Employee Performance Management in the Petroleum Industry in Azerbaijan: Cultural and Industrial Implications

A thesis submitted to The University of Manchester for the degree of Doctor of Philosophy in the Faculty of Humanities

2018

Shafa Alasgarova

School of Environment, Education and Development

List of contents

Abstract ...... 8 Declaration ...... 9 CHAPTER ONE ...... 12 1.Introduction ...... 12 1.2 Research problem 1: Cultural impact on performance management ...... 13 1.3. Research problem 2: Industrial impact on performance management ...... 14 1.4 Research problem 3: Conception of Performance ...... 16 1.5 Research problem 4: Employee acceptance ...... 17 1.6 Research aims, objectives and questions...... 17 1.7 Research methodology and design ...... 18 1.8 Scope of research ...... 20 1.9 Research structure ...... 21 1.10 Conclusion ...... 23 CHAPTER 2: Azerbaijan ...... 24 2.1 General information about the country ...... 24 2.2 Economic development ...... 24 2.3 Labour market ...... 26 2.4 Labour administration low, policy and institutes ...... 27 2.5 Business environment of petroleum industry in Azerbaijan ...... 29 2.6 Regulation of oil extraction and production ...... 30 2.7 HRM practices in Azerbaijan ...... 31 CHAPTER THREE: Literature Review ...... 33 3.1 Introduction ...... 33 3.2 Performance Management System ...... 34 3.2.1 Introduction ...... 34 3.2.2 General principles of performance management system ...... 34 3.2.3. Performance management process ...... 36 3.2.4 Cultural and industrial impact on employee performance management system ...... 38 3.2.5 Impact of culture on HRM and management practices ...... 39 3.2.6 Cultural impact on employee performance management system ...... 40 3.2.7 Employee performance management universals ...... 45

3.2.8 Impact of industry ...... 46 3.2.9 Characteristics of petroleum industry ...... 47 3.2.10 Impact of external environment ...... 48 3.2.11 Impact of technology ...... 51 3.2.12 Impact of natural environment ...... 52 3.3 Performance ...... 54 3.3.1 Concept of performance ...... 54 3.3.2 Outcome and behaviour based criteria ...... 56 3.3.4. Behaviour versus outcome ...... 57 3.3.5 Competencies as performance criteria ...... 59 3.3.6 Definition of competency ...... 60 3.3.7 Competency based performance management ...... 62 3.3.8 Systemic considerations in performance management ...... 65 3.3.9 Task and contextual performance ...... 66 3.3.10 Job characteristics and performance criteria ...... 69 3.3.11 Social job characteristics ...... 71 3.3.13 Other considerations for effective implementation in performance management ...... 73 3.4 Main causes of Employee Performance Management System failure ...... 74 3.4.1 Employee performance management and employee performance appraisal system ...... 75 3.4.2 Employee acceptance of Employee Performance Management System ...... 78 3.5 Conceptual framework ...... 82 3.6 Conclusion ...... 83 CHAPTER FOUR: RESEARCH METHODOLOGY AND DESIGN ...... 86 4.1 Introduction ...... 86 4.2 Research methodology and design ...... 87 4.3 Rationale for the methodology ...... 89 4.3.1 Justification for exploratory research ...... 89 4.3.2 Rationale for research design ...... 90 4.4 Case study approach ...... 91 4.5 Data collection ...... 95 4.5.1 Interview ...... 96 4.6 Sampling and recruitment ...... 98 4.7 Data analysis ...... 100 4.7.1 The process of data analysis ...... 102

3.8 Conclusion ...... 103 CHAPTER FIVE: DATA PRESENTATATION ANDANALYSIS ...... 105 5.1 Introduction ...... 105 5.2 Employee Performance Management at BP Exploration (Caspian Sea) Limited ...... 107 5.2.1 Company Information ...... 107 5.2.2 General Process of Performance Management ...... 108 5.2.3 Documentation of Performance Management Process ...... 110 5.2.4 Industrial and Cultural Impact on Performance Management System at BP AGT ...... 112 5.2.5 Criteria of Performance at BP ...... 112 5.2.6 Employee Acceptance of Performance Management System ...... 114 5.3 Employee Performance Management at Bos Shelf...... 114 5.3.1 Company Information ...... 114 5.3.2 General Process of Performance Management ...... 116 5.3.3 Documentation ...... 118 5.3.4 Industrial and Cultural Impact on Performance Management System at Bos Shelf ...... 120 5.3.5 Criteria of Performance at Bos Shelf ...... 123 5.3.6 Employee Acceptance of Performance Management System at Bos Shelf ...... 126 5.4 Employee Performance management in Schlumberger...... 129 5.4.1 Company information ...... 129 5.4.2 General Process of Performance Management ...... 129 5.4.3 Documentation ...... 130 5.4.4 Industrial and Cultural Impact on Performance Management System at SLB ...... 132 5.4.5 Criteria of Performance at SLB ...... 136 5.4.6 Employee Acceptance of Performance Management System at SLB ...... 138 5.5 Employee performance management at Baker Hughes Azerbaijan ...... 140 5.5.1 Company information ...... 140 5.5.2 General Process of Performance Management ...... 141 5.5.3 Documentation ...... 142 5.5.4 Industrial and Cultural Impact on Performance Management System at Baker Hughes ...... 142 5.5.5 Criteria of Performance at Baker Hughes ...... 146 5.5.6 Employee Acceptance of Performance Management ...... 148 5.6 Employee Performance Management in Azneft Production Union ...... 149 5.6.1 Company information ...... 149

5.6.2 General Process of Performance Management ...... 151 5.6.3 Documentation of Performance Management Process ...... 151 5.6.4 Industrial and Cultural Impact on Performance Management System at Azneft PU ...... 152 5.6.5 Criteria for Performance ...... 154 5.6.7 Employee Acceptance of Performance Management ...... 157 5.7 Department of Geophysics and Geology ...... 159 5.7.1 Company information ...... 159 5.7.2 General process of performance management ...... 160 5.7.3 Documentation process of performance management...... 161 5.7.4 Industrial and Cultural Impact on Performance Management System at GGPU ...... 161 5.7.5 Criteria for Performance ...... 165 5.7.6 Employee Acceptance of Performance Management ...... 166 5.8. Employee Performance Management at H. Aliyev Oil Refinery ...... 168 5.8.1 Company information ...... 168 5.8.2 General Process of Performance Management ...... 169 5.8.3 Documentation ...... 170 5.8.4 Industrial and Cultural Impact on Performance Management at Oil Refinery ...... 170 5.8.5 Criteria for Performance ...... 173 5.8.6 Employee Acceptance of Performance Management ...... 175 5.9 Employee Performance Management System at Integrated Drilling Trust ...... 177 5.9.1 Company information ...... 177 5.9.2 General Process of Performance Management ...... 179 5.9.3 Documentation Process of Performance Management ...... 179 5.9.4 Industrial and Cultural Impact on Performance Management System at IDT ...... 179 5.9.5 Criteria for Performance ...... 182 5.9.6 Employee Acceptance of Performance Management ...... 184 5.10 Employee Performance Management at Caspian Drilling Company ...... 186 5.10.1 Company Information ...... 186 5.10.2 General Process of Performance Management ...... 187 5.10.3 Documentation of Performance Management Process ...... 188 5.10.4 Industrial and Cultural Impact on Performance Management System at Caspian Drilling Company ...... 188 5.10.5 Criteria for Performance ...... 191 5.10.6 Employee Acceptance ...... 193

5.11 Conclusion ...... 195 CHAPTER SIX: DISCUSSION AND ANALYSIS OF FINDINGS ...... 208 6.1. Introduction ...... 208 6.2 Summary of research questions and findings ...... 208 6.3 Research question 1: How do industry and culture influence performance management in the petroleum industry of Azerbaijan? ...... 212 6.3.1 How do industrial characteristics impact on performance management in the petroleum industry of Azerbaijan? ...... 212 6.3.2 How do cultural characteristics impact on the performance management system in the petroleum industry in Azerbaijan? ...... 225 6.4 Research question 2: What are the criteria for performance and how are they defined? ...... 232 6.5 Research question 3: How do employees accept the performance management process in the petroleum industry of Azerbaijan? ...... 235 6.6 Conclusion ...... 238 CHAPTER SEVEN: CONCLUSION AND RECOMMENDATIONS ...... 239 7.1 Introduction ...... 239 7.2 General Overview of the Research ...... 239 7.3 Research Question 1: How culture and industry influence on components of employee performance management in the petroleum industry in Azerbaijan? ...... 241 7.4 Research Question 2: What are the criteria for performance and how it is formulated in the petroleum industry in Azerbaijan? ...... 245 7.5. Research Question 3: How employees accept performance management system in the petroleum industry in Azerbaijan? ...... 247 7.6 Contribution to Knowledge ...... 249 7.7 Recommendations for Multinational and Local Companies ...... 251 7.8 Limitations of the Research ...... 253 7.9 Areas for Future Research ...... 254 7.10 Conclusion ...... 255 References ...... ………259 Appendix 1 ...... 275

List of Tables and Figures Table 1.1: Characteristics of Performance Appraisal Criterion (Izaka and Ferera, 2016) Table 5.1: Number of interview participants at BP Figure 5.2: Annual Performance Management Cycle (Source: Company document) Table 5.3: Company Values and Behaviours (Source – company documents) Table 5.4: Number of interview participants at Bos Shelf Table: 5.5 Number of interview participants at Schlumberger Table 5.6: Number of interview participants at Baker Hughes Table 5.7: Number of interview participants at Azneft PU Table 5.8: Number of interview participants in DGG Table 5.9: Number of interview participants at H.Aliyev Oil Refinery Table 5.10: Number of interview participants at Integrated Drilling Trust Table 5.11: Number of interview participants at Caspian Drilling Company Table 5.12: Industrial and cultural influences Table 5.13: Criteria for performance Table 5.14: Employee acceptance of performance management Table 6.1: Summary of findings: Industrial and cultural impact Table 6.2: Summary of findings: employee acceptance of performance management system

Word count : 77506

Abstract

Companies face vital problems when implementing performance management in cross cultural context. Several attempts have been made to analyse employee performance management in the cultural and industrial context. However, the lack of studies of performance management in cultural and industrial context necessitates this phenomenon to be investigated in various cultures and contexts for sound academic contributions. The present study aims to investigate cultural and industrial influences on the general characteristics, criteria formulation and employee acceptance of performance management in cultural context. This study used a qualitative approach and is based on nine case studies in Azerbaijan. The study adopted semi structured in- depth interview and document analysis as the data collection methods. The results showed that the legal context is the most influencing dimension on the performance management system in Azerbaijan. The thesis concludes criteria for performance is the choice of management philosophy which is a cultural factor. The findings indicate that employees accept performance management positively when the process is implemented fairly. The findings of this study provide a solid evidence base for considering country culture and industry characteristics in implementing performance management. It is evidently clear from the findings that both local and international companies are faced with different problems when implementing performance management in the cross cultural context of Azerbaijan. This study should therefore be of value to practitioners wishing to overcome certain cultural and industrial related problems during implementation of performance management in host companies. In addition, the study contributed certain evidence of the cross cultural performance management process in the various context for the science.

Declaration

No portion of the work referred to in the thesis has been submitted in support of an application for another degree or qualification of this or any other university or other institute of learning.

The following four notes on copyright and the ownership of intellectual property rights apply to this thesis: i. The author of this thesis (including any appendices and/or schedules to this thesis) owns certain copyright or related rights in it (the “Copyright”) and s/he has given The University of Manchester certain rights to use such Copyright, including for administrative purposes. ii. Copies of this thesis, either in full or in extracts and whether in hard or electronic copy, may be made only in accordance with the Copyright, Designs and Patents Act 1988 (as amended) and regulations issued under it or, where appropriate, in accordance with licensing agreements which the University has from time to time. This page must form part of any such copies made. iii. The ownership of certain Copyright, patents, designs, trademarks and other intellectual property (the “Intellectual Property”) and any reproductions of copyright works in the thesis, for example graphs and tables (“Reproductions”), which may be described in this thesis, may not be owned by the author and may be owned by third parties. Such Intellectual Property and Reproductions cannot and must not be made available for use without the prior written permission of the owner(s) of the relevant Intellectual Property and/or Reproductions. iv. Further information on the conditions under which disclosure, publication and commercialisation of this thesis, the Copyright and any Intellectual Property and/or Reproductions described in it may take place is available in the University IP Policy), in any relevant Thesis restriction declarations deposited in the University Library, The University Library’s regulations and in The University’s policy on Presentation of Theses.

Acknowledgment

Undertaking this PhD has been an interesting experience for me and it would not have been possible to do without the support that I received from many people.

First and foremost I want to thank my supervisor Aminu Mamman for his continuous support, motivation and his guidance. He was more than supervisor to me all these years. I would like to thank him for being such a great person.

I would like also to thank the member of the thesis committee who guided me through all these years. I would like to express my sincere gratitude to Farhad Hossain for his academic support.

I would like also to thank my husband, Arif Alasgarov. He always supported me morally and without him I wouldn’t be able to complete the thesis on time. He helped me looking after my baby daughter Maryam Alasgarova, when I was spending time on writing my thesis.

Last but not the least, I would like to thank my family: my mother, my mother-in-law, my-father-in-law for supporting me throughout writing this thesis.

CHAPTER ONE

1. Introduction

Performance management is one of the major area of interest and is considered a complicated function of human resource management. Performance management plays an important role in achieving business results by aligning employees individual performance to organisational success. Contemporary economic challenges have led many organisations to try and improve results by focusing on performance management (Gruman and Sacks, 2011) and performance management is a critical aspect of organisational effectiveness (Cardy, 2004). It is the key process through which work is accomplished and it is accepted as an important way to establish and create an effective work environment by aligning individual behaviours and outcomes to organisational performance. With globalization of business, the degree of effectiveness in successful application of performance management in different countries has become very challenging. The reason for the challenge is that people from different countries have diverse work-related national cultures (Hofstede, 1980) and they have different reactions to the same management practices (Hofstede and Hofstede, 2005). The results of these studies show that due to cultural differences, human resources management policies that are effectively implemented in one country may not be equally effective in another. Therefore, it is suggested that application of performance management may not be universal and therefore not applicable in every country or culture in the same way (Hofstede, 1995; Trompenaars and Hampden-Turner, 1998). Although a few studies concerning performance appraisals and culture have been published, research about impact of culture and industry on employee performance management systems is generally lacking and more studies are required to understand them (Murphy & Cleveland, 1995) Considering more requirements for study about performance management in a cultural and industrial context, this study finds out how culture and industry influence on performance management process in Azerbaijan. As a former Soviet country Azerbaijan is an interesting case. The collapse of the Soviet Union created a new contextual situation. After gaining independence, Azerbaijan started to build economic

12 relationships with Western countries. These relationships resulted in the introduction of Western values into Azerbaijan society. For seventy years, Azerbaijan was ruled by communist ideology. Introducing a free market economy established a new work environment in Azerbaijan and investigation of companies where Western and Eastern values coexist yielded interesting results.

1.2 Research problem 1: Cultural impact on performance management

Individual performance is the building block of organisational success and all organisations globally have some type of employee performance management system (Aguinis et al, 2012). Although performance management systems are pervasive worldwide, cultural and industrial differences affect how such systems are designed and implemented, as well as their relative effectiveness (Aguinis et al, 2012). Performance management has been studied by many researchers in different contexts. Most of the studies are associated with USA and Western countries. In recent years, there has been growing interest in assessing performance management in non-USA and non-Western countries. For the successful introduction of performance management culture and industry context plays an important role. Researchers have suggested that it is cultural differences which make it difficult to standardise aspects of performance management practice (Pucik, 1985; Vance et al, 1992) and a number of studies have sought to examine the impact of country culture on aspects of the process. One study conducted in seven countries across Europe, Asia and North America showed that even the use of one component of performance management, performance appraisal, is quite different across countries (Chiang and Bitch, 2010). Such differences exist in other components of performance management system, too. A recent study conducted by Claus and Hand (2009) including ninety-seven multinational corporations with subsidiaries in Eastern European countries suggested that interpersonal aspects such as who is the person delivering feedback on performance and the manner in which such feedback is delivered are customised to the local culture. Furthermore, researchers argue that performance management is totally Western based and only successful in a European and American context. Failures in implementation of the system in other countries are rooted in ignorance of the local

13 context. Auginis et al (2012) state that although performance management systems are pervasive worldwide, cultural differences affect how such systems are designed and implemented, as well as their relative effectiveness. Although a few studies concerning performance appraisals and culture have been published, research about impact of culture and industry on employee performance management systems is generally thin and more studies are required to understand them (Murphy & Cleveland, 1995).

1.3. Research problem 2: Industrial impact on performance management

Apart from the cultural context, analysis of employee performance management within an industrial context has received substantial attention from researchers because of the complexity of the environment. A lot of studies at industry level have focused on sectors generally acknowledged as “dirtier,” most notably the chemical industry, the automotive industry, the forestry/pulp/paper sector and the energy sector (Etzion, 2007). As emphasised in the strategic management and industrial organisation literature (Dess, Ireland & Hitt, 1990), a firm's industry is important to frame and execute organisational policies and practices and it has been highlighted as critical contextual variable for HRM (Wright and Snell, 1998). Employee performance management as a part of company HRM processes is influenced by industry characteristics as it focuses on eliciting employee behaviours consistent with firm strategy and other requirements imposed by industry related issues (Jackson and Sechuler, 1995. Hofstede (1991, 2001) suggested that industry characteristics may be more important than culture as determinants of managerial or HR practices.

Few previous studies have indicated the industry impact on performance management in education, hospitality, and the health care industry. However, lack of studies exist in identifying industrial aspects of variations in performance management in the petroleum industry. There is an empirical study about employee appraisal in the Indian petroleum industry. However, the purpose of the paper is not to contribute findings common to the petroleum industry as a whole. The aim of the paper is simply to find the systems and basis that organisations use to appraise their employees, and the reasons for which the companies have attempted to adopt new systems of performance

14 appraisal (Kochar et al, 2010). The petroleum company (Oil and Natural Gas Commission of India) is selected as a target company to conduct the research. Another study, conducted in 1985, focused on a petroleum refinery using court standards for job analysing to develop task based performance appraisal instruments and to determine the race and sex effects among multiple blue-collar workers (Thompson and Thompson, 1985). One more study on employee performance management in the oil sector was conducted in Oman. The aim of this study by Sami Khan (2010) was to investigate how far the company had been successful in establishing a performance management system (PMS) congruent with its business objectives and business strategies. What are the areas of concern for developing a holistic performance management system in an oil service provider company? Cultural implications have also been identified. In addition, a number of empirical studies have been conducted about Human Resource Management practices in the petroleum industry. However, these studies did not include findings about the employee performance management system. The conducted research aimed at finding links between HR practices and safety issues, how human factors contribute to accidents in the offshore oil industry, how different HRM and management practices contribute to organisational and financial performance and so on (Griffin and Mahon, 1997: Parast and Adams 2011, Gordon, 1996).

The role of HRM practice in the petro-chemical refinery industry was studied in 1999 by Wright et al. The aim of this study was to find out the impact of HRM practices such as selection, training, compensation and appraisal and also employee participation on the financial performance of the USA petro-chemical refinery. Despite that this study focuses on the petro-chemical industry findings and once again there is not a detailed analysis of employee performance management practices in the petroleum industry. The hypothesis related material with employee appraisal has been formulated on the basis of employee participation in appraising and its impact on organisational performance. Moreover, application of performance management outside blue-collar administrative and managerial groups have been the focus for nearly all the research undertaken and there are a lack of studies about performance management of professional staff in highly technical roles (Fletcher, 2001). Therefore, this study

15 investigates the industrial impact on performance management within the framework of certain environmental dimensions peculiar to petroleum industry. The petroleum industry is a major employer and leading economic driver in most countries and makes significant financial contributions to governments. The oil and gas industry has been the catalyst for a great deal of countries’ growth as well as for the development of Azerbaijan Republic and is considered an integral part of the economy.

1.4 Research problem 3: Conception of Performance

Another important issue is the conception of performance which has been the subject of many studies about performance management. Both definition and formulation of performance criteria have been major area of interest within field of performance management. The conception of performance has been classified differently because of the different definitions and acceptance of meaning of performance management. It is either output or competency/behaviour or other elements. Some researchers accept only outcome as a conception of performance, others accept both outcome and competencies together (Armstrong, 2005). According to Roger (1994) and Bernardin (1995), performance should be defined as the “outcomes” of work because they provide the strongest link to the strategic goals of the organisation. However, Fitzgerald and Moon (1996) argue that performance is a multidimensional construct and the measurement depends on a variety of factors. The view that performance should be equated with task accomplishment, goal achievement, results, and outputs has been criticised in psychological literature. The behavioural view of performance has recently emerged, rejecting the performance in terms of output and results. According to Arvey and Murphy (1998), performance is defined as the set of behaviours that are relevant to the goals of the organisation or the organisational unit in which a person works. Most studies in the field of performance criteria formulation have failed to address what is the role of culture and industry characteristics in the choice of criteria. Other relevant studies indicating criteria as a choice of management philosophy address this issue as the influence of management background. Therefore, these studies did not

16 clearly identify how culture influences criteria formulation. Considering this gap in literature, this study addresses the impact of culture and industry on criteria choice.

1.5 Research problem 4: Employee acceptance

Another important issue that this study is going to address is the employee acceptance of the performance system. Employee acceptance of performance appraisal displays employee belief about the fair, valid and accurate assessment of their performance. According to Daley (1992), no matter how well a performance system is designed, it will become useless if there is a lack of employee acceptance of the system itself, or if they do not see it as useful or valid. Various factors exist such as validity of criteria, the rater’s accuracy and purpose of the performance system that impact upon an employee’s acceptance of the performance management system (O’Reilly et al., 1989, Biron et al, 2011). It is also noted that not all employees share the same perceptions about performance management system effectiveness. The studies relating to employee acceptance have addressed various aspects, but a lack of studies about the role of culture in employee acceptance still remains. Therefore, this study is investigating cultural influence on acceptance of performance management by the participants.

1.6 Research aims, objectives and questions.

This study will fill certain identified gaps in literature. The main aim of this study is to assess how cultural and industrial factors influence performance management. The research seeks to address the following questions: 1. How do culture and industry influence general aspects/characteristics of performance management? 2. How do managers formulate performance criteria? - what is the role of culture and industry characteristics in setting job related performance criteria? 3. How do employees accept performance management-is there any cultural influence on the acceptance of the performance management by its participants?

This study takes a totally different viewpoint from other studies conducted about employee performance management. The study investigates cultural and industrial impact focusing on the variations on general characteristics of performance management, criteria formulation and employee acceptance. General characteristics are related with formal/informal application of the whole process and its separate stages.

