Performance Appraisal Practices Among Commercial Banks in Kenya
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PERFORMANCE APPRAISAL PRACTICES AMONG COMMERCIAL BANKS IN KENYA. STELLA MWANGI A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION, OF THE UNIVERSITY OF NAIROBI. NOVEMBER, 2013 DECLARATION This research project is my original work and has not been presented for the award of degree in any other university or institution for any other purpose. Signature …………………………………….. Date ………………………. STELLA MWANGI D61/P/7074/2004 This research project has been submitted for examination with my approval as University supervisor. Signature …………………………………….. Date ………………………. Florence Muindi School of Business University of Nairobi ii ACKNOWLEDGEMENT I wish to thank most sincerely all those whose contributions have made this project a success Special recognition goes to my mum and siblings for their support both morally and financially. You are always there for me during my period of study. To my supervisor Florence Muindi, your support, encouragement, evaluation and guidance is much appreciated. To my work mates Joseph, Caleb and Elvis thanks for holding forth for me many times I was away on many occasions in pursuing this noble course, to all of you may Almighty God bless you abundantly. Most of all I thank God for the gift of wisdom and strength to complete this project. iii DEDICATION I dedicate this project to my mum, late dad and siblings. You have brought immeasurable joy to my life and helped me develop patience to see things to a desired end. Thank you for your support. You are God’s special gifts to me and the best I could ever get. Thank you. iv ABSTRACT In today’s competitive business world, it is understood that organizations can only compete with their rivals by innovating and organizations can be innovative by managing their human resources well. The human resource system can become more effective by having a valid and accurate appraisal system used for rating performances of the employees. Unfortunately, the number of the organizations using an effective performance appraisal system is limited. Organizations are run and steered by people. It is through people that goals are set and objectives are realized. The performance of an organization is thus dependent upon the sum total of performance of its members. The success of an organization will therefore depend on its ability to measure accurately the performance of its members and use it objectively to optimize them as a vital resource. In the present highly competitive environment, organizations have to ensure peak performance of their employees continuously is in order to compete and survive at the market place effectively. The objective of the study was to determine the performance appraisal practices among commercial banks in Kenya. The population of the study was all the forty two commercial banks operating in Kenya. The study used primary data which was collected using self-administered questionnaires. The data was analyzed using the Statistical Package for Social Sciences (SPSS) software. The findings of the study were that performance appraisal was carried out in the banks mostly on quarterly. The banks use performance appraisal for organizational development, employees’ performance, salary increment or distribution of rewards, has a motivational effect on workers’ performance, promotion, training, development and training needs identification and that performance appraisal is used in assessing employees’ commitment to organizational goals and objectives. The study found out that goal setting help to contribute to higher performance in the bank than only telling employees what to do and how to do and that the banks establishes goals that are perceived as challenging but realistic and to which there is higher level of commitment. Performance appraisal method used by the banks resulted in performance criteria/instruments used to measure employee performance being clearly defined, objective and employees in the bank undertake self reviews, graphic rating scale is used to appraise employees, merit/pay bonus allocations was a motivating and fair, behaviorally anchored rating scale method is undertaken in the bank and bank appraise employees using comparative ranking method. v TABLE OF CONTENTS DECLARATION................................................................................................................ ii ACKNOWLEDGEMENT ................................................................................................ iii DEDICATION................................................................................................................... iv ABSTRACT ........................................................................................................................ v TABLE OF CONTENTS ................................................................................................. vi LIST OF TABLES ............................................................................................................ ix LIST OF FIGURES ........................................................................................................... x CHAPTER ONE: INTRODUCTION .............................................................................. 1 1.1 Background of the study ................................................................................................ 1 1.1.1 Performance Appraisal .......................................................................................... 2 1.1.2 Performance Appraisal Practices ........................................................................... 4 1.1.3 Banking Industry ................................................................................................... 5 1.2 Research Problem .......................................................................................................... 6 1.3 Research Objective ........................................................................................................ 8 1.4 Value of the study .......................................................................................................... 8 CHAPTER TWO: LITERATURE REVIEW ................................................................. 9 2.1 Introduction .................................................................................................................... 9 2.2 Theoretical Foundation of the study .............................................................................. 9 2.3 Performance Appraisal................................................................................................. 10 2.4 Performance Appraisal Practices ................................................................................. 11 2.4.1 Goal setting ........................................................................................................ 12 2.4.2 Performance appraisal methods ......................................................................... 13 2.4.3 Performance appraisal feedback ........................................................................ 17 2.4.4 Performance appraisal ratings ........................................................................... 18 vi CHAPTER THREE: RESEARCH METHODOLOGY .............................................. 20 3.1 Introduction .................................................................................................................. 20 3.2 Research Design........................................................................................................... 20 3.3 Target Population ......................................................................................................... 20 3.4 Data Collection ............................................................................................................ 20 3.5 Data Analysis ............................................................................................................... 21 CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION ................. 22 4.1 Introduction .................................................................................................................. 22 4.2 Demographic Information ............................................................................................ 22 4.2.1 Level of education ............................................................................................... 22 4.2.2 Length of service with the bank .......................................................................... 23 4.2.3 Duration of bank existence .................................................................................. 24 4.3 Performance Appraisal................................................................................................. 24 4.3.1 Frequency of performance appraisal ................................................................. 25 4.4 Performance Appraisal Practises in the Commercial Banks........................................ 26 4.4.1 Techniques used on performance appraisal ....................................................... 26 4.4.2 Purpose of Performance appraisal in banks ....................................................... 26 4.5 Performance Appraisal Practises in the Commercial Banks........................................ 28 4.5.1 Goal setting in banks ........................................................................................... 28 4.5.2 Performance appraisal methods in the bank ........................................................ 29 4.5.3 Performance ratings in the banks