
system on employee performance in AWASH BANK S.C (Hawassa cluster area). Therefore, the
study was aimed at providing a better understanding of employees‟ thoughts and attitudes
towards performance management system which could contribute to the tailoring of a suitable
system that would have buy in from all employee as well as to provide concrete guidelines and
practical steps that can be used to improve the performance management processes in AWASH
BANK S.C.

The study adopted a descriptive research design. The population of interest consists of 400 staff
members of Awash Bank S.C from selective Branches and South Region. Data will be collected
using structured questionnaires. The data will be analyzed using the Statistical Package for
Social Sciences (SPSS) into frequency distribution and percentages.

The findings on how the employees interpret their experiences with the Performance
Management System is that there was openness of expression. As for the attitude of the
participants towards the system, the bank unites felt that a performance management system was
needed, but should include the components of staff involvement during planning processes rather
than developing and cascaded, rewarding high performers and correcting low performers.
On the challenges of performance management system, there was limited transparency and
minimal communication. The findings concluded that a revised performance management
system should close the missing gaps and have a stronger emphasis on proper communication,
managing, monitoring and reporting, as well as rewarding or correcting high or low performance
respectively.

5.2 Conclusion
Awash Bank S.C had been using a traditional performance appraisal method for a couple of years
which had some gaps in measuring actual performance. In order to bridge the gaps observed, a

40
better PMS is established to evaluate financial and non-financial performance of employees and
reward them based on results. However, the effect in terms of the intended purpose has not been
examined which helps the management also to review subsequently. Accordingly, this research
basically aimed to identify the list of research question which are summarized item by item here
under

Taking into account the first objective questions and results reveals that during development of
the performance planning, discussion with the employees has positive impact on the
achievement of result individual as well as organizational objectives. Similarly, the finding
discloses that the performance planning process is not participatory which indicates planning is
prepared centrally with less involvement of the employees and requires attention of the
management.

On the same understanding, the respondent affirms that participating on planning process
motivate them to attend the cascaded plan accordingly. The discussion among branch managers
and other staff members has strong impact to accomplish the planned target as majority of the
respondents strongly agree and most of them noted the cascade plan should be developed by
experts who have good understanding on branch operation.

The effect of performance management system on employee performance is also assessed and
the result indicates that performance management system encourages them to accomplish their
task with additional effort since it has pushing factor. On the other hand, the respondent believes
that the PMS has a direct impact to focus on specific individual targets rather than other
organizational objectives such as projects that increase the efficiency of the bank. Furthermore,
the respondent confirmed that there is less room to present appeal if there is an attainment of
lower score. Moreover, the bank’s financial and non-financial targets are achieved and profit
would be increased as well through supervising the whole process of performance management,
such as building objectives, checking feedback and evaluating performance. Furthermore, it can
be concluded that performance management system influences employee and thereby helps to
encourage commitment and understanding by linking the employees' work with the
organization's goals and objectives.

41
The effect of reward systems on employee performance is also evaluated to answer the
relationship of reward on employee result. Accordingly, employees insured that the performance
management system reward those employees achieve their target whereas discourage poor
performance. Additionally, they discloses that the rewards provided by the bank motivate them to
exert more effort in their work. Furthermore, the respondent confirmed that the rewards are
varied based on top, middle and lower level position but it is satisfactory and they confirmed also
reward creates opportunities, encourage staff to be creative in accomplishing their tasks and it
motivate them to accomplish their task timely. However, due to unfair allocation of rewards
staffs are consider it as neither fair nor reflective their overall effort.

Another critical challenges on performance feedback is that the bank is facing in the
implementation of the performance management system such as poor communication of the
performance feedback and to solve this problem extensive communication and marketing of the
performance management system to employees and managers is compulsory. The absence of
performance feedback leads to disintegration in employee attitudes towards organizational
goals and objectives, which also lead to inefficiency. The performance objectives must be
specific, measurable, attainable, realistic, and time-bound. Excellent communication is also vital
during performance evaluation and in providing feedback to support subordinates in ensuring
performance improvement, especially when the areas of weaknesses are identified. Limited
transparency and minimal to communication had been raised by the respondents even some staff
expressed that they were not being updated regularly and not aware for the parameters and
quantitative figures that do not match with their profession .Other short comings were that less
involvement of staff in decisions made that affect them and finally, the current performance
management system is not tied to the merit system where there is reward for good performance
and warning for non-performance even some stating that they did not understand the implication
of Performance Management System.