1.7 Research methodology and design

A qualitative research methodology is selected to conduct this research because of the epistemological (nterpretivism) and ontological (constructivism) characteristics of the research topic. Qualitative research studies people in their natural environment to identify how their experiences and behaviour are shaped by the context of their lives, such as cultural, social, economic or physical context (Henning et al, 2009; Myers, 2009). Guided by the philosophical considerations, questions and research methodology, this study undertakes a collective embedded multiple evaluative case study approach. The objective of multiple case studies across a number of different organisations is to compare or replicate the organisations studied with each other in a systematic way in the exploration of different research issues (Rowley, 2002). On the basis of the replication logic, multiple cases can be regarded as equivalent to multiple experiments. In replication, as the number of occurrences of a phenomenon mounts, the more confidence the researcher can have that a finding is reliable (Gilgun, 1994). Because phenomena are not only rooted in context but also are contingent on place, time, the investigators and the subjects, replications can be difficult and sometimes impossible to achieve. This research takes multiple perspectives in case study to understand the influences of environmental systems on studied phenomenon (Gilgun, 1994). Considering the nature of the study, which is exploratory and conducted in a cultural and industrial context, a qualitative data collection method is adopted. This study uses interview and written documentation as method of data collection. Bogdan and Biklen (2003) have pointed out that the interview may be the dominant method of

18 data collection or it may be used in conjunction with other methods. They have listed document analysis as a suitable partner for an interview. As the study is aimed at discovering industry and culture related findings and is exploratory by nature, the semi-structured in-depth interview is adopted as a data collection method. Rowley (2012) states that if the nature of the research is exploratory and there is insufficient information known about the subject, in-depth interviews are deemed the most appropriate research tool. In addition, in-depth interview increases contextual insights and allows for a greater understanding of forces affecting the phenomena in question, through highlighting the “how and why” of organisational and individual action (Borch and Arthur, 1995). Moreover, the semi-structured interview gives opportunity to probe. Probing in particular, can be an invaluable tool for ensuring reliability of the data as it allows for the clarification of interesting and relevant issues raised by the respondents, and provides opportunities to explore sensitive issues, enabling the interviewer to explore and clarify inconsistencies within respondents’ accounts (Barribal, 1994). Document analysis is adopted as a supplement to the interview method of data collection. This method is selected to investigate phenomenon from secondary data and when the limitations of physical sources occur in analysis and interpretation (Payne and Payne, 2004). The study will be conducted in nine petroleum companies in Azerbaijan. The choice of industry and the country is related with certain factors. These nine companies are different from each other in size, structure and sector. The main objective is to obtain a much broader understanding about the studied phenomenon. As the main aim of the study is to find application of EMPS in the petroleum industry, industry related features have to be clearly investigated and analysed. For this reason, the larger the number of different petroleum companies involved, the more consistent the findings. These companies have been identified to participate in interviews: BP AGT, Bos Shelf, Integrated Drilling Trust, Caspian Drilling Company, Schlumberger, Baker Hughes, Azneft PU, Geological and Geophysical Department, H. Aliyev Oil Refinery

Unlike other qualitative studies, this research requires a large number of respondents to be interviewed. Analysis of cultural and industrial findings must be exact and precise. In order to make a separation among the impact of cultural/industrial

19 factors from other dimensions it is imperative that the phenomenon was analysed in various contexts, the differences in company size, structure and sector. In addition, the author gained access to all nine companies involved to conduct research which is considered an important aspect in undertaking a qualitative study.

This study adopts a qualitative thematic approach in analysing primary data collected from the interviews. Thematic data analysis does not focus on words but ideas or meanings which are most appropriate for this research. Semi-structured in- depth interviews are to be conducted which is an accepted approach as analysis will not depend upon the repeated use of the same words in each question, but upon conveying equivalence of meaning (Denzin, 1989). It is this equivalence of meaning which helps to conduct data analysis very effectively. The process of data analysis will involve transcription of verbal interview data into written form structured systematically and the identification of themes through careful reading and re-reading of the data. This helps to recognise important information prior to encoding and a process of interpretation. Data analysis will be based on a manual method given that the author believes that software programmes are ineffective when conducting qualitative research. In addition, as this study investigates a phenomenon in context (employee performance management in an industrial and cultural context) it requires analytical and conceptual skills to deeply analyse and present the findings and describe the context. Thus, it is not “machine work”. Cross sectional data analysis will be conducted. Transcription of interview results of each company will be presented and then the encoding process will be applied on the repeated patterns or meanings. Analysis will be conducted in each company separately. Secondary data will be addressed for description or clarification purposes in analysis of primary data. Findings presented will be based on the generalization of information from companies.

1.8 Scope of research

This study primarily focuses on the impact of culture and industry on employee performance management system in the petroleum industry in Azerbaijan. Scope is

20 limited only to the cultural and industrial impact on the general characteristic (formal/informal application of the process and its stages) of employee performance management system in the petroleum industry. In addition, the study aims to discover how culture influences criteria formulation and employee acceptance of performance management systems in the petroleum industry in Azerbaijan. This research is thus conducted in petroleum companies and industry characteristics of petroleum companies are identified as main environmental dimensions to investigate the research.

1.9 Research structure

Chapter one is an introduction of the research which briefly outlines the research context, research aim, research problems and questions, alongside the research process and methodology adopted for addressing the research questions. Chapter two is dedicated to the literature review which examines the theoretical context of employee performance management, including the broad definition of performance, cyclical process of EPMS. Differentiation of performance management and performance appraisal, empirical findings about effectiveness and failure of performance management systems and rationales for the effectiveness and failures are also presented. This chapter also covers a literature review relating to task and contextual performance and motivational, social and contextual job characteristics. Impact of industry, culture and sector on employee performance management system are also presented. In addition, the analysis of the topic within the cultural context is based on Hofstede’s cultural dimension. Review of the outlined literature helps to demonstrate areas of problems and formulate the conceptual framework of the study which will guide the whole research process. Chapter three is devoted to the methodology and philosophical foundations of the study. This study adopts an interpretivist and constructivist approach to social phenomenon. Guided by the philosophical considerations, this study undertakes collective embedded multiple evaluative case study approach. As the study investigates employee performance management in cultural, industrial and organisational context, taking multiple perspectives enabling understanding of the influences of environmental systems on studied phenomenon (Gilgun, 1994) and to describe a more complex

21 analysis of a single case within its organisational, social, or environmental context” (Creswell (1998). In line with research orientation, this study adopts an idiographic methodology applying semi-structured in-depth interviews and documentary reviews for data collection. This chapter provides a rationale for selection of qualitative methodology and appropriate techniques to conduct the study. Justification for choosing a thematic approach to data analysis is also covered in this section. As semi-structured in-depth interviews are conducted for this research, validity and reliability depend, not upon the repeated use of the same words in each question, but upon conveying equivalence of meaning (Denzin 1989). Thematic data analysis doesn't focus on words but ideas or meanings which are most appropriate for this research. Latent approach of thematic analysis is applied. Latent approach goes beyond the semantic content of the data, and starts to identify or examine the underlying ideas, assumptions, and conceptualizations that are theorised as shaping or informing the semantic content of the data (Boyatzis, 1998). For latent thematic analysis, the development of the themes themselves involves interpretative work, and the analysis that is produced is not just description, but is already theorised. Analysis within this latter tradition tends to come from a constructionist paradigm. The process of data analysis involves transcription of verbal interview data into structured written form, systematic identification of themes through careful reading and establishing themes based upon objectives, research questions and conceptual framework of qualitative study. Chapter four introduces the context of study and presents results of data analysis. It provides general information of Azerbaijan Republic. Furthermore, information about the nature of the petroleum industry of Azerbaijan Republic is presented. Socio-cultural characteristics of the society are also analysed. Following this, the background of the companies where the interviews have been conducted is provided. A result of data analysis is presented separately for each company. Chapter five is dedicated to the discussion and interpretation of research findings. Findings are produced based on research questions and conceptual framework of the study. The interpretation of findings is presented considering the external and internal environment of studied companies. The researcher provides rich descriptions for the findings.

Chapter six provides the research summary and conclusions. Limitations of this research and further recommendations are also provided in this chapter.

1.10 Conclusion

This chapter introduces the thesis, setting out the background and outlining the problem. It presents the research context and a summary of the six chapters. The chapter introduces the theoretical and practical research problems to be addressed. Performance management is a critical aspect of organisational effectiveness and contemporary economic challenges have led many organisations to try to improve results by increasing their attention on performance management of employees. Individual performance is the building block of organisational success and all organisations globally have some type of employee performance management system (Aguinis et al, 2012). Given the importance of employee performance management and the significance of the petroleum industry in the global economy, especially as the main leading industry in some countries (where economy is totally dependent on the petroleum industry), this research aims to shed light on how performance management of employees is implemented in the petroleum industry using Azerbaijan as a case example. The study addresses three main questions. The first question identifies how culture and industry impact upon general characteristics of employee performance management. The second question is dedicated to the types of criteria (behaviour or outcome the companies use to manage performance of petroleum employees and the reason behind it, be it job characteristics or other factors). The third research question is about the cultural impact on employee acceptance of the of purpose of performance management system at these companies. Guided by the philosophical considerations, questions and research methodology, this study adopts a qualitative research method and a multiple case study approach to conduct the research. Semi-structured in-depth interviews and document review are selected as the qualitative data collection method. Analysis of interview answers is carried out by applying thematic method of data analysis.

CHAPTER 2: Azerbaijan

2.1 General information about the country

The Republic of Azerbaijan is a country in the South Caucasus region of Eurasia at the crossroads of Eastern Europe and Western Asia. It is bounded by the Caspian Sea to the east, Russia to the north, Georgia to the northwest, Armenia to the west and Iran to the south. The Azerbaijan Democratic Republic proclaimed its independence in 1918 and became the first democratic state in the Muslim-oriented world. The country was incorporated into the Soviet Union in 1920 as the Azerbaijan Soviet Socialist Republic. Azerbaijan gained independence in 1991 from the Soviet Union. In addition to problems faced by all newly independent transition states, the situation in Azerbaijan was severely complicated by involvement in an armed conflict with Armenia over the Nagorno-Karabakh region. A ceasefire was signed in 1994 and there are still some 600,000 internally displaced persons and refugees in Azerbaijan.

2.2 Economic development

Azerbaijan’s economic growth has been driven by a boom in natural resources. Rich in oil reserves, the country began a process of economic stabilization in 1995. Large off-shore oil investments resulted in development of the oil sector. The construction of BakuTbilisi-Ceyhan (BTC) pipeline and the South Caucasus Gas pipeline played important role in the rise of the economy. As a result of successful implementation of its oil and gas strategy, Azerbaijan has joined the group of middle- income countries, according to World Bank Atlas methodology. In per capita terms, the Gross Domestic Product (GDP) increased by 8.7 times, reaching $5,798 in this period, with Azerbaijan rising to 82nd place among 182 countries ranked according to this indicator. The oil and gas extraction industry has been the main sector of the national economy of the Republic of Azerbaijan since its independence from the USSR in 1991. Located on the western coast of the Caspian Sea, Azerbaijan is one of the world's pioneers in oil and gas field development, with the first oil well drilled mechanically in 1846. More than 50% of the world's oil production originated from Azerbaijan by 1901.

After gaining independence from the USSR, Azerbaijan successfully continued developing its oil and gas reserves and attracted considerable foreign direct investments into the industry. As of early 2014, crude oil reserves were estimated to be 7 billion barrels and natural gas production was estimated at 35 trillion cubic feet (International Energy Agency, 2015) In the last ten years, the volume of oil reached 826,000 barrels per day in 2017 (SOCAR Annual Report, 2017). The natural gas production increased fivefold during this period, reaching 29.4 billion cubic meters in 2017 (State Statistics Committee report, 2017). Most of the hydrocarbon output comes from the BP-operated oil fields of Azeri, Chirag and Gunashly and from the gas and condensate field of Shah Deniz located in the Caspian Sea. Since the mid 1990’s the oil and gas sector has been the engine driving Azerbaijan’s economy. Through a series of production sharing agreements (PSAs), Azerbaijan succeeded in attracting significant foreign direct investment from international energy companies. Low world oil prices in recent years have strongly affected Azerbaijan’s economy and export receipts, but oil and gas still represents the largest share of its economy and contributions to the state budget. Azerbaijan’s economic growth has leveled off compared to previous years due to the decline in world oil prices. Oil and gas remain the primary economic drivers and are directly responsible for 35% of Azerbaijan’s GDP (World Bank Report, 2015). In recent years, non-energy sectors of the economy have grown faster than the hydrocarbon sector, but while the country looks to diversify its economy, no other single sector approaches the importance of oil, gas, and related products and services. Azerbaijan’s Government is pursuing efforts to diversify its economy, declaring agriculture, information/communication technology, transportation, and tourism key sectors. Economic growth slowed to 1.1 percent in 2015 from 2.8 percent in 2014 as oil prices decreased and a cumulative 98 percent depreciation of Azerbaijan’s currency, the manat (AZN), in 2015 reduced nominal GDP by 8.0 percent. The real GDP growth was 1.1 %, inflation rate was 4 %, unemployment rate was 5.0% and poverty level was 4.9% in 2017 (State Statistics Committee, 2017).

2.3 Labour market

The Government of Azerbaijan has put a lot of emphasis on strengthening the labour market, given its importance for growth, competitiveness and poverty reduction. The labour market has been and will remain to be one of the top policy priorities of the Government in foreseeable future. The National Employment Strategy identified multiple priorities, including reforms in labour market institutions and policies, modernisation of vocational education and the introduction of life-long learning, improved social protection of job seekers and unemployed citizens, and promotion of employment of young people, women, the disabled, IDPs, and refugees. Policies and regulatory changes have focused on job creation and growth through promoting private investment and enabling the market entry of small and medium enterprises.

Since late 2003, some 900,000 new jobs have been created in Azerbaijan, of which over 50 per cent are permanent (ASDB, 2017). In terms of the sectoral groupings used by Azerbaijan’s State Statistical Committee, the largest employment sectors are education (25.1 per cent), maintenance of transport networks (19.5 per cent) and health and social work (10.1 per cent). However, the sectors which saw the largest growth in employment since 2005 were construction and real estate, tourism and services, as well as finance and insurance. Emphasis on job creation, promotion of wage increases and expansion of social protection have resulted not only in poverty reduction but also in a decline of inequality.

In 2016, the number of economically active population being increased for 632,6 thousand people made 5012,7 thousand people compared to 2005 of which 4759,9 thousand people are engaged in the fields of economic activity and 252,8 thousand people are unemployed (State Statistics Committee, 2016). The realization of reforms in economy, especially privatization of enterprises and organisations in the state property, were the reasons of significant changes in distribution of employment by state and non-state sectors. So, in 2005 if the share of unemployed people in the state sector made 30,3% of total number of persons engaged in economy, that in 2016 this indicator was decreased up to 24,6% and the number of persons employed in non-state sector was increased for 1,3 times during this period.

In 2016, 2411,6 thousand people or 50,7% of the total number of employed population in the economy were engaged in production fields (agriculture and fishing, industry, construction) and the number of people employed in the field of service was 2348,3 thousand people and that made 49,3% of employed population. 1514,3 thousand people or 31,8% from total number of the employed population in the economy in 2016 was the share of hired workers. The majority of employees were aggregated in large and medium sized enterprises. Azerbaijan has an abundant supply of semi-skilled and unskilled labourers. Approximately 40 percent of the Azerbaijani population work in agriculture, although this sector accounts for only 6 percent of GDP (State Statistics Committee, 2017). The construction sector tends to use both temporary and contractual workers although reportedly many of these workers’ agreements are not formally registered with the Government. The relatively limited supply of highly skilled labour remains one of the biggest challenges in Azerbaijan’s labour market.

The average monthly salary 2017 was $274 (State Statistics Committees, 2016). Upon termination of formally registered employment, employers must pay departing employees monetary compensation for unused vacation leave.

2.4 Labour administration law, policy and institutes

Pursuant to Article 35 of the Constitution of the Republic of Azerbaijan Labor Law is the basis of individual and public welfare. Every person has the right to freely choose an activity, profession, occupation and place of work on the basis of his skills and abilities. The Labour legislation system of the Republic of Azerbaijan consists of Labour Code, the relevant laws of the Republic of Azerbaijan, the normative and legal acts adopted by relevant Executive Authorities within the scope of their authority and international treaties signed or supported by the Republic of Azerbaijan with respect to Labour and socioeconomic issues.

The Azerbaijani legal system is based on Civil Law. The Labor Code of Azerbaijan Republic which took effect in 1999 still regulates overall labor relations and

27 recognises international labor rights. The Labour Code is only applicable if a written employment agreement, outlining the basic conditions of employment and rights and obligations of the parties, has been concluded. An employee is defined as a person who has entered into an employment contract with an employer and works in an appropriate workplace for pay. An owner of an establishment, an individual conducting business without having an establishment and managers who are entitled to conclude/terminate employment agreements may be considered as employers. The Labour Code is applicable to workers who perform their employment at home with material provided by the employer. Furthermore, the Labour Code is applicable to enterprises which are incorporated in other countries; international organisations; and stateless persons if they are legally registered and in hold of a business permit, unless otherwise agreed between Azerbaijan and the relevant entity (Labour Codex, 2016). Military personnel, judges, deputies of the Milli Majlis (members of Parliament) and persons elected to municipal bodies, foreigners signing employment contracts with a legal entity of a foreign country and fulfilling labor functions in an enterprise (affiliate, representation) operating in the Republic of Azerbaijan, persons performing jobs under contractor, task, commission, author and other civil contracts are excluded from the scope of the LC (Labour Codex, 2016).).

The working week is generally considered to be 40 hours. The right to strike exists, but industrial strikes are rare. Azerbaijan is a member of the International Labour Organisation (ILO) and has ratified more than 57 ILO Conventions. In practice, labour unions are strongly tied to political interests. Collective bargaining is not practiced. Azerbaijan has regulations to monitor labour abuses, health, and safety standards in low-wage assembly operations, but enforcement is not always effective. A labour contract between employer and employee technically may be in written or oral form but in order to be official there must be a signed agreement.

The regulatory authority is the Ministry of Labour and Social Protection of the Population (MLSPP) which was established on 10 December 1992. This body is responsible for monitoring the implementation of labour policies (Labour Law,2016). The Labour Policy Department is part of the MLSPP and is responsible for salary

28 increases, drafting of legislative acts, and development of labour payment systems. The State Employment Service of the MLSPP is charged with implementing Government employment policy and social protection of job seekers and of the unemployed and has 84 employees to carry out its functions. In cooperation with the ILO and under its auspices, the MLSPP created the State Labour Inspectorate Service (SLIS) in 1997(ILO report, 2012). While ordinary courts are in charge of labour law, the Constitutional Court is authorised to interpret the provisions of the Labour Code (Labour Code, 2016). The General Collective Agreement establishes broad principles and roles of implementing departments and partners concerning social and economic policies. It is established through tripartite consultations between the Cabinet of Ministers, the Azerbaijan Trade Union Confederation, and the Azerbaijan Employers’ Confederation

2.5 The business environment of the petroleum industry in Azerbaijan

The domestic upstream oil and gas market is dominated by The State Oil Company of the Republic of Azerbaijan (SOCAR). SOCAR has statutory exclusive rights for the development and production of oil and natural gas in Azerbaijan. SOCAR is an integrated energy company active in all segments of the domestic oil and gas industry. However, its output from upstream oil and gas developments did not exceed 25% of the total national oil and gas production in 2013. SOCAR also owns and operates the only oil refinery and gas refinery in the country and manages the domestic oil and gas pipeline system in Azerbaijan. A major part of the oil produced in Azerbaijan is being marketed by SOCAR Trading, a subsidiary of SOCAR. Although privatisation of these segments of the oil and gas industry is not in the foreseeable plan of the government, SOCAR has actively engaged in joint ventures with local and foreign private investors for providing domestic oil and gas industry services.

International energy companies participate in the development of oil and gas fields together with SOCAR's subsidiaries, primarily under production sharing agreements (PSAs) signed with the Government and represented by SOCAR. Since its independence from the USSR in 1991, the Government has executed about 30 PSAs, with 15 of these agreements currently in effect. The Government's profit share from

29 the implementation of the oil and gas agreements is accumulated in the State Oil Fund of the Republic of Azerbaijan (SOFAZ) established in 2000. SOFAZ also manages this revenue and funds the shares of the state in several major infrastructures in addition to midstream and downstream projects in the region.

Azerbaijan’s business climate remains challenging, but the Government is taking steps to improve it and is beginning to collaborate/consult with the business community. The informal economy is reportedly large although statistics relating to its scope are difficult to verify. Widespread corruption impedes the country’s development. In a report by Transparency International (2015) examining corruption perceptions worldwide, Azerbaijan ranked 119th out of 168 countries. Azerbaijan has worked to improve its regulatory system in recent years although opaque procedures in a number of areas and continued allegations of corruption remain problematic. Historically, customs corruption has been a serious problem for most businesses, although Azerbaijan’s business community reports seeing real improvements in customs, including the introduction of e-customs, greater transparency and improved and systematised customs fee collection procedures. Bureaucracy is often difficult to navigate and can take significant time, while decision-making is slow and concentrated at the highest levels of organisations. Despite this perception, from 2009 through to 2014 Azerbaijan achieved “fully compliant” status in the Extractive Industries Transparency Initiative (EITI, 2014). In April 2015 and under the EITI’s new standards, the international EITI Board moved Azerbaijan to “candidate” status. As part of its obligations under EITI, Azerbaijan issues annual and semi-annual reports on the status of its oil revenues (Azernews). Monopolies are a factor characterizing a number of areas. Personal relationships remain critical in business transactions.

2.6 Regulation of oil extraction and production

There is no independent public regulator for the oil and gas sector in Azerbaijan. The functions of regulator are carried out by the Ministry of Energy in accordance with its Regulations approved by the Decree No. 575 of the President of the Republic of

Azerbaijan dated 6 September 2001 and other relevant laws and presidential acts. The Ministry of Energy supervises, and is entitled to issue special permits for, the exploration, exploitation, production, processing, storage, transportation, distribution and use of energy materials and products, including oil and natural gas. In addition, authorization of the President of Azerbaijan, the Ministry of Energy can prepare and negotiate draft agreements for the production of hydrocarbon resources, (such as production sharing agreements (PSAs)), sign such agreements on behalf of the government and supervise their implementation.

SOCAR plays an active role in representing the interests of the state in the oil and gas sector. Through the preparation, negotiation and implementation of the vast majority of PSAs, SOCAR has been acting as a sole representative of the Government, contributing substantially to the regulation of foreign oil and gas companies' activities in Azerbaijan. In addition, SOCAR actively participates in the policy-making activities of the Government in the oil and gas sector.

2.7 HRM practices in Azerbaijan

Firstly, it is important to mention that the concept of HRM in Azerbaijan is considered to be new. In Soviet times, the function of HRM was largely decentralised among five units responsible for personnel issues. The Scientific Management of Labour Department promoted the effective usage of material and human resources as well as the increase of labour productivity by organizing socialist emulations and individual and team work activities. The Cadre Department was responsible for all administrative work concerning hiring, transferring, firing, remuneration, retirement and communication with external partners such as the local military authorities. The Labour & Salary Department was responsible for, amongst other things, salaries, social benefits, job descriptions, personnel arrangements, tarification and labour-output ratio. The Training & Development Department was responsible for pre- and re-training as well as further qualifications although most training was just a formality to meet bureaucratic demands for the accreditation of employees (Clarke and Metalina, 2000).

The Legal Department was required to verify all actions in order to ascertain whether or not they complied with the Soviet Labour Law

Even though it is twenty years after the fall of the USSR, personnel departments still carry out certain practices of traditional system. However, there has been a positive trend in last few years of application of western based HRM practices in Azerbaijan. As a result of the restructuring process-transition process to market economy in Azerbaijan most of employees in the workplaces changed their attitudes and behavioural patterns. As such, the majority of local companies still apply personnel management practices. HRM practices are mostly implemented in foreign companies.

To prevent negative factors, corruption and nepotism in workplaces, SOCAR – the regulatory body of petroleum industry in Azerbaijan -- created a new HRM department in 2011 (SOCAR Sustainability Report, 2016). The department consists of 6 units: Resourcing and Placement, Training and Development, Testing and Assessment, Employee Relations, Career Planning and Performance Management. The HRM department manages the workforce of SOCAR by applying HRM practices and the Labour Code of Azerbaijan Republic. According to the NGO report (Mammadov, 2008), foreign petroleum companies in Azerbaijan apply their HRM practices and the Labour Code is not strictly followed.

CHAPTER THREE: Literature Review

3.1 Introduction

The chapter presents a general introduction to employee performance management systems. Characteristics and components of employee performance management systems are presented. Furthermore, performance management in the cultural and industrial framework is analysed. The impact of cultural and environmental factors on performance management system are presented based on the empirical and theoretical studies. Firstly, the cultural impact on HRM and managerial perception are explained and components of performance management system within a cultural dimension are presented in context. This is followed by discussions about the impact of the external environment on HRM and the employee performance management system. In addition, this chapter reviews and analyses relevant literature about performance and employee performance management systems. Performance management systems such as behaviour, competency and outcome based performance management systems are discussed. Clarification of the performance concept is presented and different viewpoints about the definition of performance are then examined. This part also reviews relevant cases and situations suggested and justified by authors in defining performance in terms of either behaviour, outcome or competency. Advantages and disadvantages of each dimension are emphasised in detail. Performance as a multidimensional concept is explained by discussing different viewpoints about task and contextual performance. The next section of this chapter presents literature and empirical studies about effectiveness and ineffectiveness of performance management system. Different causes of the failures of the system are presented and stakeholder acceptance of performance management system is much more emphasised as one of the reasons for the failures.

3.2 Performance Management Systems

3.2.1 Introduction

The aim of this study is to investigate the cultural and industrial impact on components of employee performance management in the petroleum industry. Although a few studies concerning performance appraisals and culture have been published, research about impact of culture and industry on employee performance management systems is generally thin and more studies are required to understand them (Murphy & Cleveland, 1995). Most of the studies conducted have focused on investigating particular or isolated components of employee performance management systems. The aim of the research is to investigate employee performance management systems in cultural and industrial context considering its whole elements and processes. In addition, application of performance management outside blue-collar administrative and managerial groups have been the focus for nearly all the research undertaken and there is lack of studies about performance management of professional staff in highly technical roles (Fletcher, 2001). This study intends to discover how performance management of employees in technical roles (production engineers, geologist, geophysics, and mechanics) as well as of employees in administrative roles is conducted in the petroleum industry in Azerbaijan. This section of literature review presents general principles of employee performance management systems and components or processes of employee performance management systems. Further systems are discussed in cultural and industrial settings to formulate the main conceptual framework of this study.

3.2.2 General principles of performance management system

Many definitions of performance management exist. However, the definition provided by Auginis (2013) fully explains and emphasises real characteristics of performance management. According to Auginis (2013), performance management is a continuous process of identifying, measuring and developing performance in organisations by linking each individual’s performance and objectives to the organisation’s overall mission and goals. Performance management formulates

34 employee behaviour for organisational purposes and does not only focus on organisational success but also individual development. It is about aligning the organisational objectives with the employees' agreed measures, skills, competency requirements, development plans and the delivery of results (Auginis, 2005; Brumback, 2011). The emphasis is on improvement, through learning and development, in order to achieve the overall business strategy and to create a high performance workforce. Although competitive pressures have been the driving force fuelling increased interest in performance management, organisations have also used these processes to support or encourage culture change and to shift the emphasis to individual performance and self-development (Fletcher and Perry, 2001). The principles of performance management suggested by Auginis (2005) are of a strategic process aligned to the organisation’s wider objectives and long-term direction. Secondly, it is integrative in nature, not only aligning organisational objectives with individual objectives but also linking together different aspects of human resource management such as human resource development, employee reward and organisational development, into a coherent approach to people management and development. It is concerned with performance enhancement underpinned by two further principles: the ideas that employee effort should be goal-directed and that performance improvement must be supported by the development of employee’s capabilities. A further feature relates to communication and understanding and the fact that performance management is based on an agreement between a manager and an individual, a shared understanding and continuing dialogue about an individual’s goals, the standards expected and competencies needed, together with an appreciation of the organisation’s wider mission, values and objectives. This is linked to a final point about the process, that performance management – unlike performance appraisal – is owned and driven by line management rather than the HR function. The use of performance management may be aligned with several purposes in different organisations. It may be used for strategic, administrative, communication, developmental or documentation purposes (Cleveland and Murphy, 1989). The purposes for a performance management system is determined by considering business

35 needs, organisational culture and the system’s integration with other human resource management systems (Pulakos, 2004).

3.2.3. Performance management process

Performance management is a cyclical and continuous process (Auginis, 2011; Armstrong, 2009, Pulakos, 2004). Although there is no universal model of performance management, a review of literature and practice suggests that there are a number of elements which might typically be found in an employee performance management system (EPMS). Mostly utilised elements or components of EPMS include defining prerequisites or setting objectives, performance planning, performance execution, performance review, and performance assessment, performance evaluation and performance renewal. Defining prerequisites includes application of an organisation’s mission and strategic goals and knowledge of the relevant job. Knowledge about the relevant job includes elements in the role profile which defines key results, key technical and behavioural competencies and organisational core values. The role profile provides the basis for setting objectives. The next step is performance planning which involves agreement between the manager and the individual. The employee is told what they need to do to achieve objectives, raise standards, improve performance and develop the required competencies. Performance planning discussion also includes a consideration of results, behaviours and development plans. Results refer to what needs to be done or the outcomes an employee must produce. Consideration of behaviours includes discussing competencies which are measurable clusters of knowledge and attitudes that are critical in determining how results will be achieved. Behavioural and result expectations should be tied to the organisation’s strategic direction and corporate objectives (Hillgren & Cheatham, 2000). Research has shown that employee commitment is critically important for goal attainment and that employees must feel that they are able to achieve their goals (Lock and Latham, 1990; Kalgin et al, 2018). It is thus important to ensure that employees participate in the goal- setting process, accept their goals and are motivated to work towards those goals. It is

36 also important for managers to communicate their willingness to assist employees in achieving their goals by providing guidance and resources, and removing obstacles to goal attainment (Pulakos, 2004, Auginis, 2011). Development plans identify areas that need improvement and provide learning action to incorporate a broad set of self- education, coaching, mentoring, and formal training programmes (Armstrong, 2009). It includes results and behaviours, highlights employee’s strengths and weaknesses and provides an action plan to improve weakness and develop areas of strength (Reyna and Sims, 1995). The employee supervisor or line manager takes an important role in an employee’s development plan. The supervisor’s role is to explain requirements for employees to achieve goals, assist an employee in achieving the goals, and make suggestions about development objectives. In the execution stage of performance management, employees and supervisors have different responsibilities. Employees start to work on achieving agreed goals and behaviours. Supervisors are responsible for observation of employee behaviours, to update initial objectives or standards in terms of change of organisational goals, coach employees and provide ongoing feedback. Performance is affected by different factors. According to Augunis (2011) supervisors have to be able to define the causes of poor performance. This is determined based on three factors such as declarative knowledge, procedural knowledge and motivation. Declarative knowledge involves information about facts and information about given task requirements and goals. Procedural knowledge is a combination of knowing what to do and how to do it and includes cognitive, psychical, perceptual, motor and interpersonal skills. Motivation involves types of choice behaviour such as choice to expend effort, choice of level of effort, and choice to persist in the expenditure of that level of effort. The performance management system not only measures performance but also provides information about sources of any performance deficiencies. At the assessment stage, both employees and managers should take responsibility for evaluating desired behaviours and desired goals. It is suggested that employees have also to take active participation in evaluating of achievements. Self-appraisals reduce employees’ defensiveness during appraisal meetings and increase employee

37 satisfaction, enhancing perceptions of accuracy, fairness and acceptance of the system (Shore, Adams & Tachian, 1998). The performance review stage or appraisal meeting involves the meeting between the employee and the manager to review the assessments. During this meeting, managers provide feedback in a formal setting about employee performance. In fact, during the meeting an exchange of opinions between employee and supervisor can yield positive outcomes on discussions and feedback reactions (Elicker et al., 2006). The final stage in the performance process is the renewal and re-contracting suggested by Auginis (2011). This process is almost identical to performance planning; the main difference is renewal of some information gained from other phases and altering unrealistic goals. As performance management is a cyclical process, the process starts all over again after performance renewal. In addition, there are several characteristics of EPMS to be successful. It has to be strategically congruent, thorough, practicable, meaningful, reliable, valid, and fair and accepted by its stakeholders. Performance management systems are seldom implemented in an ideal way (McAdam et al, 2005) and practical constraints do not allow for the implementation of all these features (Auginis, 2011). Thus the aim of this study is to investigate how ideally PM is applied and which factors (cultural and industrial) influence the process in petroleum companies in Azerbaijan.

3.2.4 Cultural and industrial impact on employee performance management system

Recent trends toward globalization in the business world make the study of HRM practices in the context of country and industry a necessity (Legare, 1998). Researchers have argued that HRM practices can differ across countries and/or industries because of cultural issues (Salk and Brannen, 2000), governmental regulations/policies (Morishima, 1995), competitive priorities (Boxall and Steeneveld, 1999), and adoption of managerial practices (Snell and Dean, 1992). For the successful introduction of EPMS, culture and industry are influential. Writers have suggested that cultural differences make it difficult to standardise aspects

38 of performance management practice (Pucik, 1985; Vance et al, 1992) and a number of studies have sought to examine the impact of country culture on aspects of the process. In order to present empirical and theoretical research on how culture makes impact on EPMS, the cultural dimensions of Gert Hofstede will be employed given that several studies have used these variables (Aycan, 2005; Hofstede, 2001; Mandinga and Kanungo, 1994). The following section describes characteristics of a culture with power distance, uncertainty avoidance, collectivistic/individualistic and masculine/feminine dimensions and how EPMS is shaped in the framework of these factors by presenting different types of empirical research. The next section also presents how components of EPMS are differently applied in different types of cultures. The literature serves to formulate a conceptual framework of the study and will also help to explain and clarify findings of the conducted study in Azerbaijan.

3.2.5 Impact of culture on HRM and management practices

Before presenting consequences of cultural impact on employee performance management systems, we need to analyse how culture directly and indirectly influences the organisational process. It is clear that HRM doesn't operate in a vacuum influenced by external and internal environment. There are some interesting findings about the environmental influences on HRM practices and about the possible implications of cultural variations for HRM. Researchers have compared HRM across countries, arguing that cultural values and orientations are determinants of the differences found (Jackson 1995). How did these differences emerge? Cultural assumptions frame particular sets of organisational values, norms and artefacts that managers perceive as being consistent with their basic assumptions, influencing the process of organisational decision-making (Hofstede, 1980; Schneider, 1989). In fact, the predominant management style within a country can be defined as the overall set or pattern of behavioural characteristics that distinguish the countries general approach to management (Pascale and Athos, 1981). These behavioural characteristics are based on the collective cultural values, expectations, norms, beliefs and life assumptions predominantly held by the people in the organisation (Hofstede, 1980).

Some functions of HRM including: staffing; training; compensation and employee relations are significantly influenced by the management philosophy (Cherrington, 1991). The employee performance management function therefore as the management of individual work performance is one of multitude of managerial contexts in which the behavioural characteristics of a particular management style are manifested. The results of a study by Vance et al (1992), conducted in three Pacific Rim countries concluded that the management style of these countries influenced the designing and implementation of the performance management of employees. The study revealed significant differences in the perceived predominant management styles among the USA and Pacific Rim countries. In general, cultural value orientations are linked to a range of organisational behaviours, such as: the norms that are endorsed; tolerance of deviant behaviour; types of conflict; preferred leadership styles; extent of social loafing; and problem solving and thinking styles. Cultural impact manifests itself on the performance management process first of all, in terms of providing face-to-face feedback, levels of power and decision-making devolvement and their implication for the recruitment interview, communication, negotiation and participation processes. Secondly, it is pervasive in expectations of the manager-subordinate relationships and its implications for performance management and motivation (Auginis, 2011; Vance et al, 1992).

3.2.6 Cultural impact on employee performance management system

According to Fletcher (2001) cultural differences have implications both for the design of performance management and performance appraisal systems. In fact, many Asian countries reject the principles upon which the American performance appraisal is based (Vance et al, 1992). Most research is confined to testing of US-based theories in various cultural contexts. The vast majority of published research on PA and PM emanates from developed countries – in fact, most of it comes from the USA with some additional input from Western Europe. Since workers in the UK have been found to react differently to feedback to those in the USA, another Westernised culture, it seems likely that generalizing from existing research bases to other cultures, especially those in developing countries, is unsafe (Fletcher, 2013).

As a function, performance management is defined as a communication process between manager and employee to find out weaknesses and to develop job-related skills. Communication is a culturally sensitive process. The way people communicate is different across countries. As performance management is also a communication process, there will be differences caused by cultural disparities. One study conducted in seven countries across Europe, Asia and North America showed that the purpose of using performance appraisal differed from country to country (Chiang and Bitch, 2010). Appraisal is thought to be deeply rooted in the norms, values, and beliefs or cultural bounded-ness of a society (Chiang and Bitch, 2010). Such differences also exist in management and employee relations.

A recent study conducted by Claus and Hand (2009) including ninety-seven multinational corporations with subsidiaries in Eastern European countries suggested that interpersonal aspects, such as the person delivering feedback on performance and the manner in which such feedback is delivered, are customised to the local culture. Considering participatory characteristics of EPMS, researchers suggest that it may not succeed in a hierarchical environment with large power distance. According to Mendonca and Kanungo (1994), all the critical activities in a performance system require the manager to function as a coach and mentor to his subordinates, but high power distance undermines mentorship and coaching. Cultures which value hierarchy expect subordinates to be loyal to their supervisors. This creates a problem for the EPMS. At this stage of assessment, supervisors tend to appraise not job- or task-related criteria, but personal preferences of themselves which they consider more important. According to Milliman et al, (2002) during assessment of performance, high power distant cultures are more concerned with assessing integrity, morality, loyalty (Japan) and quality of interpersonal interactions (Arab countries) rather than job-related criteria. There is also a feedback process, to which Fletcher and Perry (2001) observe that employee appraisals and feedback on results in large power distance organisations will most often be conducted by a person with relatively more power than the ratee, while in low power distance cultures performance appraisals are less dependent on superiors. An effective feedback process is when the ratee also expresses his or her own opinions and discusses his or her concerns with the supervisor. However, this behaviour

41 is not appropriate to employees in a high power distant culture, as it is accepted as value or norm to respect the supervisor who avoids presenting contradictory viewpoints. It has been proposed that high power distance cultures, such as those in much of Asia and Latin America, would not likely allow subordinates to express their views, since such expression would potentially threaten the status and power of the supervisor. This assertion, supported by recent studies in Korea, the PRC, Taiwan and Mexico indicates that employees place low importance on expressing their views to superiors in appraisals (Milliman et al, 2002). There is even the absence of counselling feedback in high power distance and high masculine cultures. (Shaikh, 1995).

Another problem for successful implication of EPMS in high power distant cultures is the “command and control” method of directing activities. EPMS encourages a goal-setting process as a joint activity involving the employee and his manager. However, this behaviour is also ineffective in high power distant cultures and varies from country to country (Fenwick, 2004). According to research findings, the implementation purpose of performance management is also different across cultures with high power distant use PMS as pay determination rather than for individual or organisational development (Shen, 2004).

In addition, research has found similar implications in cultures with high uncertainty avoidance and collectivism. Shein (1999) claims that there is a unique type of psychological contract whereby the boss and the subordinate tend to back each other up even if the performance of the junior is poor. Another implication is the difficulty to do an appraisal on agreed indicators. In fact, subordinates may handle other tasks assigned by the supervisors not clearly described in the job description or work contract (Hofstede, 1989). It may create certain difficulties to implement EPMS in an organisation where work is sometimes ad hoc and where some of the output is qualitative in nature.

Collectivist cultures tend to use more informal and subjective EPMS than individualistic cultures. According to Stone-Romero and Stone's (2002), “the more that people value collectivism, the more likely they are to respond to such feedback with cognitions, emotions (e.g., shame), and behavioural scripts (e.g., learning and

42 practicing improved performance strategies) that are aimed at performance improvement. As a result, negative feedback has functional consequences for them”. Triantis and Bharuch (1997) contend that the primary purpose of performance evaluation in collectivist cultures is to justify decisions on compensation and promotion. According to Sinha (1994), appraisal is used to control and install loyalty in collectivist cultures. Loyalty and favouritism are barriers to obtain reliable performance evaluation. Because of loyalty and favouritism, colleagues or superiors avoid giving low ratings. Culture also has a bearing on the way performance feedback is given and received. People may refrain from giving and taking negative performance feedback in collectivist cultures to save face and reduce social anxiety (Leary & Kowalski, 1995) and embarrassment (Edelmann & Neto, 1989). Bailey, Chen, and Dou (1997) showed that Japanese and Chinese employees did not take any initiative to seek feedback on individual performance. This may be explained by the high-context nature of communication in collectivist cultures (Gibson, 1997). Performance-related information that is embedded in contextual cues could provide indirect, implicit, and subtle messages about performance, which could, in turn, prevent conflict, confrontation, and embarrassment.

Individualism is also expected to lead to greater emphasis on outcomes and rewards (Smith and Bond, 1998). In individualistic societies, people expect to be rewarded in line with their individual contribution; individual performance appraisals are common, competition is important and organisations assume that employees are motivated by economic and material incentives (Hofstede, 2001; Triandis, 1995). This emphasis on rewards and outcomes can be accompanied by a neglect of support mechanisms for employees and little orientation towards people. Individualism is associated with a concern for tasks and not with support for employees (Hofstede, 2001). Work is centred on individuals and not groups (Triandis, 1995).

In high power distance cultures, superiors and subordinates do not consider themselves as equals, with greater dependency of the latter on the former. In low power distance cultures, there is greater acceptance of equality and a greater degree of participation and cooperation between those in higher and lower organisational

43 positions. In high power distance cultures (Hofstede, 1980), performance is usually evaluated by superiors (Davis, 1998; Harris & Moran, 1996). Because performance appraisal is a top-down process, evaluation of superiors by subordinates is difficult to employ in high power distance cultures. Therefore, the 360-degree performance appraisal method (i.e. collecting performance data from the job incumbent as well as his or her superiors, subordinates, colleagues, and even customers), which is popular in the United States, may not be appealing (Davis, 1998). Power distance is negatively related to participation and open communication. Employees in cultures with high power distance are not expected to participate directly in decision-making.

Workforces in high power distance societies are accustomed to depending on their supervisors for direction and decision-making. Employees are not encouraged to make suggestions and do not expect to be consulted or empowered. They expect to be told what to do and avoid disagreement. In contrast, small power distance cultures are characterised by more participative management styles, where employees work more independently from the influence of management (Hofstede et al, 2010; Carl et al, 2004; Kirkman and Shapiro, 2001). Subordinates in low power distance cultures expect superiors to consult with them and approach superiors to express their point of view on matters of relevance to the job or employee (Lam et al, 2002). They therefore have opportunities to develop closer relationships with superiors compared to employees in cultures high in power distance, where employees are less open to their superiors or even afraid to speak up (Bochner and Hesketh, 1994; Madlock, 2012). On the other hand, employees in high power distance cultures have more contact with their supervisors, and supervision is closer and more direct (Bochner and Hesketh, 1994). Employees are thus more dependent on decisions and evaluations made by their supervisors. Good relationships to managers are thus more important in high power distant nations and will result in providing positive feedback about supervisors. It has also been stated that employees in high power distance cultures are reluctant to trust each other though (Hofstede, 1980). In terms of evaluating one employee’s performance, it is assumed that other employees don't offer negative feedback about their colleagues.

In addition, culture makes an impact on the purpose and use of employee performance management. It is assumed that people in high power distant cultures put more emphasis on social status, prestige and wealth. Thus, employee performance management might be used for advancement opportunities (Fletcher, 2013).

3.2.7 Employee performance management universals

Auginis et al (2012) suggested that some components of performance management or performance universals are culture-free. These performance universals are principles of performance management. They suggest five dimensions which can be applied in all organisations across all countries. The first dimension is the congruence between job descriptions and organisational goals which state that job duties have to consist of skills, knowledge and abilities reflecting relevant organisational goals. Such congruence better ensures that the behaviours and results directly produced by employees contribute toward achieving the goals of their organisation, facilitate organisational change, and help the organisation gain a competitive advantage. The second dimension is providing training to all participants in the performance management system. Training is very important in gaining relevant knowledge and skills. It plays an essential role in formulating certain employee behaviours, too. Thus, for the effective implementation of performance management systems, training of rater and ratee is very important and can be managed regardless of different cultural contexts. The third dimension is the measurement of certain performance related results and behaviours. Regardless of a particular cultural context, a good system includes measures of behaviours and results at the individual and collective (e.g. team, department, unit) levels of analysis. The fourth dimension is about providing strength based feedback. However, unlike Auginis and others (2012), Yam and Kluger (2005) suggested an alternative framework for strength based performance appraisal, considering negative feedback for prevention behaviours. In so doing, they take a balanced view that considers the perils of ignoring the negative aspects of performance, and the dangers of using the positive as manipulation. Researchers show that the wrong process of providing feedback resulted in negative rather than positive outcomes in

45 terms of improving employee performance (Denisi and Klugger, 2000). In addition, the aim of a performance management system is to create a desired work environment with certain employee behaviours by applying negative and positive punishment together. The final and fifth dimension is the alignment of performance with reward. Auginis et al (2012) emphasise that the nature of the rewards has to be meaningful in the eyes of employees and meet their satisfaction. Good performance has to be linked with rewarding elements. It must be recognised however, that culture may not explain all HRM differences found across countries. This may also be the result of differences in economic and political systems, laws and regulations, industrial relations systems and labour market conditions (Jackson 1995). Hofstede (1991) even suggested that organisational and industry characteristics may be more important than culture as determinants of managerial practices and employee behaviours. This argument is consistent with evidence that some types of HRM systems can be used effectively across countries that are culturally quite dissimilar (MacDuffie & Krafcik 1992).

3.2.8 Impact of industry

As emphasised in the strategic management and industrial organisation literature (Dess, Ireland & Hitt, 1990), a firm's industry (or industry) is an important part in framing and executing organisational policies and practices. The employee performance management system focuses primarily to elicit employee behaviours consistent with firm strategy and other requirements imposed by contextual conditions. Employee behavioural role requirements are considered vital to EPMS, and depend on contextual factors such as business strategies and the nature of the industry (Jackson and Schuler, 1995). Industry has been highlighted as a critical contextual variable for HRM (Wright and Snell, 1998). The issue here is that the type of industry also impacts on management assumptions regarding decision-making. The influence of top management on organisational performance varies considerably across industries and managers have greater influence on performance in some industry contexts relative to others (Lieberson and O'Conner, 1972). Hambrick and Finkelstein (1987) argue that a firm's industry

46 environment greatly affects the level of managerial discretion. In some task environments, such as in slow growth or undifferentiated industries, the potential for managers to "make a difference" is quite limited, while in other contexts, marked by greater discretion, managers can have more of an impact. Differences in the types and range of competitive behaviours required in different industries have direct implications for the desired cognitive orientations and knowledge bases of key decision makers. According to the contingency view, different industries pose different types of uncertainties (Thompson, 1967), and the choice of the type of competitive actions depends largely on the nature of the contingency. For example, rapidly growing and unstable industries, pose more sources of uncertainty than stable industries (Hambrick & Lei, 1985). Differences in the nature of manufacturing and service also appear to have implications for other aspects of HRM systems, including recruitment and selection, training, compensation, stress management, use of temporary workers, and the development and maintenance of appropriate organisational climates and cultures (Delaney et al 1989, Jackson & Schuler 1992, Jackson 1984, Schneider et al 1992, Terpstra & Rozell 1993).