Perception on improvements of performance management system is also evaluated.

Accordingly, most of the respondent affirms that the scorecard/parameters are not aligned with
their current duties and responsibilities which indicate that there is a gap on result achievement
on the system. Furthermore, they confirmed that the scorecards are not review considering with

42
the implementation of new products which also implies that the product development team
should have to work closely with the HR directorate to rectify the gap.

Additionally, the finding reveals that performance management system has strong impact on
individual performance instead of team work positively. Considering the respondent feedback
there will be low work performance due to short understanding of the PMS. Endorsing
performance management system enhances employee performance. It involves setting individual
objectives that are derived from overall organizational goals and allocating time frame for
completion.

The finding further reveals that the management of Awash Bank S.C(Hawassa Cluster Area)
should do to improve the performance management, majority mentioned management tight on
merit basis and give incentives to the best staff. Finally, it was suggested that the management of
Awash Bank S.C should give promotions and have staff representatives in discussions that affect
them enormously and the performance management system should not be used only for resource
mobilization. Besides, it should bring harmony, team work and quality of products which entails
additional customer as well as maintaining the existing one.

5.3 Recommendations
Awash Bank S.C‟s( Hawassa Cluster Area) performance management system is carried out as
planned but the effect both on qualitative and quantitate is still not evaluated by the management
due to information gap on criteria and lack of accuracy of the cascaded plan. Accordingly,
taking in into account, the research findings, the recommendations are elaborated as follows:

 Awash Bank S.C need to maximize the use of performance management system in their
respective managerial position, in order to correct the behavior of employees with low
performance and make them more efficient and effective. Awash Bank S.C need to use
the performance appraisal to strengthen the relationship between the superior and
subordinate by implementing motivational scheme, creating transparency, avoiding bias,

43
 and improving employees attitude by giving training and development to the employees in
order to help to avoid employees‟ self-perceptions wrongly.
 The criteria set on the performance management system on resource mobilization
(deposit and foreign currency generation) have sizable percentage coverage which is a
derivative of loan portfolio. However, due to low percentage result set for asset resource,
evaluators are giving minimal focus on loan collection and the bank‟s
NPL(NonPerforming Loans) could be affected.
 A plan could be subject to revision from time to time with the participation of all internal
stakeholders. The performance result of branch employees is a derivative of branch
performance and therefore branches should be careful while appraising employees'
performance. There could be good performing employees in underperforming branches
but most employees could not be good performers in underperforming branches.
 Due to the entrance of IFB( Interest Free Banking) on the sectors, existing banks are
engage themselves in opening of separate branches to serve the Muslim society but we
come to understand that still the PMS criteria is designed for conventional one which
should be revised accordingly.
 Employees could not be evaluated simply by opening an account for walk-in customers.
Since, due to the pushing factor of the PMS criteria, the increasing number of inactive
accounts are witnessed. Individual performance is based on personal efforts in marketing
and attracting customers to our bank. However, there should be a group performance
criteria that will create a room for team sprit.
 Sales and Marketing staffs (BDM, RO and DSR) should check and record individual
efforts. Hence, branches are required to establish PMS team at branches in charge of
cascading targets, monitoring progress and capturing performance data. Here care should
be taken not to record false performance data.
 By focusing on quantitative aspects, qualitative aspects should not be undermined. It is
the qualitative aspect, service quality that drives achievement of quantitative target.
Branches should refrain from attempting “performance forgery”, we have heard that some
are creating, for example, M-Wallet account without the knowledge of customers.
 It can be recommended from the study that AWASH BANK S.C( Hawassa Cluster Area)
should enhance the various parameters mentioned on the employee’s perception towards
44
 performance management practices and widen the scope on other parameters that may be
used to gauge the levels of performance management practices by the employees.
Transparency should be encouraged, performance management to be carried out
regularly, perform job design in order to match staff qualifications to the right job, create
job growth path for staff and orient new staff on performance management and engrave it
to the organization policy.
 The Human Resource Directorate manual clearly stated that appraisers have to be trained
prior to an appraisal but it is not strictly followed. Adhering to this would help both the
employees and the organizations productivity. Goal setting for employees with their
supervisors is not done as it should be. The first step in performance evaluation is the
manager and the employee needs to set together and make setting goal.
 Providing regular feedback in a positive way and coaching helps the employee to
be successful on his/her performance. And poor performer might improve their
performance. So the manager or supervisors need to give extra attention on the
supervisor to give continues feedback to employee.
 The bank should create transparency within the system, attaching the PMA with
motivations, and providing training to both evaluator and rate can create an inviting
atmosphere of working environment. In order to obtain the required result of the
performance management system as intended, it should create a conducive working
environment both on subordinates and supervisors, continuous and transparent
evaluations of levels of employees‟ performance is an essential measure that needs to be
taken.
 Finally, The Performance and Result Management Division should also work hand in
hand with sales and marketing staff by conducting regular meetings and reviewing
challenges and opportunities, and make sure that performance is progressing towards
target attainment. Furthermore, HR Business Partnership Division should also work
closely with operational staff in an effort to identify challenges they are having on PMS
to ensure that customer service quality is improved.

45
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APPENDIX A: Letter of Introduction

Dear Sir/Madam,

I am a Post Graduate student in Pharma College School of Graduate Studies Masters of

Business Administration. This is a questionnaire designed to collect data on the “The effect of
performance management system on employee performance” which will be used as an input for

49
a thesis in partial fulfillment of Master of Business Administration. Your genuine response is
solely used for academic purpose. Therefore, your kind cooperation is appreciated in advance.
Should you have any questions about this survey, please feel free to contact me at +251-
25553478 or via my email address: abrishmar729@gmail.com OR
abrhammarkos779@gmail.com

With regards,

Abrham markos
MA Studen,Pharma College School of Graduate Studies
Questionnaire
Section I: General Information

1. What is your Gender? Male Female

2. What is your age bracket? 20- 30 31-45 4 6-60

3. What is your Directorate/Division /Branch and title?

......................................................................
4. Number of years worked at AWASH BANK S.C?
Less than 1 year 2-5 years 6-10 years

11-15 years 16-20 years above 21 years

5. Educational level?
Diploma level Masters Level

Degree level Above Masters level

Section II: The Effect of Performance Planning on Employee Performance

Please indicate the extent to which you agree with the following statements by using a scale of 1
to 5 Where1 =Strongly Disagree, 2 = Disagree, 3 = Neutral, 4 = Agree 5 =strongly agree,
Statement 1 2 3 4 5

50
 The consultation process in the development of the
`6 performance planning is highly appropriate

The performance planning process is participatory

7

Participating in the planning process motivates me highly to

8 perform towards achievement of planned targets

The discussions between branch managers and subordinates

9 are appropriate for accomplishment of planned targets

Frankly, I don‟t like my performance targets as they are

10 imposed by a person who have little knowledge on my
specific work or qualification

Section III: The Effect of Performance Management system on Employee

Performance
Please indicate the extent to which you agree with the following statements by using a scale of 1
to 5 Where1 =Strongly disagree, 2 = Disagree, 3 = Neutral, 4 =Agree 5 =Strongly agree,
Statement 1 2 3 4 5

Performance management system encourage me to

11 accomplish my task effectively

I‟m more focused to work towards my performance targets

12
than the banks strategic goals

If I don‟t agree with performance management system score,

13
there is an appeal process

Statement 1 2 3 4 5

Performance management system makes me better

14 understand what I should be doing

I regularly use performance management system as a

15 decision making tool in my work.

51
 Performance management system influences my individual
16 performance positively

My individual Performance is valuable more than anything

17 to the overall performance of the bank

I try to understand the Performance targets of my

18 subordinates

The mere presence of performance management targets

19 limited my ability to work flexibly

Section IV: The Effect of Reward Systems on Employee Performance

Please indicate the extent to which you agree with the following statements by using a scale of 1
to 5 Where1 =strongly disagree, 2 = Disagree, 3 = Neutral, 4 = Agree 5 =strongly agree,
Statement 1 2 3 4 5

20 The performance management system in my organization

reward good performance and discourage poor performance

21 The rewards provided by my organization motivate me to

exert more effort in my work

22 I would prioritize strategic activities of the bank than my

performance targets requirements

23 The bank influenced my productivity by linking reward and

promotion with performance targets

24 The rewards are varied but satisfactory

25 The rewards motivate me to be timely in completing my

duties

Statement 1 2 3 4 5

26 Reward opportunities encourage staff to be creative in

accomplishing tasks

27 In my branch, everyone is focused on accomplishment of

their performance targets for their own benefits

52
28 Appreciation by managers increases my satisfaction at work.