3.2.9 Characteristics of the petroleum industry

A global survey found that the most important external forces impacting upon petroleum companies are technological progress, environmental concern, workforce/skill availability and government influences (IBM report, 2010). In addition, various external forces are having variable impact in different parts of the world. The variations also exist for mix participants of the industry as they are not equally advantaged. Participants of the industry include national oil companies, international companies or private and public sector companies etc. Each has different combinations of consumer markets, availability of capital and/or special “know-how” and technology.

The petroleum industry is facing a major human resource challenge with a shortage of new talent with which to replace today's ageing work force. Demand for experienced, qualified personnel is far greater than availability in many parts of the

47 world. Previous industry layoffs and recruitment freezes at times of low prices greatly reduced the attractiveness of the sector. Retaining the best employees and getting the best performance from them is a top priority for petroleum companies. In order to manage the talent and improve their performance, performance management strategy, plan and implementation; succession planning and management; role and competency design; and leadership development are highly recommended activities for the petroleum industry.

A well-functioning performance management process should facilitate good management by good managers who are trained as coaches and mentors rather than as evaluators and graders (IBM, 2010). Today’s job market is highly dynamic and transparent. High-potential young employees want regular feedback and career progression advice, not just “once and done” reviews.

3.2.10 Impact of the external environment

Numerous factors influence the management practices of a company. Market competition at industry level is assumed as a primary driver of good management practices (Aghion et al, 2005). Competition makes managers work harder and effectively compared with uncompetitive industries. Stronger labour market regulation also significantly impedes good management practice, particularly in firms with longer tenured employees. This suggests that regulation can impede the adoption of new management practices.

Duncan (1972) viewed external business environment as the totality of factors outside an organisation that are taken into consideration by an organisation in its decision-making. These factors depend largely on the complexity and dynamism of the environment (Dess & Beard, 1984). Thus, the external business environment has been classified as being stable when it does not show any changes, unstable when it shows relative changes, and dynamic when it shows changes continuously. Dynamism and complexity formulates additional behavioural competencies required for employees to do their work effectively (Duncan, 1972). These behaviours include the process, evaluation, and implementation of relevant information speedily and on time. In

48 addition, a dynamic and complex environment requires companies to avoid heavy formalised systems and procedures in organisation.

Research also provides evidence that in addition to organisational strategy, other attributes such as organisational structure and environmental uncertainty have predominant influence on designing the performance measurement system (Tymon et al,1998). This construct has been studied in several management accounting studies (Gosselin, 2005). Over the years many theoretical and empirical studies have considered the relationship between the firms and its environment (Yusof, 2002).

In their discussion of goals for corporations facing unstable environments, Thompson and McEwen (1958) suggested that effective firms manage adaptation by continually reappraising their goals; during reappraisal, new goals are articulated and then added to the old. However, owing to previous commitments, organisational inertia, or corporate culture, older goals linger for a time before new goals entirely displace them (Quinn, 1977). Since new goals reflect recognition of a need to adapt to a changing environment, for firms in volatile environments a relatively high number of goals will reflect successful adaptation. Conversely, firms in stable environments should experience less need to change their goal structures to remain successful. Pursuit of too many goals in stable environments might lead firms in more directions than conditions warrant, resulting in inefficient use of resources, and a depression in economic performance. Carter (1971) suggested this argument after studying a business strategy decision that concerned capital investment in computer terminals, stating that "the greater the uncertainty of outcome in the total environment of the organization, the greater the number of criteria, that is, goals, which will be sought to guide the strategic decisions".

Traditional models of performance measurement systems focused on maximizing the wealth of the shareholder, such as earning per share (EPS) and return- on-investment (ROI) etc., which are “the result of management action and organizational performance, and not the cause of it” (Hussain, 2005). Recent coverage of performance measures has criticised periodic financial forecasts as being too aggregated, too late, and too backward-looking to help managers understand the root

49 causes of performance problems, initiate timely corrective actions, encourage cross- functional decision-making, and focus on strategic issues (Chow and Stede, 2006). The organisation’s performance measurement system is improved when both financial alongside as non-financial factors are included in order to cater to the complex and dynamic business condition.

According to Gordon and Narayanan (1984) the perceived environmental uncertainty is the firms’ perceptions about the ability and stability in various aspects of their organisation’s industrial, economic, technological, competitive and customer environment has great influence in a performance measurement system. Hrebiniak and Snow (1980) support the view that environmental uncertainty is likely to be perceived as important by managers, including the degree of predictability of financial and capital markets, government regulation and intervention, actions of competitors, actions of suppliers, and general conditions facing the organisation. Gosselin (2005) noted that environmental uncertainty has significant influence when designing a performance measurement system.

The phenomenon of the relationship between environmental uncertainty and a performance measurement system is well illustrated by Gul and Chia (1994). When perceived environmental uncertainty is low the organisation does not require a detailed performance measurement system that includes all kinds of financial and non-financial measurements. When the environment is not complex and the performance measurement system provides additional information which is irrelevant, managers may suffer from overloaded information and this affects their decision-making process. On the other hand, Gul and Chia (1994) state that if the perceived environmental uncertainty is high, the organisation may require additional information to cope with the complexities of the environment. They further noted that in this complex environment a manager requires a sophisticated report based on a performance measurement system that assists managers to reduce uncertainty and improve decision-making.

3.2.11 Impact of technology

Technology changes the work and skills required to undertake it. The skills required today and in the future are dramatically different than what they were in the past. Changing technology and structural trends in industry provide an opportunity to create more demanding, flexible jobs as the result of increasing automation of processes and systems throughout the industry. The need for greater technological skills will continue to increase at all levels as the industry continues to automate. Application of new technology creates a need for adopting new skills and knowledge and may cause deskilling. Technology makes the jobs more complex or more routine.

This may result in some people finding their work less challenging. The expertise and artistry they have acquired over the years no longer matters. Labour process theory states that technology results in deskilling of the workforce (Wilson & Buchannan, 1988). In contrast to deskilling is upgrading, the idea that the introduction of technology enhances skill (Lewis,1996). In fact, the application of technology depends on the context and work environment. Introduction of technology may increase or decrease job complexity. At the end of this process, there are winners and losers. An ILO report (2010) states that the introduction of technology mostly resulted in layoffs of employees as technology replaced the workforce. Companies that rely on technology want to get high performance with fewer employees who perform a variety of jobs. However, technology may not always cause layoffs because of regulation. In this case, considering workforce shortages in the labour market, performance management is better to focus on developing existing and new unskilled employees.

Changes in technology were found to be accompanied by changes in the performance management system employed (McNair & Mosconi 1989). Roth and Velde (1989) have commented that financial institutions in various countries are adopting advanced technologies on a large-scale and these changes affect both the nature and organisation of work.

Some advocates of human resource management (Beer et al, 1985) have argued that the workforce is slowly changing to become better educated, with higher

51 expectations and is, therefore, more demanding. At the same time, changing technology and structural trends in industry provide an opportunity to create more demanding, more flexible jobs as the result of increasing automation of processes and systems throughout the industry. The need for greater technological skills will continue to increase at all levels as the industry continues to automate, and as technology plays an increasingly central role in the innovation of oil and gas extraction worldwide.

3.2.12 Impact of the natural environment

The impact of environment on companies in “dirtier” industry is considered more than in other sectors. The impact of environment manifests itself by the imposition of requirements from the country’s regulators (IOGP report, 2014). The broad environmental issues faced by the oil and gas exploration and production industry are manifested at both local and global levels. They include: habitat protection and biodiversity, air emissions, marine and freshwater discharges, incidents and oil spills, soil and groundwater contamination (IOGP, 1997). In fact, regulators tend to focus greater attention on industries that have greater environmental impact. Industries that create significant environmental pressures tend to attract the greatest attention from regulatory institutions and must carefully prioritise their actions. It is likely that firms in more regulated industries will incorporate environmental issues into their management strategies to a greater extent than those in less regulated industries because the negative consequences of noncompliance will tend to be significantly higher (Henriques & Sadorsky, 1999). This encourages management to shape certain environmentally friendly individual behaviour through healthy and safe environment policies. A report (1997) states that environmental management is a line responsibility. Line staff in all aspects of operational activity must be assigned environmental responsibility and authority within their spheres of control and must be competent to perform their duties effectively. This requires adequate and appropriate training and periodic review of company staff, contractors and external parties involved in the activity. Environmental training should foster in each person an awareness of environmental, social and cultural concerns, ensure that they are able to meet their defined role and job requirements and apply environmental operating procedures

52 correctly. Emphasis should be placed on individual responsibility for the environmental performance of project management, a summary of relevant legislative requirements, detailed procedures and work instructions for key activities and tasks, and should describe emergency plans and the means of responding to incidents. Oil and gas development activities are expected to grow to meet the need of rapidly industrializing countries, and only through a strong company commitment to environmental protection can they be carried out safely with minimum adverse environmental impact. This is achieved by systematic integration of environmental issues into business decisions through use of formal management systems and consideration of all environmental components in the decision-making process. To formulate certain behaviours in employees about the protection of environment is one aspect of a performance management system. As previously mentioned, environmental issues are integrated into the business strategy of the company and interpreted as functional and operational targets and objectives (IOGP, 1997). However, the targets for protection of landscape, natural values and wildlife may be more difficult to interpret in operational terms than those for water and air quality because they are often phrased in qualitative terms. Periodical assessment of these targets is very important to maintain and formulate employee behaviours and organisational culture. Environmental impact is reflected in setting related targets and objectives and their development and in the assessment of the performance management process. According to a report (2015), a well-functioning performance management process should facilitate good management by trained coaches and mentors rather than evaluators and graders. High-potential young employees want regular feedback and career progression advice, not just “once and done” reviews. A new focus on managing strengths not weaknesses is emerging. Research shows that a person’s best performance comes when they are given meaningful work that leverages their personal strengths and aspirations. Rather than simply evaluate people against goals, new performance models help create jobs or move people into roles where they can succeed (Parent et al, 2015)

3.3 Performance

The first and most important part of the performance management process is performance planning which includes consideration of performance in terms of results and behaviours. Clear definition of performance is important and if performance is incorrectly defined and clarified, this is likely to result in a poor and ineffective performance management system. Unfortunately, there is a lack of sound academic study about how managers define criteria to determine employee performance in a real work environment.

Performance is usually depicted as desired results, behaviours, attitudes, or traits. Some argue that performance refers to the final result and what gets accomplished. Others argue that performance is related to the behaviours people exhibit within the course of producing results and with their basic competence or ability to perform various aspects of the job. When conceptualizing performance, it is required to differentiate between an action aspect and outcome aspect of performance. However, performance is also accepted and conceptualised as multidimensional.

3.3.1 Concept of performance

The concept and definition of individual performance has received considerable scholarly attention over the past 15 to 20 years. Some researchers accept only outcome as a conception of performance, others accept both outcome and behaviour together (Armstrong, 2005). According to Roger (1994) and Bernardin (1995), performance should be defined as the “outcomes” of work because they provide the strongest link to the strategic goals of the organisation. However, Fitzgerald and Moon (1996) argue that performance is a multidimensional construct and the measurement depends on a variety of factors that comprise it.

The view that performance should be equated with task accomplishment, goal achievement, results, and outputs has been criticised in psychological literature. According to Murphy (1998), performance is defined as the set of behaviours that are relevant to the goals of the organisation or the organisational unit in which a person works. Another definition is put forward by Mohrman et al (1989) who explains that performance consists of a performer engaging in behaviour in a situation to achieve the results. Campbell et al, (1993) state that performance is not the consequence of result or action, it is the action itself. They also stated that performance is behaviour and should be distinguished from the outcomes because they can be contaminated by system factors. In fact, researchers justify their view with a sound logic that many job results aren’t necessarily the product of what employees do and there are other contributory factors that are not related with doing the job (Williams, 1998). There is also evidence to suggest that an overconcentration on outputs ignores important processual and interpersonal factors, and that undue focus on outputs may misdirect employees as to what is required. Another important view is that performance is behaviour but not all behaviour is performance. Only goal relevant behaviours are accepted as performance (Williams, 1998). According to Campbell et al (1993), the behaviour is the action itself and only actions that can be scaled are regarded as performance. In addition, performance encompasses the behaviours that are goal oriented and contributes to organisational purposes. The outcome in turn refers to the result of the individual's behaviour. Empirically, the behavioural and outcome aspect are related. However, there is no complete overlap, as the outcome aspect is affected by other determinants than the behavioural aspect. Historically, there have been three approaches to define the dimensions of job performance (Milkovich et al 1991 p. 48). These are: as a function of outcomes, as a function of behaviour and as a function of personal traits. There are also some viewpoints about contextual performance that goes beyond outcomes and behaviours and covers the attributes of cooperation, dedication, enthusiasm, persistence and attitudes that enhance climate and effectiveness of organisation. Nowadays it is generally agreed that job performance consists of

55 complicated series of interacting variables pertaining to aspects of the job, the employee and the environment. In general, managers do not regard constraints on performance as very serious problems hindering the attainment of desired performance, whereas those performing the work believe constraints are a serious problem (Bernardin et al, 1996). Cascio (1995) and Ilgen & Hollenbeck (1991) argue that the nature of work is changing and so are the different definitions of what jobs and job performance are all about. There appears to be a general move toward more flexible definitions of work roles and jobs, where jobs are viewed as dynamic and more interchangeable and are defined with less precision. The focus is on the personal competencies required to perform various work roles and jobs rather than a narrow review of specific tasks and duties inherent in fixed jobs and work roles.

3.3.2 Outcome and behaviour based criteria

Historically, performance appraisal systems have tended to emphasise outcomes rather than behaviours. This is also because of the job characteristics and nature of the performance appraisal system. According to organisational control theory, the choice between behaviour and outcome control should be a function of the specific task characteristics, namely outcome measurability and task programmability (Eisenhardt, 1985). There are also different viewpoints about defining criteria as behaviour or outcome. A behaviour-based performance system is long-term focused and helps to formulate certain behaviours in employees to achieve major goals of organisation (Anderson and Oliver, 1987). In addition, behaviour-based philosophy is that it enables the manager to eliminate inequities that can arise in using simple output measures (Ryans and Weinberg, 1979). Potential drawbacks of the behaviour-based performance management system are complexity and subjectivity. The subjectivity aspect is of particular concern because subjective ratings of employees by managers introduce bias, ignorance, halo effects, and lack of credibility into the evaluation system (Anderson and Oliver, 1987). Furthermore, the manager builds his or her model of what is effective into the system and employees may perceive it to be unfair.

Grobler et al (2006), affirm that performance management is an ongoing process of evaluating and managing both the behaviour and outcomes in the workplace. Empirical results suggest that outcome and behaviour-based coordination efforts are influenced by environment (Celly and Frazier, 1996). Gosselin (2005) noted that environmental uncertainty has significant influence when designing performance measurement systems.

3.3.4. Outcomes versus behaviour

Historically, there have been three approaches to define the dimensions of job performance (Milkovich et al 1991 p. 48) as a function of outcomes, behaviour and personal traits. The majority of studies have shifted their focus on defining job performance in terms of outcomes and behaviour, since these are easier and more objective to define and observe than personal traits (Hersen 2004 p. 375). Bernardin (1979) found that the majority of respondents (55 percent) felt that the fairest appraisal system would be based on activities performed on the job followed by the quality (28 percent) and quantity of output (17 percent). Bernardin’s study did not make reference to traits as they are often disparaged as personal bias and can colour such evaluations more easily. Although result oriented measures are desirable they are often criticised because of the high likelihood of measurement contamination, aspects beyond employees’ control influencing the output achieved (Wexley and Yukl, 1984). In terms of questioning what are most important, this depends on whether the result or process is more important. The importance of result or behaviour is better defined when considering a variety of factors. In reality, the choice depends on management philosophy and situation. It is suggested that supervisors mostly use outcome criteria as they see performance in terms of outcome/result, whether the goal has been achieved, and they give no importance to activities (Cardy and Leonard, 2014). From an employee’s point of view, job performance is essentially the result of a series of behaviours (Berghe, 2011). Behaviour as criteria offers the advantage of providing a clear route for a worker to achieve superior performance and direction to improve performance. Managers are inclined to use more behaviour control as they gain

57 experience, which gives them confidence (perhaps falsely) that they know what behaviour to prescribe (Jackson, Keith, and Schlacter 1983). In literature, some authors support either view whilst others support both. Carson, Cardy and Dobbins (1992) argued that because work outcomes are the results of both system factor and personal behaviour, employee performance should be evaluated on the basis of how the work is done as well as its results. It is suggested that in the early stage of the work process behavioural criteria is better to use. This approach provides feedback when the job is new or responsibilities are significantly changed. In addition, the skill acquisition model created by Ackerman (1987, 1988, 1989) proposes that the relative importance of various abilities for task performance changes as individuals develop skills in performing a task. Specifically, when one is new to a task, the task is performed slowly, with effort although often with error. However, as skills in the task are developed, the task becomes more automatic thus requiring fewer cognitive resources and performance improves (Farrell & McDaniel, 2001). That explains why in the early stages it is better to use behavioural criteria to provide feedback to improve performance as behavioural criteria also show how to improve performance. When the worker masters the process, outcome criteria can be used. Using behavioural criteria when an employee is achieving adequate results is not recommended (Cardy and Leonard, 2014).

Bernardin and Beatty (1984) define performance as the record of outcomes produced on a specified job function activity during a specified time period. They also distinguish this outcome-oriented definition from a person-oriented one and criticise the current tendency of performance evaluation to focus on the person’s characteristics. For example, they argue that an assessment of an individual's competencies is not a measure of his performance and that a performance management system should focus on a record of outcomes. A focus on such results seems to be a fair, unbiased and business- relevant basis for performance evaluation. They also claim that results have to be considered as these align individual efforts with organisational goals.

In fact, assessment or evaluation on results is considered to be a traditional approach. Results may be affected by some factors which are out of the individual’s

58 control (Murphy and Cleveland, 1995). To be flexible, todays employees perform other non-task related activities in a real work environment. Outcomes can be clearly measured, but pose problems in terms of inferring causality. Outcomes can be more greatly influenced by external or system factors than behaviours as the latter are more directly under the control of the person. Researchers argue that the relative costs of measuring behaviour versus outcomes and the various forms of uncertainty that create risk in environment also affects the choice of behaviour and outcome. Outcome control measurement is less expensive than measuring inputs when environmental uncertainty is low (Anderson and Oliver, 1987). In addition, an outcome based system is short-term focused and may harm the organisation in the long run (Anderson and Oliver, 1987). Workers may develop a results-at-any-cost mentality and strive to obtain outcomes in ways that are dysfunctional for the organisation (Borman, 1991; Cardy & Dobbins, 1994; Heneman, 1986). In fact, human performance is a complex phenomenon incorporating process as well as outcome aspects (Kozlowski, Gully, Nason, & Smith, 1999). Results-oriented measures may be deficient as performance criteria because they typically tap into only a small proportion of the job performance requirements. This is particularly true today because jobs are complex and include various interdependent task-related activities with partners, employees, external contractors, suppliers, and customers in various collaborations (Cascio & Aguinis, 2008). Accordingly, for some jobs it may be difficult to establish precise objectives and standards. In other jobs, employees may have control over how they perform but not over the results of their behaviours (Aguinis, 2009). Costa et al (2004) recommend the use of process-oriented or behavioural measures for such complex and interdependent tasks instead of outcome measures. The process-oriented approach to performance focuses on the competencies as the knowledge, attitudes, and behaviour that yield performance outcomes. Competencies are defined sets of knowledge, skills, and abilities that allow the employee to perform specific functions related to organisational goals.

3.3.5 Competencies as performance criteria

A recent theory of performance is the basis for the concept of competency (Armstrong 2010, Boyatzis, 2008). A new approach is the application of a competency framework to most of HRM practices such as performance management. Traditional approaches focused on past behaviours whilst the new approach is future oriented and anticipates future performance requirements. Competencies are often subtly influenced by existing norms and values about what represents “high” or “average” performance in a particular organisation. These cultural norms and values have a direct impact on how success is defined and determine which people are selected as “high” or “average” performers. Consequently, many competency models provide more insight into the correct behaviours that are rewarded by management than into what effective performance should be in the future. As the pace of change accelerates in many industries, the capacity to anticipate future competency requirements and to let go of old ways of thinking and behaving will become an increasingly important competitive advantage. A competency based system certainly contributes more to competitive advantage as competencies are behaviours that directly or indirectly contribute to organisational strategy. Hurst (2009) discerns two strands in the performance management literature: a very structured and controlled backward-looking review approach which is ‘done’ to employees (Grote, 2000), and a much more inclusive, forward-looking approach involving the individual, supporting their development and linking in to the organisation’s needs and values (Spangenburg and Theron, 2001). But as Cannell (2006) points out, there is still the need for a conversation to both reflect on past performance and to look forward. The latter is what is largely in the mind of those that advocate a more root and branch change to performance appraisal: a switch to a performance management philosophy that engages employees more in the process and drives performance towards key organisation goals.

3.3.6 Definition of competency

There are different viewpoints about the definition of competency (Hoffman, 1999). Competency is defined as the ability or willingness to perform a task (Burgoyne, 1982); a set of generic possibilities such as knowledge, motive, trait, social role and

60 skills (Hayes, 1979). Mansfield (1999) defines competency as “an underlying characteristic of a person that results in effective or superior performance”. Rankin (2002) describes competencies as “definitions of skills and behaviours that organizations expect their staff to practice in their work”, According to Woodruff (1993), a competency is the set of behaviour patterns that the incumbent needs to bring to a position in order to perform its tasks and functions with competence. According to Boyatzis (2008), competency is defined as a capability or ability. “It is a set of related but different sets of behaviour organized around an underlying construct, which we call the ‘intent’. The behaviours are alternate manifestations of the intent, as appropriate in various situations or times.” Competencies are also classified as behavioural competencies and technical competencies. Behavioural competencies are originated from personality theory advocated by McClelland (Boyatzis 2008; Armstrong, 2010) and are defined behavioural expectations or type of behaviours required to deliver results. Technical competencies are defined as term of “competence” by Woodruffe (1993). He states that apart from certain behaviours, a person needs relevant job-related technical skills, knowledge and abilities. In other words, competence is a work-related concept which refers to areas of work at which the person is competent (Woodruffe, 1991). Boyatzis (2008) stated that competency is a behavioural approach to emotional, cognitive and social intelligence, and he mentioned three clusters of competencies - emotional intelligence, social intelligence and cognitive competencies - that differentiate average and outstanding performance. Maximum performance is believed to occur when the person’s capability or talent is consistent with the needs of the job demands and the organisational environment (Boyatzis, 1982). The person’s talent is described by his or her values, vision, personal philosophy, knowledge, competencies, life and career stage, interests and style. Decades of research have also shown that people can change their behaviour, moods and self-image (Boyatzis, 2006).