29 Rewards for my performance are neither fair nor reflective

of my overall effort

Section V: The Effect of Performance Feedback on Employee Performance Please

indicate the extent to which you agree with the following statements by using a scale of 1 to 5
Where1 =strongly disagree, 2 = Disagree, 3 = Neutral, 4 =Agree 5 =strongly agree,
Statement 1 2 3 4 5

30 Manager/Supervisors gives me fair feedback on my

performance

31 Manager/Supervisors discusses job performance result

regularly

32 Feedback received from manager/supervisors has a direct

impact to improve my effort

33 Positive feedback is emphasize for good performers than

criticizing the poor ones.

34 I agreed with the feedbacks receive from managers/supervisors

against actually achieved

35 Feedback received by subordinates for their performance is

fair compared to their effort

36 Feedback generated by performance Management system is

reflective of my effort

Section VII: Perception on Improvements of Performance Management System

Please indicate the extent to which you agree with the following statements by using a scale of 1
to 5 Where1 =strongly disagree, 2 = Disagree, 3 = Neutral, 4 =Agree 5 =strongly agree,

53
 Statement 1 2 3 4 5
37 The PMS parameters (scorecard) are aligned with my
current duties and responsibilities.

38 The bank timely review the scorecard considering the

implementation of new products

39 The existing PMS builds strong sprit of team work

40 The PMS take in to account the quality of service
41 The PMS requires Regular updates
42 The PMS criteria is well aware by all bank unites
43 Staff are willing to be assessed by the existing PMS criteria

APPENDIX B: Answer to Questionnaire

The Effect of Performance Planning on Employee
1 2 3 4 5
Performance
The consultation process in the development of the
6 33 159 84 55 25
performance planning is highly appropriate
7 The performance planning process is participatory 41 136 47 79 53
Participating in the planning process motivates me highly
8 65 81 50 123 37
to perform towards achievement of planned targets

54
 The discussions between branch managers and
9 subordinates are appropriate for accomplishment of 58 44 63 48 143
planned targets
Frankly, I don‟t like my performance targets as they are
10 imposed by a person who have little knowledge on my 53 88 67 91 57
specific work or qualification

The Effect of Performance Management system on Employee

Performance
Performance management system encourage me to
11 72 61 119 57 47
accomplish my task effectively
I‟m more focused to work towards my performance
12 50 68 59 148 31
targets than the banks strategic goals
If I don‟t agree with performance management system
13 137 54 63 41 61
score, there is an appeal process
Performance management system makes me better
14 76 59 169 29 23
understand what I should be doing
I regularly use performance management system as a
15 87 34 147 45 43
decision making tool in my work.
Performance management system influences my
16 74 62 49 161 10
individual performance positively
My individual Performance is valuable more than
17 37 53 71 173 22
anything to the overall performance of the bank
I try to understand the Performance targets of my
18 26 138 72 66 54
subordinates
The mere presence of performance management targets
19 47 58 39 144 68
limited my ability to work flexibly

1 2 3 4 5
The Effect of Reward Systems on Employee Performance
The performance management system in my organization
20 reward good performance and discourage poor 47 59 21 137 92
performance

55
21 The rewards provided by my organization motivate me to 19 84 71 113 69
exert more effort in my work

22 I would prioritize strategic activities of the bank than my 44 62 156 26 68

performance targets requirements

23 The bank influenced my productivity by linking reward 37 59 85 139 36

and promotion with performance targets
The rewards motivate me to be timely in completing my
24 11 74 47 196 28
duties
25 30 49 153 59 65
The rewards are varied but satisfactory
Reward opportunities encourage staff to be creative in
26 53 70 27 129 77
accomplishing tasks
In my branch, everyone is focused on accomplishment of
27 42 15 72 79 148
their performance targets for their own benefits

28
Appreciation by managers increases my satisfaction at 44 61 137 59 55
work.

29 Rewards for my performance are neither fair nor reflective 31 212 55 46 12

of my overall effort
The Effect of Performance Feedback on Employee Performance

30
Manager/Supervisors gives me fair feedback on my 37 54 173 67 25
performance

31 Manager/Supervisors discusses job performance result 19 70 154 62 51

regularly

32 Feedback received from manager/supervisors has a direct 48 55 182 53 18

impact to improve my effort

33 Positive feedback is emphasize for good performers than 44 131 65 24 92

criticizing the poor ones.