Job demands define add role responsibilities and tasks that are required to be performed. Alongside this, aspects of the organisational environment are predicted to have important impact on the demonstration of competencies and/or the design of the jobs and roles. These include: culture and climate; structure and systems; maturity of

61 the industry and strategic positioning within it; aspects of the economic, political, social, environmental and the religious milieu surrounding the organisation. In addition, competencies are sensitive and change as the condition changes (Woodruffe, 1993). Another characteristic of competency is that it can be developed. At an organisational level, competencies have been used to describe organisational strengths or unique capabilities and these are defined as core competencies (Hoffman, 1999). In reality, many organisations use competency based HRM, although there are serious problems with this (Woodruffe, 1993). A particular problem is confusing competencies with job roles definitions and relying on the present and past to define competencies. It is contended that competencies must be future oriented and not be a mechanism for cloning the past (Cardy & Selvarajan, 2006; Woodruffe, 1993).

Existing literature discusses the attributes needed for a competency to be useful. Competencies have to support lifelong learning, to be transferable, to be capable of being learned and to be generic, to correlate to job performance, to be measurable and to be capable of being improved via training and development (Abraham et al, 2001). Competencies which are important for organisations must be appraised. However, many organisations are not appraising their employees on the competencies deemed important to the organisation. This put the effectiveness of the performance management system of the company under suspicion (Abraham et al, 2001).

A competency can also be defined as a collection of behaviours that contribute to the performance of organisationally valued work. The changing nature of work, the need for constant improvement and adaptability, necessitates a more dynamic, process- oriented perspective on employee performance. Heneman and Thomas (1997) indicate that as performance measures for performance management, outcomes may measure performance relative to the organisation's financial goals, while competencies represent the means by which these results are attained. Therefore, a performance management system should be designed to emphasise competencies as well as outcomes consistent with the organisation’s overall mission and objectives.

3.3.7 Competency based performance management

A good employee performance management style is aligned with the strategy of the organisation and serves to formulate certain employee behaviour. This can be efficiently achieved through the application of the competency approach. It is recommended that competency approach is more strategic by nature. In order for an organisation to succeed in its mission, organisational competencies must match strategic intent in determining which strategic competencies are most important for that organisation’s competitive and strategic success (Antonacopoulou and Fitzgerald, 1996; Thomson, 1998). Without the needed competencies, even well-conceptualised and well- stated strategies cannot be successfully implemented and realised. It is competencies that allow the concept of strategic intent to be operationalised (Cardy and Selvarajan, 2006). A competency-based performance-management system is a formalised way of establishing the skills and behaviours that employees need to be successful in their present roles and for future growth in their organisations. It is a way of informing employees of company expectations, and it sets them on a clearly defined path toward achieving specified goals. A competency-based performance management system provides the framework for aligning employees’ job performance with the organisation’s goals.

With the implementation of a competency framework, personnel are seen as the main source of added value. A competency management approach design the inputs for an organisational plan and deliver outputs in the form of employee performance. Throughout the years, competency based approaches have proved to be a critical tool in many organisational functions, such as workforce and succession planning and performance appraisal. They provide identification of the skills, knowledge, behaviours and capabilities needed to meet current and future personnel selection needs. These should be in alignment with the differentiations in strategies and organisational priorities and focus the individual and group development plans to eliminate the gap between the competencies requested by a project, job role or enterprise strategy and those available (Draganidis and Metzas, 2006). Turner and Crawford (1994) classify competencies as personal and corporate. Personal competencies are possessed by individuals and include characteristics such as knowledge, skills, abilities, experience and personality. Corporate competencies belong

63 to the organisation and are embedded processes and structures that tend to reside within the organisation, even when individuals leave. These two categories are not entirely independent. The collection of personal competencies can form a way of doing things or a culture that becomes embedded in the organisation. In addition, corporate characteristics can determine the type of personal competencies that will best work or fit in with the organisation. It should also be considered that people do not all have the same skills and interests. A number of organisations have attempted to build competency-based programmes that require all employees to be strong in all skills and they failed. According to Martone (2003), all employees will be expected to have certain core competencies and behaviours and certain roles will be expected to have specific skills and expertise. However, by recognizing individual differences and strengths while at the same time teaching employees’ interdependence, alignment and the ability to work cohesively, the collective output will be much greater than that of individuals working independently. Martone (2003) states that competency-based systems work in almost any type of organisation—large or small and profit based or not-for-profit organisations— with the main indicators of this system being that employees are enthusiastic, focused, energised, and clear about what they are working on and how their efforts contribute to the overall goals of the organisation. There are also empirical findings that reflect how this model helped to change cultural mind-sets by directing work behaviours to business results and also introduced an agreed, group-wide vocabulary for performance measurement (Ashton, 1996; Catano et al, 2007). The competency-based performance management system is also criticised by some authors (Klein, 1996). Companies that improperly implement competency-based programmes become vulnerable to legal action. Most organisations utilising competency-based human resource systems are trying to drive excellent and not average-performance. Thus, it is important that these competencies (behaviours) validity (accurately) and reliably (consistently) distinguish excellent performers from average performers.

3.3.8 Systemic considerations in performance management

A separate performance function that has only recently received widespread attention is the systemic system. From a systemic point of view, performance management facilitates organisational goal achievement (Lam & Schaubroeck, 1999). Traditional focus on measurable outcomes also leads supervisors to measure subordinates’ performance using quantitative indicators. Thus performance outcomes that are less measurable in quantitative terms such as quality improvement objectives tend to be neglected. Deming (1986) suggested that 80 percent of performance problems are caused by system design and only 20 percent caused by abnormal variations that may be linked to individual behaviours. Research has shown that performance raters do seem to have difficulty distinguishing systemic causes of employee performance from individual cases (Carson, Cardy and Dobbin, 1991). Carson, Cardy and Dobbins (1992) argued that because work outcomes are the results of both system factor and personal behaviour, employee performance should be evaluated on the basis of how the work is done as well as its results.

Performance is a quantified result or a set of obtained findings. This refers to the accomplishment, execution, or carrying out of anything ordered or undertaken, to something performed or done, to a deed, achievement, or exploit, or to the execution or accomplishment of work (Stolovitch & Keeps, 1992, p. 27). In the world of work, performance may be taken to mean either the way in which business is conducted or a successful outcome. Managers must be concerned with each interpretation because both processes and outcomes affect organisational success.

Well-designed performance management systems identifies the results and behaviours needed to carry out the organisation’s strategic priorities and maximise the extent to which employees exhibit the desired behaviours and produce the intended results, (Cascio & Aguinis, 2005, p. 83). A consideration of behaviours includes discussing competencies, which are measurable clusters of knowledge, skills, and attitudes (KSAs) that are critical in determining how results will be achieved (Aguinis, 2009).

In addition, Murphy and Cleveland (1995) urge that managers should give more attention to contextual factors that influence or interfere with performance. The contextual factors include: organisational complexity and coordination; organisational climate or culture and values; competition among functional units or within sectors and general economic and political conditions. Heinrich (2002) defined these contextual factors in public organisations as changing political and administrative priorities, professional and partisan conflict within bureaucracies, and the sometimes precarious links across government levels and between formal and informal authorities in programme implementation.

3.3.9 Task and contextual performance

There are numerous studies offering new ways of structuring thinking about job performance (Arvey & Murphy, 1998). A great deal of attention has been paid to the distinction between task and contextual performance. There are numerous issues about the nature of contextual performance and whether it is valuable or necessary to distinguish it from task performance (Schmidt, 1993, as cited in Arvey & Murphy, 1998). However, some authors argue that with the growing importance of team-based work and effective communication in organisations, the kinds of responses described by contextual performance seem to be increasingly relevant. Traditionally, work performance was evaluated in terms of the proficiency with which an individual carried out the tasks that were specified in his or her job description. From this perspective, a “well-specified job” was one in which all the behaviours that contributed to organisational goal attainment was captured in an individual’s job description (Murphy & Jackson, 1999). Effectiveness could then be evaluated as outcomes achieved by carrying out the specified behaviours of the job (Campbell, McCloy, Oppler, & Sager, 1993). The changing nature of work and organisations has challenged traditional views of individual work performance (Ilgen & Pulakos, 1999). Two of the major changes are the increasing interdependence and uncertainty of work systems (Howard, 1995). Early approaches to work performance did not account for the full range of behaviours that contribute to effectiveness when systems are uncertain and interdependent (Campbell et

66 al, 1993; Murphy & Jackson, 1999). However, new dimensions of performance such as contextual performance cover a set of behaviours and responsibilities. Contextual performance deals with attributes that go beyond task competence and which foster behaviours that enhance climate and effectiveness of the organisation. There are numerous issues about the nature of contextual performance and whether it is valuable or necessary to distinguish from task performance. Borman & Motowidlo (1993) suggested that task performance relates to the proficiency with which incumbents perform core technical activities that are important for their jobs, whereas contextual performance is defined as extra task proficiency that contributes more to the organisational, social, and psychological environment to help accomplish organisational goals. These contextual factors include aspects such as offering enthusiasm and extra effort, volunteering to carry out duties not formally part of one’s job, and endorsing and supporting organisational objectives (Borman & Motowidlo 1993). This notion is consistent with the work by Organ (1988), who discusses organisational citizenship behaviour; prosocial behaviour as discussed by Brief & Motowidlo (1986); and organisational spontaneity (George & Brief 1992).

According to Borman and Motowidlo (1993) task performance is defined as behaviours that contribute directly to the organisation’s technical core and includes those activities that are typically recognised as part of a worker’s job. Contextual performance refers to those behaviours that maintain the broader social environment in which the technical core must function. There are three basic differences between task and contextual performance. Contextual performance activities are comparable for almost all jobs, whereas task performance is job specific, predicted mainly by ability, whereas contextual performance is mainly predicted by motivation and personality; task performance is in-role behaviour and part of the formal job description, whereas contextual performance is extra-role behaviour and discretionary and often not rewarded by formal reward systems or directly or indirectly considered by the management (Sonnentag et al, 2008). Motowidlo & Van Scotter (1994) tested the distinction between task and contextual performance using supervisory ratings of over 400 Air Force mechanics. Results showed that both task and contextual performance factors contributed

67 independently to overall performance and showed that personality variables were more highly correlated with contextual performance in accordance with their expectations. Katz and Kahn (1978) distinguished between job-related behaviours labelled as in-role (IRB) and extra-role (ERB). IRB has been defined as behaviour that is required or expected as part of performing the duties and responsibilities of an assigned work role, whereas ERB is discretionary behaviour that benefits the organisation and goes beyond existing role expectations (Barksdale and Werner, 2001). Another definition regarding contextual performance is organisational citizenship performance (Organ, 1997). Organ’s definition of citizenship performance reflects Bormann and Motowidlo’s definition of contextual performance. Contextual performance with conceptualised Organisational Citizenship Behaviour (OCB) describes discretionary behaviour which is not necessarily recognised and rewarded by the formal reward system. Discretionary means that the behaviour is not enforceable and not part of the formal role in terms of the person's contract with the organisation. Furthermore, Organ (1988) explains that not every single discrete instance of OCB is expected to make a difference in organisational outcomes but that the aggregate promotes the effective functioning of an organisation. OCB consists of five components: altruism, conscientiousness, civic virtue, courtesy, and sportsmanship. Campbell (1990) proposed a hierarchical model of eight performance factors. Among these eight factors, five refer to task performance: job-specific task proficiency, non-job-specific task proficiency, written and oral communication proficiency, supervision, in case of leadership position, management/administration. Each of these five factors itself consists of sub-factors which differ in importance for various jobs. Borman and Motowidlo (1993) enumerate five categories of contextual performance, such as volunteering for activities beyond a person's formal job requirements, persistence of enthusiasm and application when needed to complete important task requirements, assistance to others, following rules and prescribed procedures even when it is inconvenient and openly defending organisational objectives. Regarding this most important point, experienced supervisors weigh task and contextual performance equally when appraising performance (Motowidlo & Van

Scotter, 1994) and both contribute uniquely to overall managerial performance (Conway, 1999).

3.3.10 Job characteristics and performance criteria

In defining performance as outcome or behaviour/competency, job characteristics are very important. Jobs vary in terms of the required cognitive, behavioural, and physical abilities. In addition, different environments impact upon defining performance as performance influenced by contextual factors. This section discusses the impact of several job characteristics that impact upon performance. Literature highlights three broad categories of job characteristics – motivational, social, and contextual characteristics (Uppal, 2014). Motivational job characteristics were developed by Hackman and Oldham (1976, 1980) to explain how job structure influences work attitudes and behaviour. According to the model, five core dimensions exist within every job – skill variety, task identity, task significance, autonomy, and job feedback Hackman and Oldham (1976) suggested that motivational work characteristics impact upon behavioural and attitudinal outcomes through their influence on three critical psychological states: experienced meaningfulness (i.e. the degree to which an employee feels the job has value and importance), experienced responsibility (i.e. the degree to which an employee feels liable and accountable for job results), and knowledge of results (i.e. the degree to which the employee is aware of his or her level of performance). Specifically, skill variety, task identity and task significance are thought to impact upon experienced meaningfulness, autonomy is thought to impact upon experienced responsibility, and feedback from the job is thought to impact upon knowledge of results. In addition to the five work characteristics identified by Hackman and Oldham (1975), there are other motivational work characteristics have been discussed in the literature: task variety, job complexity and problem solving. Task variety indicates the extent to which a job requires employees to perform a broad array of tasks (Morgeson & Humphrey, 2006) or the extent the task is non-routine and requires a variety of knowledge (Daft and Mackintosh, 1981). Task variety serves the function of providing regular and continuous opportunities for mastering day-to-day tasks (Axtell & Parker,

2003). Task variety has an influence on job performance as it triggers cognitive processes. It means that task variety increases positive attitudes and enhances motivation that directly influence performance. Secondly, job complexity is the extent to which a job is multifaceted and difficult to perform. Others have discussed the opposite of job complexity, namely job simplicity (Campion, 1988; Edwards, Scully, & Brtek, 2000). Because complex jobs involve the use of high-level skills, they tend to be mentally demanding. Complex tasks differ from simple tasks in information required and the number of adaptive requirements for the task (Wood, 1986). Simple tasks involve little information and routine operations are defined, whereas complex tasks have multiple information cues and require numerous unique operations. This in turn impacts upon employee performance management in regard with target or goal-setting and providing feedback. Of course, complex tasks require more formal performance management system than simple tasks. An empirical study has shown that goal-setting for simple tasks provides information to motivate efforts (Neubert, 1998). However, complex tasks with lots of information cues and operations require more formal performance management and aims at identifying skill shortages. However, there is an argument that information in complex tasks for goal-setting may create confusion and hinder performance by drawing attention away from learning objectives (Neubert, 1998). Outcome feedback is seen to have little or no benefit in complex tasks because knowledge of results doesn't provide specific information for learning, whereas process feedback enables one to see skill gaps and provides information for further learning and development opportunities (Earley et al, 1990). Conversely and because of the nature of simple tasks, this requires less cognitive attention and uses informal feedback process to enhance self-monitor progress. However, complex tasks require the processing of many informational cues, and needs a formal feedback providing process from different sources. In addition, feedback serves also to provide motivation in complex tasks to provide information in simple tasks (Neubert, 1998). Thirdly, problem solving is the extent to which a job requires the production of unique solutions or ideas. It is conceptually similar to creativity in that it involves innovating, solving non-routine problems and dealing with (or preventing) errors

(Jackson, Wall, Martin & Davids, 1993; Wall, Corbett, Clegg, Jackson, & Martin, 1990). Problem solving is considered a skill or ability and how the combination of knowledge, skills, and abilities leads to the generation of certain behaviours. Jobs that require unique solutions and ideas are assumed to use both outcome and behavioural criteria together. This is because the proposed solution should be based on actions which coincide with approved processes and should yield positive outcomes. For example, one may apply an appropriate solution to the problem and the problem is solved. But how did they do it? Is the realised action or process, for example, ethically and legally accepted within the organisation? In addition, jobs high in problem solving require high competence and professionalism, increased cognitive abilities to perform in challenging situations (Deci and Ryan, 2000). From the analysis of job characteristics models it is concluded that performance is not the result of behavioural but also cognitive processes. Jobs are different and require various levels of mental and physical abilities. Therefore, performance of employees has to be managed by considered job- related factors.

3.3.11 Social job characteristics

Researchers (Grant, 2007; Humphrey, Hollenbeck, et al, 2007; Oldham & Hackman, 2010) recognise social characteristics as distinct from motivational characteristics and as crucial components of a job. Social characteristics of a job reflect prosocial work behaviours such as relationships between workers, sense of security, resilience, and positive moods. Social job characteristics include interdependence (extent to which various jobs mutually depend on each other for completion of a task), feedback from others (extent to which other organisational members provide information about performance levels), social support (extent to which a job provides opportunities for getting assistance and advice from other organisational members) and interaction outside the organisation (extent to which a job requires communication with external customers, e.g., suppliers or customers) (Humphrey, Nahrgang, et al, 2007). Social characteristics of a job contribute to mutual learning and cognitive and behavioural development through social interaction at multiple levels (Oldham & Hackman, 2010; Perry-Smith, 2006).

Social job characteristics play an important role in employee performance management. In fact, part of the growth in interest in social characteristics may be attributed to the increased use of teams in organisations (Ilgen, 1999). A team, by definition, has some degree of interdependence amongst its members (Guzzo & Dickson, 1996) and thus producing ample opportunities for social interaction. Interdependence occurs when the components of a system (e.g., individuals within a work group) need to cooperate to achieve shared goals (Cummings & Blumberg, 1987). In interdependent systems, the behaviour of an individual has an impact not only on the effectiveness of that individual, but also on the effectiveness of others, including groups, teams and the organisation as a whole. In addition, performance of employees who are working in teams and complete a task together is different from the performance of employees who complete the task individually. When the activities of a work role are independent of others, there is a simple link between an individual’s behaviour and effectiveness as an employee. When the activities of a work role are interdependent with other roles, the link between behaviour and effectiveness is more complex. The outcome of the team task is attributed to all team members. However, it is stated that team members don't put in the same effort for task accomplishment. In fact, the analysis of the literature review concluded that the use of either result or behaviour may not result in effective performance management of employees. Measuring only essential behaviours, it is not obvious where the individual delivered the required result. Employees can engage in highly effective behaviours but fail to deliver results. In addition, results are important for employee accountability. On the other hand, focusing only on results can yield deficient performance assessment because employee behaviour during the work process is not considered. Comprehensive performance management should include assessment of both results and behaviours together (Pulakos, 2009). A detailed review of the literature on performance appraisals revealed four main characteristics that lead to certain appraisal criterion. These are position characteristics, organisation characteristics, personal characteristics and task and target characteristics. Table 1.1 below defines and details these against the literature

Table 1.1: Characteristics of Performance Appraisal Criterion (Izaka and Ferera, 2016)

3.3.13 Other considerations for effective implementation in performance management

The depth analysis of performance management in the cultural and industry framework concluded that some elements of performance management process should be localised (Aycan et al, 2009). In addition, in practice there are a variety of other factors influencing on the effectiveness of the performance management system. The employee performance management system (EPMS) is an effective tool for achieving success. In a real work environment, however, different issues exist which

73 might cause failure of the EPMS. One of the failures of EPMS is also due to factors related with confusion between employee appraisal and the employee performance management system. The other is employee acceptance of the employee performance management system. The next section is dedicated to the detailed analysis of each problem.

3.4 Main causes of Employee Performance Management System failure

Researchers claim that performance management can result in important benefits for organisations. For example, organisations with formal and systematic performance management systems are 51 percent more likely to outperform others regarding financial outcomes and 41 percent more likely to outperform others regarding additional outcomes, including customer satisfaction, employee retention, and other important metrics (Aguinis and Pierce, 2008). In addition, in a survey of 278 organisations, where about two-thirds of which are multinational corporations and from 15 different countries, it was indicated that about 91 percent of organisations implement a formal performance management system (Cascio, 2006). Recent studies (Armstrong 2000; Molleman and Timmerman 2003) show that a significant number of proponents of performance management provide evidence that firms with programmes that manage the performance of their people outperform firms without such programmes on a wide range of financial and productivity measures. However, performance management systems do not always succeed. Empirical evidence shows that performance management systems fail in some cases. There are also different viewpoints about effectiveness of performance management systems. Some authors consider them to be effective, but others criticise the effectiveness of performance management systems in organisations (Biron, Farndale and Paawi, 2011). Morgan (2006) noted that “too many companies are finding that their performance management systems are falling short of expectations”. Similarly, 80–90 percent of human resource professionals consider that their performance management system does not improve organisational performance (Smith, Hornsby and Shirmeyer 1996; Gosselin, Werner and Halle 1997). Furthermore, a survey in the USA revealed that 80 percent of the companies use this system and 90 per cent of the companies are

74 dissatisfied with the process. Authors claim that most problems occur during implementation and it is crucial for a company to know how to apply and implement the system correctly. When it comes to practice, the theorised benefits of performance management appear to remain under-fulfilled in some cases. Employees and managers think negatively about performance management because organisations don’t carry it out effectively. According to Auginis (2011), most organisations apply performance appraisal systems, which are considered as a waste of time. In addition, most companies describe their performance appraisal system as a performance management system. In regard to what makes employee performance management ineffective, several viewpoints and empirical studies have been undertaken. Some studies found that neither supervisors nor employees support using the system (Kim and Holzer, 2014). Another survey (Auginis, 2011) found that despite the popularity of the performance management system in reality employees do not believe that their performance review system actually helped them improve their performance and managers saw the process as a waste of time.

3.4.1 Employee performance management and employee performance appraisal system

In the late 20th century, a great change in approaches to performance appraisal systems across the world was seen. Armstrong and Baron (2005) (noting the shift in terminology from performance appraisal to performance management, which they believe indicates a wider shift in the philosophy and content of the process) stated: “Performance appraisal has a reputation as a punitive, top-down control device, an unloved system. Performance Management is holistic, a total approach to engaging everyone in the organization in a continuous process, to improve everyone and their performance, and thereby the performance of the whole organization.” Considering the nature of both performance management (PM) and performance appraisal (PA), it may be claimed that these two notions are not the same or synonymous. Despite the fact that PA and PM are different, we can see a lot of articles, research papers where these two notions are accepted as the same thing or used synonymously. Performance management is a very broad term, and if we look at the

75 two words separately, we can easily identify that performance management covers wider issues of management function, encompassing planning, designing, implementing, evaluating and monitoring.

There has been a great realiSation, focusing on the importance of defining, planning and managing performance than merely appraising performance (Pareek and Rao, 2006). Performance management is a continuous process of identifying, measuring and developing performance in organisations by linking each individual’s performance and objectives to the organisation’s overall mission and goals (Augunis, 2005). In addition, performance management is accepted as more strategic approach to link individual performance with organisational outcomes and is very long-term-focused. Noe, Hollenbeck, Gerhardt and Wright (2003) define performance management as a process through which managers ensure that employee activities and outputs are congruent with the organisations’ goals. This definition emphasises the importance of performance management in the execution of organisational strategy. Wikina (2008) found that the need to align performance and goals with organisational strategy is causing organisations to examine the performance management structures they have in place and devise ways to make them more effective. However, performance appraisal is operational based and short-term focused (Nickson, 2009). “Performance appraisal is a systematic evaluation of the individual with regard to his or her performance on the job and his potential for development” (Beach, 2005).

The reason why the term “performance appraisal” has been substituted with performance management is that it served the same purpose to a narrow extent (Toppo and Prusty, 2012). Performance management is not a new name for performance appraisal. With its wider characteristics, performance management enables a company to increase individual performance and to contribute more to the whole organisational outcomes. According to Snell and Bohlander (2007), performance appraisal is a process, typically performed/delivered by a supervisor to a subordinate, designed to help employees to understand their roles, objectives, expectations and performance success. On the other hand, performance management is the process of creating a work environment in which people can perform to the best of their abilities. So, performance

76 appraisal is only a process for managers to assess employee performance. However, performance management serves more strategic purposes, has a broader mission and plays an important role in creating work environment, and formulating certain employee behaviours. In other words, performance management is an integrated process of planning, appraisal and providing feedback (Prasad 2005). It consolidates goal-setting, performance appraisal, development into a single, common system, the aim of which is to ensure that employee’s performance is supporting the company’s strategic aim (Dessler, 2008). In addition, performance management is a system. The system is a set of components that work together in an interdependent way to accomplish something. Systems take inputs and through a series of processes, transform the inputs into outputs, products, service or information (Bacal, 1998). Like any system, performance management has its components and performance appraisal is one of the components of the whole performance management system. According to Cascio and Aguinis (2005), performance management is a continuous process of identifying, measuring and developing individual and group performance in organisations. It is not a one-off event that takes place during the annual performance review period. This definition highlights the fact that performance management is systematic. It integrates individual and organisational performance, and has a lifecycle that takes place over a defined period. Mucha (2009) defines performance management as an ongoing, systematic approach to improve results through evidence based decision-making, continuous organisational learning and a focus on accountability for performance.

From a systemic perspective, appraisal serves to identify the links between employee actions and unit level outcomes. The information from appraisals are used to adjust organisational processes. Focusing on individual performance is seen to distract the organisation’s effort to improve systemically (Dobbins, Cardy and Truxillo, 1988, Murphy and Cleveland, 1995). From a systemic point of view, performance management is first of all an instrument that facilitates organisational goal achievement (Lam & Schaubroeck, 1999). A focus on employee errors and faults instead of system also discourages the employee from seeking help from co-workers and leads to avoiding

77 challenges which may reveal personal performance weakness (Lam & Schaubroeck, 1999).

Many organisations expressed dissatisfaction with their PA practice. PA doesn't motivate staff and it may even reduce their motivation (Fletcher 2001). The employee’s perception is positive for performance management rather than performance appraisal. Lawson et al, (2003, cited in Elzinga et al, 2009) found through research in 150 organisations, that two-thirds agreed that implementing performance management systems increased employees’ awareness of company strategy and business plan goals, and helped to align operational improvements with overall strategy.

3.4.2 Employee acceptance of Employee Performance Management System

Employee acceptance of performance appraisal means employees believe in the fair, valid and accurate assessment of their performance. According to Daley (1992), no matter how well a performance system is designed, it will become useless if there is a lack of employee acceptance of the performance appraisal system or if they do not see it as useful or valid. Regardless of the design of a technically sound and accurate performance appraisal system, without employee acceptance of performance appraisal, its quality and its overall success can be compromised (Cardy & Dobbins, 1994). Murphy and Cleveland (1995) proposed that acceptance of performance appraisal by organisational members is a function of its process and outcomes. The process refers to the extent to which employees perceive that the performance rating reflects their true performance or contribution to their organisation and also the extent to which employees perceive that their supervisors make an informed decision based on the information derived from the performance appraisals. Researchers argue that when work practice focus on managerial compliance, which is characterised as “command and control centred,” employees will experience it as coercive. However, when work practice is focused on guiding and coaching employees, such as identifying their development needs so that they can master their tasks, they will perceive it as enabling. This is consistent with the view of Wouters and Wilderon (2008) who argue that too much emphasis on the evaluation function of performance measurement might crowd out the potential of its enabling function and

78 result in the perception of performance measurement by employees as coercive and punitive. In addition, when performance appraisal has developmental components, it is more about intra-personal comparisons rather than inter-personal comparisons, thus resulting in a positive reaction by employees associated with performance appraisal. When employees gain constructive performance feedback or identify areas of improvement through extensive discussion with their supervisor in the performance appraisal session, employees are more likely to reciprocate by expressing their commitment, loyalty, and positive attitudes in return (Eisenberger, Fasolo, & Davis- LaMastro,1990). Elicker, Levy, and Hall (2006) conducted a survey of employees of a large petro-chemical company and found that employees who are in high-quality supervisor–employee relationships respond favourably to performance appraisal. Mani (2002) examined employee attitudes related to appraisal and found that trust in supervisors was important for determining satisfaction with the appraisal system Roberts (2003) also asserted that by participating in performance appraisal goal- setting and standard development, perceived ownership of the performance appraisal by employees is fostered, resulting in employee confidence in performance appraisal and higher acceptance. He further noted that “clear and specific standards of performance are major elements of a valid and reliable performance system”. Acceptance of performance measurement efforts by supervisors and subordinates is critical to the overall success of performance management and its effectiveness, because their attitudes affect their behaviours (Lawler, 1969) It is also noted that not all employees share the same perceptions about performance management system effectiveness (Wright, 2002). Managers and employees can exhibit different views about performance management systems although they share the same positive attitudes in employee participation and system consistency with the job. In addition, line managers’ perceptual dimensions are based on more macro orientations than employees. Employees are more concerned about involvement, participation and feedback. In addition, it has been recently discovered that employees are more demanding about the performance system to be specific and tailored to their individual work needs. Additionally, and according to the findings of a study conducted by Wright (2002), HR perception about employee performance

79 management systems is quite different from line managers and employees. HR is concerned with the system allowing them more input in design and ensuring the system has an adequate number of guidelines. This study also revealed that line managers want more ownership in design, development and evaluation of the system to be sure that goals are appropriately linked to strategy. It is suggested that the social context plays an important role in the effective application of a performance management system (Levy and Williams, 2004) They also argue that effective performance management not only requires the coordination of multiple key practices but also an organisational context that is supportive of such practices. Stoskopf (2002) states that a performance management system with the most academically correct competencies or performance measures may fail if it does not fit with the company’s culture or workforce. As noted by Murphy and Cleveland (1995), few studies have examined the associations between organisational contingencies and performance management effectiveness. Organisational contextual factors have an effect on rater and rate behaviour, although not directly. According to Levy and Williams (2004) an organisation that espouses a continuous learning culture may structure and implement a very different type of performance system than an organisation without such a culture. In addition, doing performance appraisal in a team-based environment is quite different from doing it in an individual based environment. The system in a team-based environment has to balance and emphasise the importance of individual or team performance and has to include non-traditional performance criteria such as teamwork or cooperation, which is very complicated. Levy and Steelman (1997) considered these complexities in proposing a prototypical appraisal system to be used in a team-based environment and generic model includes multi-source ratings of both individual and team performance (e.g., production quality, technical knowledge, functioning of team, customer satisfaction), objective measures of individual and team performance (e.g., scrap rate, production quantity, achievement of team goals and safety objectives) as well as measures of teamwork (e.g., communication, coordination, and conflict resolution skills). Also, this model has to match to the organisational environment in order to be effective.

Not only the environment, but also the HR strategy of the company may impact upon the purpose of the performance management system in terms of its use for either developmental or administrative purposes. In addition, coordination of performance management with multiple key practices and company strategy is very important for success. A study conducted by Biron et al, (2011) investigated several organisational practices that facilitate the effectiveness of performance management system. They conducted research with 16 world leading companies across 19 countries. The findings show that most companies’ results reflect a progression in strategic (performance management) focus in these world leading companies beyond tactical and strategic objectives. The data indicates that in addition to the more tactical targets related to employee evaluation; performance management in such firms manifests a more strategic approach by linking daily operations to the firm’s overarching strategy. More recently, studies have suggested that performance management should emphasise and promote the link between individual interests and firm’s strategy (e.g. Den Hartog, Boselie and Paauwe 2004). This alignment which may also enhance organisational performance (Huselid 1995; Delery and Doty 1996). Gofefrdson (1991) suggests that performance criteria have to be relevant to an organisation’s goals and individual’s job requirements and be successfully translated into measures. An accurate assessment of performance can only be made when there is a clear link between the job requirements and the content of the evaluation. It is not unusual for organisations to revise or completely change their competency models every few years. This occurs due to shifting corporate priorities and determines more appropriate and relevant criteria for employees being assessed. A supportive organisational context is also important for rater accuracy in terms of facilitating and rewarding accurate evaluations (Barnes-Farrell and Lynch,2003). Another issue related with ineffective performance management systems is lack of training. Training both for rater and ratee is very important. Studies show positive relationships between training and the success of performance management system (Biron, Farndale and Paawi, 2011). In addition, a valid, reliable performance instrument and supervisor’s knowledge of performance standards are considered acceptable by employees and supervisors.

It is also argued that the rating process also affects the successful implementation of performance management and it acceptance by employees. There are several factors that may impact upon supervisory rating. Previous research has found that supervisors’ age may contradict with employees’ age to affect supervisory ratings. Relational demography research takes this a step further by directly exploring the extent to which the comparative demographic characteristic of supervisor-subordinate dyads influences work outcomes such as performance ratings (O’Reilly, Caldwell, & Barnett, 1989). Conceptually, it appears that relational demography can affect perceptions of work outcomes and attitudes through interpersonal attraction, based upon similarity in attitudes, values, and experiences), through strong communication and through the frequency of interactions. Inconsistencies between a person’s relative status ranking on different status dimensions (e.g., organisational position and age) may affect that person’s attitudes and behaviours as well (Bacharach, Bamberger, & Mundell, 1993). Subordinates who report to a younger supervisor may experience status incongruence and, subsequently, respond negatively, because of perceived violation of the career timetable associated with supervisory positions, or because of a lack of trust in their supervisor’s capacity to lead them adequately (Perry et al, 1999). In addition, researchers argue that raters from different perspectives consider different factors during the rating process. Raters from different organisational levels observe different behaviours due to their different roles and perspectives relative to the ratee. (Pulakos, Schmitt, and Chan ,1996).

3.5 Conceptual framework

The study asserts that employee performance management has to be framed considering both industry characteristics such as environmental stability or instability, technology, regulation, natural environment and socio-cultural characteristics and attitudes of country people. Secondly, selection of performance criteria is influenced by different factors such as task, organisational and cultural factors. Thirdly, the acceptance of the process by the participants is different due to the certain factors.

3.6 Conclusion

The analysis of existing literature revealed that performance management faces more challenges when it is implemented in non-Western countries and is influenced by cultural values of the country. The role and competence of HRM decision makers are influenced by national culture, varying institutional factors, national business systems, structures and the labour market (Sparrow and Hiltrop (1997). It is no surprise that some HRM practices are not accepted universally and employee performance management as part of HRM activity is also influenced by external factors such as culture and industry. It is cultural differences which make it difficult to standardise aspects of performance management practice (Pucik, 1985; Vance et al, 1992) and a number of studies have sought to examine the impact of country culture on aspects of the process. Performance management is totally Western-based and successful in a European and American context. Failure to implement the system in other countries is rooted in ignorance of the local context (Auginis, 2011). In order to find out on how culture impacts upon the performance management process in Azerbaijan, this study adopts cultural dimensions of Gert Hofstede, as several studies have also used these variables (Aycan, 2005; Hofstede, 2001; Mandinga and Kanungo, 1994). Azerbaijan is not included in the Hosftede list of cultural ranking. Considering neighbouring countries such as Russia, Turkey, Iran and Georgia, which have been included in the cultural ranking scale of Hofstede, it may be argued that Azerbaijan shares the same or similar cultural values in terms of possessing a high power, distant, collectivist, masculine, and high uncertainty avoidance culture. Alongside cultural factors, the firm's industry is also important to frame and execute organisational policies and practices and industry has been highlighted as a critical contextual variable for HRM (Wright and Snell, 1998). Employee performance management as a part of companies’ HRM processes focuses to elicit employee behaviours consistent with firm strategy and other requirements imposed by industry related issues (Jackson and Sechuler, 1995). Impact of regulations, industrial relations systems and labour market conditions have been identified as major influencing environmental factors for HRM processes (Jackson 1995) in literature. For this purpose,

83 the main influencing environmental dimensions on organisational processes in the petroleum industry have been identified for investigation. Literature suggests that petroleum companies are mostly influenced by technology, legislation and the labour market (IBM report, 2010). Considering four main industrial dimensions in petroleum industry this study identifies to what extent technology, legislation, labour market and environment influence performance management. The concept and definition of individual performance has received considerable scholarly research attention over the past 15 to 20 years. Some researchers accept only outcome as a conception of performance, others accept both outcome and behaviour together (Armstrong, 2005). However, performance is a multidimensional construct and the measurement depends upon a variety of factors that comprise it (Fitzgerald and Moon, 1996). Performance consists of a performer engaging in behaviour in a situation to achieve results (Mohrman et al (1989). Nowadays it is generally agreed that job performance consists of a complicated series of interacting variables pertaining to aspects of the job, the employee, and the environment. There are numerous studies offering new ways of structuring thinking about job performance (Arvey & Murphy, 1998). There is also contextual performance that goes beyond outcomes and behaviours and covers attributes like cooperation, dedication, enthusiasm and persistence and the attitudes that enhance the climate and effectiveness of the organisation (Murphy and Cleveland, 1995). . The changing nature of work and organisations has also challenged traditional views of individual work performance (Ilgen & Pulakos, 1999). Performance is a multidimensional construct and the measurement depends on a variety of factors that comprise it. The choice between behaviour and outcome control depends on the specific task characteristics, (Eisenhardt, 1985) and management philosophy and situation (Cardy and Leonard, 2014). Guided by these suggestions, the study investigates how criteria is formulated and which factors influence on choice of criteria. An employee performance management system is an effective tool for achieving success. However, in a real work environment the negative or positive acceptance by employees really matters. Employee acceptance of the performance system means the employee believes in the fair, valid and accurate assessment of their performance. No

84 matter how well a performance system is designed, it will become useless if there is a lack of employee acceptance, or if they do not see the system as useful or valid (Daley, 1992). Acceptance of performance systems by organisational members is a function of its process and outcomes (Murphy & Cleveland, 1995). The process refers to the extent to which employees perceive that the performance rating reflects their true performance or contribution to their organisation, and also the extent to which employees perceive their supervisors make an informed decision based on the information derived from the performance appraisals. Considering these factors, the study reveals how employees in Azerbaijan accept performance management and are there any factors determine it.

CHAPTER FOUR: RESEARCH METHODOLOGY AND DESIGN

4.1 Introduction

This chapter describes the adopted research methodology and design. The study elected a qualitative research methodology as its nature is epistemologically interpretivist and ontologically constructivist. Guided by these philosophical considerations, questions and research methodology, this study undertakes a case study approach. Eight petroleum companies varying in size, structure and type were selected to conduct the study. Qualitative data collection methods, interview and documents are defined to collect primary and secondary data relevant to the study. Interviews were conducted with administrative and technical supervisors, employees, HR managers and specialists of each company. Considering the relevant job positions in targeted companies, five supervisors in administrative positions –from the finance department, procurement department, marketing department, HSSE department and legal department were interviewed. Considering characteristics of positions in petroleum industries, twenty (even more) supervisors from technical departments and sub- departments such as drilling, production, refinement, electrical, mechanical, geological, ecological, technological, oil and gas transportation department were interviewed. In addition, interviews were held with at least four employees from each department. As a data analysis method, thematic analysis was adopted considering epistemology of the research which is ontologically constructivist, meaning and experience are socially produced and reproduced, rather than inhering within individuals (Burr, 1995). The process of data analysis involves transcription of verbal interview data into written form structured systematically and the identification of themes through careful reading and re-reading of the data. This helps recognise important moments that can be encoded prior to a process of interpretation. Encoding the information helps organise the data towards identifying and developing themes. Data analysis is based on a manual method. As this study investigates a phenomenon in context (employee performance management in an industrial and cultural context) it requires analytical and conceptual

86 skills from the researcher, deep analysis to present findings and describe the social context.

4.2 Research methodology and design

Research is an orderly investigative process for the purpose of creating new knowledge (Swanson and Halton, 2005). New knowledge is created applying different methods and techniques in the relevant field. This study aims to conduct research by applying relevant research strategy and methods with employees in organisations/companies to contribute new knowledge to management science. The organisation is a complex entity with its internal and external environment. In addition, the organisation is a man-made entity. Studying people and their behaviour in an organisation is also challenging. Organisations and employees have been the central focus of researchers in human resources, organisational behaviour, sociology etc. (Swanson and Halton, 2005). In addition, designing, conducting, and implementing research in real organisational settings is widely suggested by different authors because of its effectiveness (Rynes, Mcnatt & Bretz, 1999). Campbell et al (1982) and Draft (1984) stated that many significant investigations were about something real within organisations, rather than about something imaginary as seen from outside organisations. Moreover, research conducted inside organisations has the potential to yield unique types of knowledge This study aims to discover and explore new relevant findings in the human resource management field. Finding new things makes the researcher-different in their view of seeing and understanding the world. How the researcher accepts the reality will influence their method and techniques of conducting the research. In other words, the researcher is guided by various philosophical considerations such as epistemology and ontology. Epistemology is regarded as acceptable knowledge in a discipline (Bryman, 2008). The question is whether the social world can or should be studied according to the same principles, procedures as the natural sciences. Guided by this principle, the researcher believes that the social world cannot be studied by natural producers because of the influence of intellectual tradition. Organisations are also considered as social

87 entities made by people that are fundamentally different from the variables of natural science. The study of the social world requires a different logic of research procedure. Social reality has a meaning for human beings and therefore human action is meaningful. They act on the basis of the meanings that they attribute to the acts of others (Bryman, 2008). This explains why the researcher adopts an interpretivist standpoint to interpret realities of the people by understanding, analysing and altering their actions and behaviours. In addition, this approach is regarded useful when the relevant field of science lacks existing knowledge. “Interpretivism differentiates between the social and natural sciences and has as its goal the understanding of the meaning of social phenomena. While interpretivists value the human subjective experience, they seek to develop an objective science to study and describe it. There is then a tension evident between objective interpretation of subjective experiences. In other words, they attempt to apply a logical empiricist methodology to human inquiry” (Andrews, 2012). Ontology is concerned with the nature of social entities in regard to whether they have reality external to social actors or if they are social constructions built up from the perceptions and actions of social actors (Bryman and Bell, 2007). This study takes a constructionism approach to investigate employee performance management at the organisations. It is believed that the employee performance management system is influenced by factors such as industry, culture, job characteristics and strategy, and are subject to change if the characteristics of the environment changes. Constructionism implies that social phenomena and categories are not only produced through social interaction but are in a constant state of revision. Schwandt (2003) considers that constructionism accepts knowledge and the truth as “created” not discovered. According to constructivists, rules and principles do not exist independently of our theorizing about them. Indeed, many organisational theorists have adopted this approach to suggest that organisational “reality” (Astley, 1985) or the truth that academic disciplines state (Canella and Paetzold, 1994) is socially constructed. Constructivists believe that theory and practice are fundamentally interlinked. According to constructivists, practice exists both before and after theory.

Constructivism has been conceptualised as a methodology, which is distinct from a method. A method is a tool or a technique that is used in the process of inquiry. In contrast, a methodology may be regarded as an “intricate set of ontological and epistemological assumptions that a researcher brings to his or her work” (Prasad, 1997: 2). As Machlup (1978) suggests, methodology represents the doctrine of systematic forms of thought, and in order to be clear researchers need to be explicit about their choice of methodology.

4.3 Rationale for the methodology

Methodology means how we gain knowledge about the world and how we can collect research data (Denzin and Lincoln, 2008). Methodology applied for conducting any research is embedded in the ontological and epistemological assumptions (Hennin et al, 2011). A qualitative research methodology was selected to conduct this research given the epistemological and ontological characteristics of the research topic. Qualitative research is interested in the way in which the world is "understood, experimented, or produced” by people's lives, behaviour, and interactions” (Gualldino, 2009). It studies people in their natural settings to identify how their experiences and behaviour are shaped by the context of their lives, such as the cultural, social, economic or physical context they live in (Hennin et al, 2011; Mayer, 2009). In other words, qualitative research methods are designed to help researchers understand people and the social and cultural contexts within which they live. Moreover, it develops valid causal descriptions analysing how certain events have an influence on others, and understanding cause-effect processes in a local, contextualised, placed way.

4.3.1 Justification for exploratory research

Exploratory research tends to tackle new problems on the little or no previous research undertaken (Brown, 2006). Exploratory research is problematic in social science. However, there are a lot of researchers who justify the use of social research with sound arguments. In fact, exploratory research is most useful when the social study is conducted within a cultural, industrial framework. Of course, when pure exploration begins with little defined foundation, nothing is impossible. Exploratory research,

89 similar to confirmatory research, needs to start from an explicitly formulated theory with clear and precise hypotheses. There is no theory-free perception of the world, because we can only relate to the world by applying our own mental categories, words, and frameworks. Unlike confirmatory research, exploratory research does not pose any hypotheses merely to test it, rather it states how much a given theory and a derived hypothesis can explain, and the quality of that explanation. According to Reiter (2013), “exploratory research is successful if a previously formulated theory and hypothesis explains a lot or if it explains very little but explains it very well, thus providing a very valid explanation by elucidating a very strong connection linking a cause to an outcome”. Theory based confirmatory research enables conduct within a specific framework and explains reality in a way that makes sense to others. However, exploratory research provides guidelines to examine and explain reality after critical evaluation (Reiter, 2013). Exploratory research enables us not only to look for the essence behind a word or concept, but to explore what aspect of reality this word opens up for us and what a specific word allows us to see, or what aspect of reality it refers to.

4.3.2 Rationale for the research design

As the study is exploratory, it suggests a clear starting position, a standpoint (Reiter, 2013). This, in turn, requires that we formulate theories about the world, about how things relate, before we initiate any empirical research. We need theories because “we only perceive what we already know, what is familiar to us, or in the words of systems theory, we only perceive that which we recognize as meaningful and patterned, that which makes sense to us” (Reiter, 2013). There is no neutral or clean-slated perception of the world, as our perception of reality is influenced and indeed conditioned by the mental structures, ideas, and theories we already hold about the world. It is suggested that a case study approach creates effective opportunity for conducting exploratory research. However, unlike other research methods which use case studies focusing on the overlap of variables, exploratory research seeks to detect causal mechanisms. That is, causal propositions that link independent to dependent variables. Cases are selected to shed the most light on the specific causal mechanism in

90 focus. In addition, exploratory studies allow us to think, not just measure, to use our imagination, experience, insight, and skill to propose new and innovative ways how to understand and interpret reality. Exploratory research is thus firmly committed to a constructivist view of reality (Reiter, 2013). According to Glaser and Strause (1967), for the effectiveness of qualitative research, certain prerequisites such as validity and reliability of data sources have to be provided. The validity of data sources may be established by using multiple sources to validate information, have participants to review the information for accuracy, attempting to write what was told rather than inferring what was believed or drawing personal opinion about the conclusion (Taylor, 2005). Thus, this research adopts a multiple case study approach to address the questions.