34 I agreed with the feedbacks receive from 37 143 57 17 102

managers/supervisors against actually achieved

35 Feedback received by subordinates for their performance 73 195 34 47 7

is fair compared to their effort
Feedback generated by performance Management system
36 71 167 51 26 41
is reflective of my effort
1 2 3 4 5

Perception on Improvements of Performance Management System

56
37 The PMS parameters (scorecard) are aligned with my 61 134 91 22 48
current duties and responsibilities

38 The bank timely review the scorecard considering the 58 146 52 47 53

implementation of new products
39 34 61 157 43 61
The existing PMS builds strong sprit of team work
40 46 171 77 58 4
The PMS take in to account the quality of service
41 The PMS requires Regular updates 9 52 61 162 72

42 Staff are willing to be assessed by the existing PMS 66 37 81 155 17

criteria

43 The PMS parameters (scorecard) are aligned with my 42 77 133 53 51

current duties and responsibilities.

57
 APPENDIX C: Sample PMS
Achi
Sr. Process Name of Report or Process Outcome or Key Performance
Measure(s) Actual Weight evem Score
No. /Activity Activity to be done Result Indicator /KPI/ Target
ent
1.1. Credit NPL as a
NPL Reducing action
Risk percentage of total
by Portfolio Mgt. Lower level NPL Ratio NPL Ratio 5% 15%
Management loans and advances
Unit
process
% age of loan
amount
Percentage of NPLs loan
regularized
NPL Reducing action amount regularized
through cash
by Portfolio Mgt. through cash collection NPL Percentage 1.5% 10%
collection from
Unit out of the total portfolio
1 total portfolio
1.2. Loan under his/her supervision
under his/her
Amounts
supervision
under NPLs
Percentage of NPLs loan % age of loan
regularize
amount regularized amount
NPL Reducing action through rescheduling, regularized
by Portfolio Mgt. foreclosure and litigation NPL Percentage through workout 1.5% 5%
Unit process out of the total from total portfolio
portfolio under his/her under his/her
supervision supervision
Time required for
Sectorial loans & preparing ,
Preparing, reviewing and 10
Advances Report to reviewing and delivery time
delivering report days
NBE/monthly delivering
2.1. regulatory report
2 15%
Reporting Time required for
Loans & Advances preparing ,
Preparing, reviewing and 10
Portfolio Report to reviewing and delivery time
delivering report days
NBE/monthly delivering
regulatory report

58
 Time required for
Borrowers that exceed preparing ,
Preparing, reviewing and 10
10% & related party reviewing and delivery time
delivering report days
report/monthly delivering
regulatory report
Average Recovery Time required for
Rate (ARR) per preparing ,
Quarterly & Interbank Preparing, reviewing and reviewing and delivery time
10
lending or borrowing delivering report delivering
days
report/monthly regulatory report
Time required for
Loans & Advances preparing ,
Preparing, reviewing and 15
Portfolio Report to reviewing and delivery time
delivering report days
NBE/monthly delivering
regulatory report
Time required for
preparing ,
Credit Provision Preparing, reviewing and 15
reviewing and delivery time
report/quarterly delivering report days
delivering
regulatory report
Time required for
Borrowers of
preparing ,
Building & Preparing, reviewing and 15
reviewing and delivery time
Construction delivering report days
delivering
report/quarter
regulatory report
Time required for
Top 20 Borrowers & preparing ,
Preparing, reviewing and 15
Top 10 NPLs to reviewing and delivery time
delivering report days
NBE/quarter delivering
regulatory report

59
 Time required for
preparing,
Various reports for reviewing and
2.2. Risk Mgt Directorate Preparing, reviewing and delivering quarterly 20
delivery time 15%
Reporting & Loan Review delivering report report for Ent. Risk days
Committee & Compliance
Mgt. and Loan
Review Committee
Time required for
preparing ,
Various Credit reports reviewing and
2.3. Preparing, reviewing and 15
for Mgt delivery time 15%
Reporting delivering report delivering monthly days
Consumption
and quarterly
management report
Properly classifying the
Loan loan accounts in to its Number of loan
Number of Zero
3 accounts Loan accounts respective asset accounts wrongly 15%
Accounts error
classification classification and classification categories as classified to NPL
and reporting reporting per NBE directives
Preparing,
Producing and providing Number of report
delivering
true and reliable found unreliable Zero
4 true and Preparing, delivering Number of report 10%
information to the and trigger the Error
reliable true and reliable
concerned organs bank to penalty
reports reports
Aggregate 100%

60