4.4 Case study approach

Guided by the philosophical considerations, questions and research methodology, this study undertakes a case study approach. There are different viewpoints about the nature and philosophical considerations of any case study. Yin describes a case study approach as etymologically positivist, although Stake, 1995; Bassey, 1999; Simons, 2009 describe case studies from an interpretivist perspective. According to Creswell (1998) “case study” is used by qualitative researchers to describe a more complex analysis of a single case within its organisational, social, or environmental context. Yin (1994, p. 1) adds that case studies “are the preferred strategy when “how”’ or “why” questions are being posed”. In addition, Cook and Campbell (1979) state that a case study is one of the most used and reliable approaches in social science. Eisenhardt (1989) says that case studies are particularly well suited to new research areas or research areas for which existing theory seems inadequate. Steven and Appelbaum (2013) state that case studies offer the opportunity for a holistic view of a process as opposed to a reductionist-fragmented view that is so often preferred. According to the holistic view, the whole is not identical with the sum of its parts and consequently, the whole can only be understood by treating it as the central

91 object of study. In other words, this approach enables the researcher to investigate, explain the phenomenon in its social, organisational, political, and economic context.

According to Gilgun (1994), case studies are idiographic, meaning a single unit is studied, multiple variables are investigated, and generalizing is analytic rather than statistical and probabilistic. Idiographic findings are particularly useful because they can provide detail on practice issues and the environments in which practice is embedded. Idiographic findings fit well with practice. Embedded in context and characterised by multiple variables, practice situations themselves are idiographic. A significant issue in interpreting case studies is the need for sufficient descriptive material (Cook & Campbell, 1979). The processes of and barriers to implementation, including contextual features and characteristics of both implementers and subjects of the implementation, can be investigated through case studies Therefore, to understand and interpret case studies, researchers describe the context in detail (Cooper, 1990). Case studies are not linked to any particular type of data, and the data collection method includes participant observation, various types of interviewing ranging from unstructured to structured document analysis; surveys; standardised and non- standardised instruments. According to Steven and Appelbaum (2013) the identity of the researcher will influence the case study based on two factors: access and pre-understanding. Access refers to the ability to get close to the object of a study in order to truly find out what is happening. In the researcher’s efforts to gain access, two types of figures are essential: gatekeepers and informants. Gatekeepers are those who can open or close the gate for the researcher while informants are those who can provide valuable information and smooth the way for others. Pre-understanding refers to such things as people’s knowledge, insights and experience before they engage in a research project. Gummesson (1991) underlines that an individual’s pre-understanding is primarily influenced by five elements: 1) a knowledge of theories, 2) a knowledge of techniques, 3) a knowledge of institutional conditions, 4) an understanding of social patterns which encompasses a company’s cultural value system of often tacit rules of cooperation, social intercourse, communication, etc. and 5) the personal attributes of the researcher such as intuition, creativity, vitality, and human understanding. Whilst a lack

92 of pre-understanding will cause the researcher to spend considerable time gathering basic information, an overabundance of pre-understanding can be a serious threat to the objectivity of a study as it introduces bias on the part of the researcher. It is essential that pre-understanding is subject to change, that the researcher be aware of their own paradigm, selective perception, and personal defence mechanisms. Moreover, they must also take into account the nature of their own possibilities. Yin (1984) identifies four different applications for case studies. First, they serve to explain the causal links in real-life interventions that are too complex for the survey or experimental strategies. The difference with the natural science approach, in terms of explanation, is that while the natural sciences seek to explain universal truths, case studies strive to explain the particular case at hand with the possibility of coming to broader conclusions. The second application of case studies is to describe the real-life context in which an intervention has occurred. Thirdly, a descriptive case study of an intervention can serve as an evaluation tool. Finally, the case study strategy may be used to explore those situations in which the intervention being evaluated has no clear, single set of outcomes.

Robert Stake (1995) has proposed three types of case studies: intrinsic, instrumental, and collective. An intrinsic case study provides an in-depth description of a specific entity so as to acquire a more insightful understanding of the uniqueness of that particular case. An instrumental case study is an intensive analysis of a specific entity—typically an issue or event—so as to refine or alter a theoretical explanation of the issue or event. This is to understand the larger issue or event of which the case studied is only one manifestation. The collective case study examines intensively not one but several entities with a view toward gaining insight into the phenomenon represented across the several cases. Merriam (1988) outlines a slightly different typology of case studies: (1) descriptive – the focus is on ‘‘thick description’’ of the phenomenon (2) interpretive – the goal is to illustrate, support, or challenge theoretical assumptions; and (3) evaluative – involve description, explanation, and judgment. Petty and others (2012) argue that regardless of which types of case studies one implements, the context of the case is

93 critical and the dynamics of the entity being studied must be characterised and interpreted in its social, economic, cultural, and other context. The case study takes shape as part of an inductive approach where the empirical details that constitute the object of study are considered in light of the particular context (Hamel, 1993). Qualitative researchers have tried to understand the complex interrelationships among all elements present in a particular case (Stake, 1995). Case study designs can be categorised along two dimensions, reflecting whether the number of case studies contributing to the design, and the number of units in each case study respectively. Single case studies are appropriate when the case is special (in relation to established theory) for some reason, when case studies provide a critical test to a well- established theory, or where the case is extreme, unique, or has something special to reveal. The objective of multiple case studies across a number of different organisations is to compare or replicate the organisations studied with each other in a systematic way, in the exploration of different research issues (Rowley, 2002). On the basis of the replication logic discussed above, multiple cases can be regarded as equivalent to multiple experiments. In replication, as the number of occurrences of a phenomenon mounts, the more confidence the researcher can have that a finding is reliable (Gilgun, 1994). Because phenomena not only are rooted in context but also are contingent on place, time, the investigators and the subjects, replications can be difficult and sometimes impossible to achieve. Yet some findings may hold over place, time, context and person. Additionally, most case studies involve the examination of multiple variables. Thickly described case studies take multiple perspectives into account and attempt to understand the influences of multi-layered social systems on subjects' perspectives and behaviours (Gilgun. 1994). The case study approach has been criticised because of its validity. Specifically, case studies are accused of being subjective, lacking rigor and yielding findings that cannot be generalised across settings (Steven and Appelbaum, 2013). Careful descriptions of subjects, prior conditions, and contexts are guidelines for estimating internal validity (Gilgun, 1994). In addition, some authors argue that embedded multiple case studies, where a set of variables are investigated across all cases, is another technique to provide validity and reliability of the study. When the number of

94 occurrences of a phenomenon mounts, the more confidence the researcher has that a finding is reliable (Gilgun, 1994). On the other hand, despite this scepticism about case studies, they are widely used because they may offer insights that might not be achieved with other approaches (Rowley, 2002). The case study’s unique strength is its ability to deal with a full variety of evidence - documents, interviews and observations. (Yin, 1984). Case studies typically combine data collection methods such as archival searches, interviews, questionnaires, and observation to describe the event, phenomenon, studying object and its context carefully. In addition, application of data from different sources accounts for the validity of the study. The cases will be analysed applying cross-case search for patterns. According to Eisenhardt (1989) “the tactics here are driven by the reality that people are notoriously poor processors of information. They leap to conclusions based on limited data, they are overly influenced by the vividness or by more elite respondents they ignore basic statistical properties, or they sometimes inadvertently drop disconfirming evidence”. The danger is that investigators reach premature and even false conclusions as a result of these information-processing biases. Thus, the key to good cross-case comparison is counteracting these tendencies by looking at the data in many divergent ways. Considering the facts mentioned above, this study adopts a collective embedded multiple evaluative case as a research design

4.5 Data collection

Research is an activity that is undertaken to find an answer or explanation regarding a particular social phenomenon. It involves systematic collection of data for the purpose of finding and/or understanding patterns and regularities. Considering the nature of the study, which is exploratory and conducted in a cultural and industrial context, a qualitative data collection method is adopted for this study. This method consists of three kinds of data collection; in-depth interviews, direct observation and examining written documents. Data from interviews consists of direct quotations from people about their opinions, experience and knowledge. The data from observations consists of detailed descriptions of people’s activities, behaviours and actions. Data

95 from document analysis yields information about written records, reports, official publications, policies and guidelines. Bogdan and Biklen (2007) have pointed out that the interview may be the dominant method of data collection or it may be used in conjunction with other methods. They have listed document analysis as a suitable partner for an interview. Thus, this study uses interview and written documentation analysis as the methods of data collection.

Regarding the validity and reliability of qualitative data obtained from the field and documents, there are different viewpoints. Some authors do not accept qualitative data only and assume that qualitative data without measurement is not able to yield sound outcomes. However, supporters of the qualitative research approach argue that reliability and validity of data is provided and without any quantifiable measurement it is also possible to conduct effective research studies. Guba and Lincoln state (2005) that validity and reliability of data depend to a great extent on the methodological skill, sensitivity and integrity of the researcher. Generating useful and credible qualitative findings through interviewing and document analysis requires discipline, knowledge, creativity and hard work. Others argue that validity and reliability of qualitative data can be achieved through triangulation, using different data collection methods, applying multiple case studies for replication and so on (Yin, 1994). Used appropriately, qualitative research methods provide deeper insights into the research area than is possible using quantitative methods alone (Jepsen and Rodwell, 2008).

4.5.1 Interview

The interview is suggested to be the major qualitative technique by authors (Denzin, 1989; Yin, 1994; Bryman, 1999). Qualitative data collection methods allow the study of a selected issue with depth and detail (Bryman and Burgess, 1999). As the study aims to discover industry and culture related findings and is exploratory by nature, semi-structured in-depth interviews are adopted as a data collection method. Cummins (1999) and Rowley (2012) state that if the nature of the research is exploratory and there is insufficient knowledge of the subject, in-depth interviews are deemed the most appropriate research tool. Borch and Arthur (1995) recommend that in-depth interview increases contextual insights and allows for a greater understanding

96 of forces affecting the phenomena in question, through highlighting the “how and why” of organisational and individual action. According to Tull and Hawkins (1990), the in-depth interview is the most appropriate method to probe details relating to an individual’s behaviour or attitudes. The greater the structure imposed by the interviewer, the less scope there is for respondents to offer their constructed reality. Bogdan and Biklen (2007) have recorded that semi-structured interviews are effective in gaining comparable data across subjects, but one may lose the opportunity to understand how the subjects themselves structure the topic at hand. However, some argue that in-depth interviews can make respondents diverge from the main idea. In fact, in-depth interviews are somehow structured by nature because it is guided by a conceptual model or framework of the conducted study (Cummins, 1999). So while the interviews can be relatively unstructured in nature, the conceptual models serve as a checklist of areas to be covered. According to Patton (1987), the basic thrust of qualitative interviewing is to minimise the imposition of predetermined responses when gathering data and it is crucial that questions are asked in a truly open-ended way. In addition, this study adopts the semi-structured in-depth interview method because, as mentioned above, this method is an effective way of getting comparable data across subjects, enabling the coding and categorization of data effectively. Analysis of the data is not based on the repetition of the words. It is based on the opportunities to change the words but not the meaning of questions provided by a semi-structured interview schedule that acknowledges that not every word has the same meaning to every respondent and not every respondent uses the same vocabulary (Treece & Treece 1986). Implicit in this reasoning is that respondents share a common vocabulary and that every word has the same meaning to every respondent (Nay-Brock 1984, Denzin 1989). Clearly, in this type of interview, validity and reliability depend, not upon the repeated use of the same words in each question, but upon conveying equivalence of meaning (Denzin 1989). It is this equivalence of meaning which helps to standardise the semi-structured interview and facilitate comparability. In-depth interviewing is an expensive and time-consuming data collection technique relative to the quantitative methodologies (Tuten and Urban, 2001). However,

97 the use of in-depth interviews was considered an appropriate methodological vehicle given the goal of obtaining richness in data through a detailed and frank discussion (O’Donnell and Cummins, 1999). Face-to-face, person-to-person interviews are planned. The correlation of evidence from thousands of surveys over the years reveals that people are remarkably honest and frank when asked their opinions within a context when the respondent knows the purpose of the interview, when the questions are properly worded and complete anonymity is guaranteed with respect to the interviewee's responses. These conditions can best be met through personal contact (Bogdan & Biklen, 2007). In addition, the person-to-person interview is best for obtaining in-depth opinions. The semi-structured interview gives opportunity for probing. Probing, in particular, can be an invaluable tool for ensuring reliability of data as it allows for the clarification of interesting and relevant issues raised by the respondents, provides opportunities to explore sensitive issues, can elicit valuable and complete information that enables the interviewer to explore and clarify inconsistencies within respondents’ accounts, and can help respondents recall information for questions involving memory (Barribal, 1994). As this study adopts thematic analysis, it is important to transcribe the interview data into written form. In addition, no software programme is intended to apply and the analysis will be conducted manually. Transcription of data makes the data analysis process very easy and effective. It creates a chance to familiarise oneself with the data while keeping detail image of the responses in mind. It may seem a time-consuming process, but for some researchers it is “a key phase of data analysis within interpretative qualitative methodology” (Bird, 2005) and recognised as an interpretative act, where meanings are created, rather than simply a mechanical act of putting spoken sounds on paper (Lapadat and Lindsay, 1999).

4.6 Sampling and recruitment

Nine different petroleum companies have been selected for the interview. These companies are different from each other in terms of size, structure and sector. The main

98 objective is to get a much broader understanding of the studied phenomenon. As the main aim of the study is to find application of the EPMS in the petroleum industry, industry related features have to be clearly investigated and analysed. For this reason, the more numerous and varied the petroleum companies, the more consistent the findings. These are the companies where interviews have been conducted: BP AGT, Bos Shelf, Integrated Drilling Trust, Caspian Drilling Company, Schlumberger, Baker Hughes, Azneft PU, Geological and Geophysical Department, H. Aliyev Oil Refinery

Interviews were conducted with stakeholders involved in the performance management process: HR, supervisors and employees of each company. Employees and supervisors of both technical and administrative positions participated during interview process. The logic behind this is to see whether industry related factors make an impact on technical and administrative positions to the same degree. In addition, what are the variations of performance management process for technical and administrative positions.

Unlike other qualitative studies, this research requires a large number of respondents to be interviewed. This is because analysis of cultural and industrial findings has to be exact and precise, and in order to separate the impact of cultural/industrial factors from other dimensions, we need to analyse the phenomenon in various contexts, differences in company size, structure and sector. In addition, the author had access to all stated eight companies to conduct research which was considered the most important in undertaking qualitative research. The author spent 6 months on fieldwork study to conduct these interviews and to analyse related documents.

4.6.2 Documents Document analysis was adopted as a supplement to the interview method of data collection. A document is an artefact which has as its central feature an inscribed text (Scott 1990). Lincoln and Guba (1985) defined a document as “any written or recorded material” not prepared for the purposes of the evaluation or at the request of the inquirer. A document, unlike a speech, can have an independent existence beyond the writer and beyond the context of its production (Jary and Jary 1991). The most

99 important thing about the documents is that they are not deliberately produced for the purpose of research, but naturally occurring objects with a concrete or semi-permanent existence which tell us indirectly about the social world of the people who created them (Payne and Payne 2004). Document analysis enables the researcher to study the information about the phenomenon under investigation. This method is described as the techniques used to categorise, investigate, interpret and identify the limitations of physical sources. (Payne and Payne, 2004) There are different types of document as Lincoln and Guba stated (2005). This study used both public and private documents. Documents included company policy, rules and guidelines, any written and official document about the employee performance management system of the company, reports and protocols, any EPMS evaluation forms etc. The data from these documents was employed to study the reality of the EPMS of the company, how it is applied and implemented in a real job situation and by making comparison with respondents’ answers. In addition, data about the political, economic, social and cultural situation of the country was presented for explanation, clarification and description. This data was adopted online from official reports and existing documents on the ministries’ websites.

4.7 Data analysis

It is important to recognise that qualitative analysis guidelines are exactly that. They are not rules and following the basic precepts will need to be applied flexibly to fit the research questions and data (Patton, 1990). Guided by these statements, this study adopts qualitative thematic analysis to analyse primary data which is collected from the interviews. Thematic data analysis is selected as it doesn't focus on words but ideas or meanings which are most appropriate for this research. As semi-structured in-depth interviews are conducted for this research, validity and reliability depend, not upon the repeated use of the same words in each question, but upon conveying equivalence of meaning (Denzin 1989). It is this equivalence of meaning which helps to conduct data analysis very effectively. Thematic analysis involves the searching across of a data set to find repeated patterns of meaning. In addition, Foster and Parker (1995) stated that data analysis is a deliberate and self-consciously artful creation by the researcher. With

100 regards to qualitative data analysis, not only the situation but also the researcher’s background set of values influence the interpretation and process of social phenomenon (Altheide & Johnson 1994). This is the research epistemology that guides the researcher in what can be said about the data and how it can be made meaningful. From a constructionist perspective, meaning and experience are socially produced and reproduced, rather than inherent within individuals (Burr, 1995). Therefore, thematic analysis conducted within a constructionist framework cannot and does not seek to focus on motivation or individual psychologies, but instead seeks to theorise the socio- cultural contexts and structural conditions that enable the individual accounts provided. Moreover, thematic analyses require more involvement and interpretation from the researcher. One rational for adopting thematic analysis for this study is that thematic analysis moves beyond counting explicit words or phrases and focuses on identifying and describing both implicit and explicit ideas. (Namey et al, 2008). In addition, qualitative research requires understanding and collecting diverse data and thematic analysis offers an opportunity to understand the potential of any issue more widely (Ibrahim). As this paper adopts a case study method, the social context of events, thoughts and actions becomes essential for interpretation As mentioned before, thematic analysis is a method for identifying, analysing and reporting patterns (themes) within data and the “theme captures something important about the data in relation to the research question, and represents some level of patterned response or meaning within the data set”. Boyatzis (1998) suggests that there are two types of thematic analysis, the semantic and latent approach. With a semantic approach, the themes are identified within the explicit or surface meanings of the data, and the analyst is not looking for anything beyond what a participant has said or what has been written. In contrast, the latent approach goes beyond the semantic content of the data, and starts to identify or examine the underlying ideas, assumptions, and conceptualizations that are theorised as shaping or informing the semantic content of the data. In a semantic approach, the analytic process involves a progression from description, where the data has simply been organised to show patterns in semantic content, and summarised, to interpretation, where there is an attempt to theorise the

101 significance of the patterns and their broader meanings and implications often in relation to previous literature for latent thematic analysis, the development of the themes themselves involves interpretative work and the analysis that is produced is not just description, but is already theorised. Analysis within this latter tradition tends to come from a constructionist paradigm. Guided by these definitions and considering epistemological characteristics of this research, the author adopted a latent thematic approach for data analysis. Data was presented on the basis of rich description. A rich description of the data set, or a detailed account of one particular aspect, is stated as important when investigating an under-researched area or working with participants whose views on the topic are not known. There are two methods of presenting rich description in thematic analysis. One is that the description of the data is provided and the theme or codes need to be an accurate reflection of the content of the entire data set. An alternative use of thematic analysis is to provide a more detailed and nuanced account of one particular theme, or group of themes, within the data. This might relate to a specific question or area of interest within the data across the whole or majority of the data set. The latter approach was selected to provide rich description of the data for this study.

4.7.1 The process of data analysis

This study adopted some principles in regard to data analysis processes. The first principle is to compact extensive and diverse raw data into a succinct structure. Transcription of verbal data to written data would be conducted at the end of interviews. This gives the opportunity to identify, compare and determine the data upon which to focus (Duscombe, 2010). The second principle is to make the relationship between the research objectives and the summary clear. Objectives and research questions of qualitative study are considered clear drives for effective data analysis. The third principle is that findings should serve to developing a model or improving the conceptual basis of the research. Guided by these principles, the process of data analysis involved the transcription of verbal interview data into written form structured systematically and the identification of themes through careful reading and re-reading of the data. This helped

102 to recognise an important moment and encode it prior to a process of interpretation. Encoding the information organises the data to identify and develop themes. Boyatzis (1998) stated that a “good code” is one that captures the qualitative richness of the phenomenon. Data analysis has been based on the manual method. The author believes that software programmes do not offer much opportunity to support qualitative research. In addition, as this study investigates a phenomenon in context (employee performance management in an industrial and cultural context) it requires analytical and conceptual skills to deeply analyse and present the findings and describe the social context. Thus, it is not a “machine work”. The data analysis is cross sectional. Transcription of the interview results of each company were presented and then the encoding process applied on the repeated patterns or meanings. Analysis was conducted in each company separately because of the differences in their environmental practices. Secondary data was presented for description or clarification purposes in analysis of primary data. Findings were presented after analysis of each company’s interview results, documents and environmental context. Thematic analysis is considered the most appropriate for any study that seeks to discover using interpretations. It provides a systematic element to data analysis. It allows the researcher to associate an analysis of the frequency of a theme with one of the whole content. This conferred accuracy and intricacy and enhance the research’s whole meaning. Thematic analysis allowed the researcher to determine precisely the relationships between concepts and compare them with the replicated data.

3.8 Conclusion

Having considered the nature of the phenomena which were the subject of the proposed study, qualitative research was approved to undertake this research. This study identified multiple case study approach using semi-structured interviews and document analysis as the primary form of data collection. Interviews were conducted in 9 petroleum companies located in Azerbaijan. The selection of companies has been based

103 on stratified convenience sampling. 340 employees were interviewed. The results of this inquiry are presented in the next chapter.

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CHAPTER FIVE: DATA PRESENTATATION AND ANALYSIS

5.1 Introduction

As stated earlier, the main aim of this research is to investigate how culture and industry influence employee performance management in petroleum companies in Azerbaijan. Other specific objectives are to examine how managers formulate performance criteria in terms of behaviour, competency or outcome and how performance management is accepted by HR staff, line managers and employees. This chapter serves and supports the main aim of the research by presenting and analysing the data collected from interviews and document analysis.

As demonstrated in the methodology chapter, the study adopted a qualitative approach to the investigation of the topic. Hence, interview and written documentation has been applied to this study. The interviews were held at nine petroleum companies located in Azerbaijan. These nine companies are different in structure, size and background and in terms of being local or foreign ownership.

The selection of companies has been based on stratified convenience sampling. This is done in order to include local, foreign and joint venture companies. 340 employees were interviewed. The profile of the respondents is presented in a table of each section discussed. The research adopted a large number of respondents to be interviewed unlike other qualitative studies. This is because analysis of cultural and industrial factors has to be precise. In order to separate the impact of cultural/industrial factors from other factors it is necessary to analyse the phenomenon in the various contexts this study is concerned with.

Participants have been selected according to stratified random sampling. They included developers of performance management system (HR), line managers and employees, implementation and experience of the components of this system. Supervisors and employees were from various posts, including technical and administrative positions.

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This study adopts qualitative thematic analysis to analyse primary data which is collected from the interviews and documents. Thematic data analysis is selected as it does not focus on words but ideas or meanings which are most appropriate for this research. As semi-structured in-depth interviews are conducted for this research, validity and reliability depend not upon the repeated use of the same words in each question, but upon conveying equivalence of meaning (Denzin 1989). Analysis of the data in this study involves searching across a data set to find repeated patterns of meaning. This helps to identify, analyse and report patterns (themes) within data in relation to the research question, and represents some level of patterned response or meaning within the data set. This study adopted the use of multiple case studies to provide a description of data. The objective of multiple case studies across a number of different organisations is to compare or replicate the organisations studied with each other in a systematic way, in the exploration of different research issues (Rowley, 2002). On the basis of the replication logic discussed above, multiple cases can be regarded as equivalent to multiple experiments. In replication, as the number of occurrences of a phenomenon mounts, the more confidence the researcher can have that a finding is reliable (Gilgun, 1994). Because phenomena are not only rooted in context but also contingent on place, time, the investigators, and the subjects, replications can be difficult and sometimes impossible to achieve. The findings are presented according to all these philosophies. The structure of the chapter is presented as follows. The chapter begins with brief information about the aim of the research and data collection methodology. Furthermore, the data is presented as a type of case study for each company. Each case study consists of the following sections: company information, general process of the performance management system at the company, documentation process of performance management, industrial and cultural impact on performance management process, criteria of performance and employee acceptance of performance management at the company. The content of the sections is structured according to the research questions of the study. Generalization of findings is presented at the end. The frequent occurrences of different phenomenon serve the general findings about performance management systems in Azerbaijan.

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5.2 Employee Performance Management at BP Exploration (Caspian Sea) Limited

5.2.1 Company Information

BP Exploration (Caspian Sea) Limited was formed in 1992. It is one of the legal entities of BP operating worldwide. In Azerbaijan, BP operates under several production sharing agreements and host government agreements (HGAs) signed with the Government of Azerbaijan. Azeri-Chirag-Deepwater Gunashli (ACG) production sharing agreement (PSA) was signed by BP, its co-ventures, and the Government of Azerbaijan in 1994. In Georgia and Turkey, it operates under HGAs that cover export pipelines and terminals.

The AGT regional leadership team led by the regional president consists of 16 vice presidents, the chief procurement officer, the assistant general counsel, the head of planning and commercial operations and head of control and financial operations for Azerbaijan, Georgia and Turkey. At the end of the first half of 2016, the total number of BP's Azerbaijani national employees was 2,903, including fixed-term employees. The number of interview participants was 26 reflecting various discipline and positions.

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Table 5.1: Number of interview participants at BP

BP Caspian Department Number of Employees Number of Managers Wells 2 1 Production team 3 1 Field support 2 1 HR 3 1 Finance and Accounting 2 1 HSEE 2 1 IT 1 1 Instrument and control 2 1 Total number of 17 8 interviewees:

5.2.2 General Process of Performance Management

Interviews and documentary analysis of this company revealed that there is a policy for Performance Management in the company and this policy stipulated the stages, the employee and line managers’ responsibilities and key principles. The purpose of the process is to support employees to deliver safe, responsible and sustainable performance, as well as to support their development. Performance Management System covers the process of setting goals for employees at the beginning of the year and then assesses the performance against these goals at the end of the year. At every step in the cycle a conversation with the line manager results in a written summary within the noted deadlines.

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Figure 5.2: Annual Performance Management Cycle is shown below (Source: Company document)

The process starts at the beginning of the year with setting goals and objectives. This is called the planning stage. At this stage, the employees have conversations with line managers and they receive group, functional objectives and together with the line manager they come up with objectives for the current year. Objectives are agreed with the line manager during the initial stage and then progress is reviewed twice a year. Those objectives can be adjusted throughout the year based on business requirements (role change, new projects and so on). Not only objectives, but also development goals are identified for the year based on the availability of training, projects and so on.

The objectives are delivered by the employee throughout the year with support from the line manager when required. The regular check-in meetings are organised to assess the progress or to make intervention. It requires commitment both from line managers and employees to develop quality objectives and have quality conversations throughout the year. Although employees and line managers might agree to have more frequent reviews of objectives through regular catch-ups, mid-year conversation is the

109 formal stage of the system. During the mid-year review, employee and line manager have a formal conversation about the progress so far. Employee and line managers provide feedback against the priorities, how to do the job and development actions.

The formal evaluation of an employee’s performance happens at the end of the year via the official year-end performance conversation. The line manager and employee discuss the progress against the objectives and how the employee has done against them. They provide feedback against the priorities, how to do the job and development actions. In addition, the employee receives an overall rating of his/her annual contribution which is the reflection of achievement against the priorities: safety, compliance & risk management, near- and long-term goals, as well as how the employee demonstrated company Values and Behaviours. The employee is assessed with one of these ratings: Exceptional, Exceeds Expectations, Delivers Expectations, Below Expectations.

5.2.3 Documentation of Performance Management Process

This section presents the data about how performance management is applied which may be either paper based or electronically in the company. The system is electronically supported via the tool “My Plan”. All employees, line managers and HR advisors have access to the system. “My Plan” consists of 7 sections including “Personal details and my job”, “My priorities”, “How will I do my job”, “My development”, “Mid-year feedback”, “Year- end feedback” and “Overall rating”. In the first section (Personal details and my job), the employee provides their personal details. In addition, key accountabilities of the job are identified with the line manager. These accountabilities have to be expressed with 8 short statements. When the employee completes section 2, “My priorities”, he or she has a conversation with the line manager and agrees to no more than 12 priorities for the year. He or she refers to the annual and long-term business plans for the area, Operation Management System (OMS) or relevant other functional standards, as well as the key accountabilities of the role documented in Section 1. Each priority must be written to clearly outline the action that the employee will take in near- and long-term planning, and how it will be measured.

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Near-term is the performance outcome for the year. Long-term (3+ years) is about in- year milestones and employee role in supporting or delivery the long-term plan for the area. It relates to building organisational capability and expertise through people, systems or processes.

The employee works with the line manager to discuss the values and behaviours and how they apply to him/her in the context of the role when completing the third section, “How I will do my job”. BP values are Safety, Respect, Excellence, Courage and One Team. The employee identifies at a minimum, 3 behaviours that underpin the successful achievement of his or her priorities or that he or she needs to improve in order to become more effective in this role. He or she will demonstrate all the behaviours outlined under the values. He or she discusses and agrees with the line manager how these behaviours will be observed throughout the course of the year. In addition, employees are not expected to demonstrate all behaviours, only those that are of particular importance for them to be effective.

In the section “My development”, the employee is expected to discuss and agree with the line manager the short-term development actions that will support him or her to develop in his role and deliver more effective in-year performance in-line with the annual priorities outlined in sections 2 and 3. Development actions should consider on- the-job learning, networking events, a further course of academic study, mentoring opportunities, as well as classroom-based training events.

Mid-year and year-end feedback sections consist of written feedback against the priorities, how to do the job and development actions. The employee provides feedback in the self-assessment part of the section and the line manager provides feedback in the line manager assessment part. They both provide an overall summary of performance, including strengths and areas for future focus.

The overall rating section reflects the rating of the employee achievement against safety, compliance and risk management, near - and long-term, as well as how you demonstrated BP AGT Values and Behaviours. It is a judgment based on delivery against their priorities, as well as how you do the job. The employee receives one of the following ratings:

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 Exceptional  Exceeds Expectations  Delivers Expectations  Below Expectations

5.2.4 Industrial and Cultural Impact on Performance Management System at BP AGT

5.2.5 Criteria of Performance at BP

In the “My priorities” section of “My plan”, the employee identifies no more than 12 priorities for the year referring to the annual and long-term business plans of his or her area, standards and accountabilities. Actions and measurement methods are also included for each priority. The priorities serve both short- and long-term deliverances. “They reflect both annual deliverables and the role of the employee creating a strong future for BP”. Near-term is the performance outcome of the employee for the year. Long-term is about building organisational capability and expertise through people, systems or processes.

In the “How I will do my job” section behaviours are identified in order to achieve effective outcome. The employee adheres to the Code of Conduct of the company and refers to 5 values and 25 behaviours. Detailed information about how behaviours supports the deliverance and how these behaviours will be observed through the year are provided for each behaviour. In the section of “How I do my jobs” it is stated as guidelines for employee:

“To adhering to the Code of Conduct I will refer to our values and behaviours – listed below – and have a conversation with my line manager about the following:

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1. Why these values and behaviours are important to me and how they support me to deliver more effective performance outcomes in the context of the priorities I have set. 2. What I need to do differently in order to deliver performance in my role more effectively. 3. In the context of points 1 and 2 above, identify, at a minimum, the 3 behaviours that are most relevant and why and how they will be observed throughout the course of the performance year.

“I understand I will need to demonstrate all the behaviours outlined under our Values but that I am focusing on those that are of particular importance for me to be effective.

I will summarise the conversation I have with my manager by documenting each behaviour, how it supports me to deliver more effective performance in my role and how it will be observed through the course of the year.” Table 5.3: Company Values and Behaviours (Source – company documents)

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HR specialists and HR managers stated that as the industry and operations are quite hectic and dynamic throughout the year the need can arise to undertake a new project or activity. This is also influenced on the priorities, actions and behaviours included in “My plan”. All these have to be adjusted to the new goals.

Interviews with employees and analysis of job descriptions revealed that they don’t undertake any job unrelated activities. Contextual performance is not considered and HR people don’t have any idea what it means.

“Regarding contextual performance, I don’t have any information about it. As you have clarified, we don’t consider it in our processes. In fact, it is sometimes not possible to evaluate all aspects of performance and we only consider things related with task performance.”

The process is universal for all types of jobs. The employee performance in team work jobs and complex jobs are assessed accordingly. Job characteristics are not considered and interviewees don’t have knowledge about it.

“The process is universal both for job types and countries. The process is applied the same to complex and team work jobs. In fact, a team member’s contribution is individually evaluated.”

In conclusion, data from document analysis and interview responses revealed that criteria for performance are a set of behaviours and outcomes at BP. Both behaviours and results are strategically aligned. In addition, contextual performance, team work and job characteristics are not considered. Employees don’t undertake any job unrelated activities.

5.2.6 Employee Acceptance of Performance Management System

5.3 Employee Performance Management at BOS Shelf.

5.3.1 Company Information

BOS Shelf is the company formed by Star Gulf FZCO and the State Oil Company of Azerbaijan Republic (SOCAR), who are represented in the partnership by

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Baku Deepwater Jackets Factory (BDJF). BOS Shelf was awarded a contract by AIOC for construction of two (2) deep water jackets for the Central Azeri field, which was the first phase of the full field development of Azeri, Chirag and Deep Water Guneshli (ACG) oil fields, in the Azerbaijan sector of the Caspian Sea. Personnel of the company consist of approximately 3,000 employees. Out of these 95 percent were Azerbaijani nationals. BOS Shelf placed emphasis on training its personnel in order to bring their skills to international standards. Such training included improvement and development of qualifications for welders and assemblers, in the specialised training schools, created and operated at BDJF. In addition, a number of courses to develop engineers, accountants, and administration staff were successfully carried out. Combining an experienced multi-national management team and a well-trained workforce of around 3,000 people, with international organisation and support, particularly in Engineering and Procurement, BOS Shelf has the capacity and capability to successfully undertake EPIC Projects for the Oil and Gas Industry. This allows the company to play major roles in the biggest contracts in Azerbaijan as well as in other regions of the Caspian Sea. The number of participants interviewed at this company is 29.

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Table 5.4: Number of interview participants at BOS Shelf

BOS Shelf

Department Number of Employees Number of Managers Management of main 1 1 assets IT department 1 1 Finance and Accounting 2 1 Department of HRM and 3 2 Social Issues Department of Power 3 2 engineering and mechanics HSEE department 2 1 Department of 5 2 Construction Department of Law 1 1

Total number of 18 11 interviewees:

5.3.2 General Process of Performance Management

One of the objectives of this study is to investigate the general process of performance management in the Azerbaijan Oil and Gas sector. This section presents data on the PM process of Bos Shelf.

The purpose of the performance management process is to help and encourage everyone to improve personal performance, develop their abilities, increase job satisfaction, and achieve their full potential to the benefit of both the individual and the organisation as a whole. The main reasons for applying performance management at the company are as follows:

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 To focus everyone’s attention on what they are expected to achieve in their jobs and how best to achieve it  To identify and satisfy individual development needs, improve performance and realise full potential

Performance management takes the following form in Bosh Shelf. The employee and their manager discuss and agree employee objectives, action plans, development and training needs. This is called the Performance Agreement. During the review period (1 year), the employee and manager keep under review the employee’s progress in meeting his/her objectives. The employee agrees revisions to those objectives and priorities as necessary. Towards the end of the review period, the employee and manager independently prepare for the Performance and Development review meeting, collating and noting down in advance any topics they wish to raise. At the subsequent review meeting, the employee can discuss with their manager how they performed during the review period and any other topics they want to raise. The employee together with their manager draw up a new performance agreement for the next review period. The manager’s direct superior assesses the form and adds any comments they feel may be appropriate. The employee also sees these comments. The employee, his manager and a HR representative each retain their own copy of the review form. No other copies are held elsewhere. Performance management mainly focuses on developing strengths as well as considering any performance challenges. It is based on open and constructive dialogue and is considered as an everyday and natural management process, not an annual form-filling exercise. The process should be considered as a positive process looking to the future rather than dwelling on the past.

The benefits of the process for the employee are as follows:

 The know what is expected of them  They know how they stand with respect to personal performance  They know what they need to do to reach their objectives  They can discuss with manager their present job, development/training needs and future

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The benefits for the manager are that it helps to:

 Clarify expectations with the individual members of their teams  Have “quality time” with their staff to discuss matters affecting work, performance and development  Provide improved feedback to individuals regarding their performance and progress based on a mutual understanding of needs  Identify areas of individual concern and provide guidance to enable individuals to make the best use of their abilities  Build closer working relationships based on mutual trust and respect  Identify individual training and development needs

5.3.3 Documentation

The process is paper based. There are two separate types of performance evaluation form for labour staff and office staff. The form for the office staff is called a planning and evaluation form. This form consists of two sections: planning and evaluation section. The planning section covers information about personal details, performance and development agreement, corporate goals/values alignment, development plan. The performance and development agreement section consists of information about objectives and behavioural competencies. Each objective has its weight with percentage and is defined with performance measures in terms of time, quality and finance. There are three fixed behavioural competencies for office staff: managing relationships, drive for result, and decision quality and problem solving. Each behaviour has its weight with percentage and is defined with agreed actions such as to improve or to maintain standards. Corporate goals and values alignment consists of the names of four goals/values: safety, quality, environment, and schedule. Each goal is defined by relevant standards. The development plant section covers information about mandatory job specific training needs, specialised job specific training needs, and career development needs. Each need is relevant to training activities such as coaching, internal training or external training.

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The evaluation section for office staff consists of information about evaluation, awareness of corporate values/goals, employee improvement, assessor comments and signs. The evaluation section covers names of objectives and behaviours. Both objectives and behaviours are evaluated with numerical verbal rating scales: unacceptable - 50, insufficient - 70, sufficient - 100, good - 115, and excellent – 130. Awareness of corporate goals measures the employee knowledge about the goals and values such as safety, quality, environment, and schedule. The employee improvement section consists of information about training and development courses provided, accompanied with practical application in a specified field and monitored improvements with relevant examples. Assessor comments are feedback from the manager or employee. At the end, the form is signed by an assessor, responsible and employee.

The performance evaluation form for labour staff consists of an evaluation section, alignment section, comments, and HR comments section. The evaluation section consists of a training section, job responsibilities behavioural competencies and legend for the sections. In the evaluation part, the training section covers information about name of competency training, number of trainings, results (failed, passed) and comments. Job responsibilities include items such as safety awareness, achieved results, quality of work, wide vision of work contest/process and compliance with procedures and control systems. Each item is scored and rated as unacceptable, insufficient, sufficient, good, and excellent. Behavioural competencies cover items such as problem solving, relationship, verbal/written communication, decision-making, initiative, stress resistance. Each behaviour is evaluated with levels such as not appropriate, appropriate, excellent and not required. The alignment section consists of information about awareness of corporate goals and values. These goals are safety, quality, environment and schedule. In this part, the assessor either explains how personal goals are aligned with company goals. If the employee is already aware of it, he ticks “already aware”.

Comments cover the assessor’s feedback about employee performance. At the end of the form, HR adds information about normal working hours, vacation, sickness leave, unpaid leave, educational leave, unauthorised absence. Each item is evaluated with scores and rated with insufficient results (70 percent), sufficient results (70-79

119 percent), good results (80-89 percent), excellent results (90-100 percent). Formula for calculation of this section results is normal working hours + vacation/total hours in %. After filling, the form is signed by assessors, the HR Manager and the Operations Manager.

5.3.4 Industrial and Cultural Impact on Performance Management System at BOS Shelf

One of the objectives of this study is to investigate how certain environmental factors are considered and impact during the formulation or implementation of the performance management system in the Azerbaijan Oil and Gas sector. BOS Shelf is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews, secondary data. First, the relevant data will be presented as it is described in the company document about employment strategy.

The company’s employment strategy focuses on development of certain aspects of the people management process which is caused by environmental factors such as labour market, regulation, industry and so on. BOS Shelf’s employment strategy is preferably addressed to the employment and training of local personnel, who will gradually substitute expatriates. It is also stated in the document of employment strategy that training is a key element within the business culture, as it creates a significant competitive advantage for the company by:

 Enhancing the development of key personnel  Meeting local content targets  Meeting HSE standards and enhancing the company’s safety culture  Providing projects with know-how and skills required for operations  Being successful in bids with major projects

It is stated in the document about employment strategy that BOS Shelf considers local requirements in its operation and other activities.

“The company in local content supports

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 Meeting the requirements of local government and authorities in order to support the economic development of local communities in Azerbaijan  Reducing structural costs and increasing business  Bridging the skills gap- essential for the company’s business to be sustainable.”

The investigation revealed that there is a performance management process with written policies and guidelines related to the process exit in the company. BOS Shelf is the company formed by Star Gulf FZCO and the State Oil Company of Azerbaijan Republic (SOCAR). During implementation of performance management, the company faced certain challenges. According to the words of the HR manager (who is English), there is a tendency for over scoring employees among local managers.

“All the managers in the field are local people. They over score the performance of an employee in order to help them get a higher salary. They think that fantastic marks will achieve this. Whereas, expatriates are more reasonable and they evaluate the real performance of the employee. In this case, the performance management loses its importance and main mission.”

Another problem that creates certain challenges is altruism among local managers. According to the HR manager.

“There is nepotism and favouritism. Managers favour certain people and evaluate them higher. In this case, performance isn’t evaluated but other factors.”

Nepotism is acknowledged by all employees. However, some of the employees think that nepotism or favouritism exists in some departments where the job is not so critical and knowledge based. In a department where skills and competencies are required and the job is seriously critical, there is no place for nepotism.

Regarding industrial impact, the HR manager stated that they don’t consider any environmental factors in performance management process and that they only pay attention to the legislation of the country

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“Legislation is followed. There is even a team dealing with legal issues in the HR department. However, labour legislations create obstacles for the company. It is difficult to release an employee with poor performance.”

Document analysis revealed that technology is an important factor for the commercial and business processes of the company. The company possesses the latest model technologies in welding according to the HR manager. However, the impact of technology on performance management is not supported by interviewers and documents. In addition, analysis of the evaluation form shows that there is not any single section for development purposes. Developmental activities are supported by other HR processes. The HR manager stated that:

“BOS Shelf has always been committed to training local personnel to the standards required for the projects, in line with customer’s requirements and the market. To comply with these requirements, BOS Shelf’s Training Officers, in coordination with the Operations Manager and supervision establishes training programs tailored to cover different disciplines including welding, fitting, rigging, construction and inspection.”

The business environment of the company is stable, stated the HR manager.

“The company offers the highest salary in the market. The main core workforce remains stable and most employees don’t have any interest in leaving the company. The business environment doesn’t have an impact on performance management processes. The company faces a skill shortage in the labour market. The labour market is not considered in the employee performance management system, but in other process of HRM.”

The HR manager also stated that the local economy doesn’t have any impact upon performance management. There is a tendency of oil price decrease and it influences only on the order size from customer companies.

Safety as an environmental issue is considered important. Document and performance policy analysis revealed that it is one of the criteria evaluated during the

122 performance management process. Concluding remarks about safety are presented below according to the company document:

The slogan of BOS Shelf is “Where safety leads to Quality” BOS Shelf believes that people are its most important asset, therefore, Health and Safety issues have always been of paramount importance within all its business activities. As a result, BOS Shelf has been fully committed to the HSE matters at each level of responsibility, since the very beginning of its operations. An HSE management system has been developed to create a safe and healthy working environment, not only by complying with the health and safety legislation, but also to act responsibly in preventing injuries, illnesses, damages and losses resulting from activities during field operations.”

In conclusion, data from the BOS Shelf respondents seems to suggest that employees and managers view the impact of culture and industry characteristics on performance management, and that local managers have a tendency to over score. In addition, nepotism and favouritism creates certain challenges. Industry characteristics are considered on a global not local level. Characteristics of the labour market and impact of technology are not considered in performance management, but in other processes of HR. Local legislation creates certain challenges for effective implementation of performance management. Further discussion of these findings will be presented in the following chapter.

5.3.5 Criteria of Performance at BOS Shelf

One of the objectives of this study is to investigate how performance criteria in terms of result, behaviour and competency is defined and accepted by the developers and participants of performance management systems in the Azerbaijan Oil and Gas sector. BOS Shelf is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews, secondary data and questionnaires. This section presents data on what criteria of performance is used and how it is defined at BOS Shelf.

Analysis of the performance management document revealed that performance is evaluated by considering objectives and competencies. Objectives are differentiated for

123 office and labour staff. Types of objectives for office staff are on-going role or work goals, targets, tasks/projects, performance standards, performance improvement, development/learning objectives. The definition of goals is presented below as it was described in the company document:

 On-going role or work goals – all roles have built-in objectives which may be expressed as key result areas in a role profile. The definition of a key result area states that this is what the role holder is expected to achieve in this particular aspect of the role. Role objectives clearly define the activity in terms of the results and standards to be achieved. They may be supplemented by quantified targets or standards that may be quantified or qualitative. Although described as on-going, role objectives need to be reviewed regularly and modified as necessary.  Targets are objectives that define the quantifiable results to be attained as measured in such terms as output, throughput, income, sales, levels of service delivery, cost reduction, reduction of reject rates.  Tasks and project objectives can be set for the completion of tasks or projects by a specified date or to achieve an interim result.  Performance standards take the form of definition that performance will be up to standard if a desirable, specified and observable result happens. It should be preferably quantified in terms of level of service or speed of response. Where this is not possible, a more qualitative approach may to be adopted.  Performance improvement goals define what needs to be done to achieve better results. They may be expressed in a performance improvement plan that specifies what actions need to be taken by role holders and their managers.  Development/learning objectives specify areas for personal development and learning in the shape of enhanced knowledge and skills (abilities and competencies).

These objectives are evaluated according to the four proficiency levels. Insufficient means performance meets some but not all expectations and performance results indicate a need for mandatory job specific learning. Sufficient means

124 performance fully meets all expectations and results indicate an option for specialised job specific learning. Good is criteria that shows that performance exceeds expectations. Excellent means that all requirements are exceeded. In the last two cases, performance results indicate an option for career development leaning.

According to the performance management document, objectives for labour staff are different from the office staff. These include safety awareness, achieved results, quality of work, wide vision of work contest/process, compliance with procedures and control systems.

The characteristics of objectives in the document are defined as having to be SMART and achieve good objectives. In addition, they have to be integrated with the main goals. SMART objectives are specific, measurable, achievable, relevant, and time- framed. Good objectives are consistent with company values and departmental/organizational goals, precise, challenging, measurable, achievable, agreed, time-related, and focused on teamwork.

Competencies for office and labour staff are also different in relation to objectives. Competencies for office staff include: managing relationships, drive for results, decision quality and problem solving. Competencies for labour staff are: problem solving, relationship, verbal/written communication, decision-making, initiative, stress resistance. Each competency for office staff has its four proficiency levels such as: insufficient, sufficient, good and excellent. Competencies for labour staff have three proficiency levels such as not appropriate, appropriate and excellent.

The investigation of company documents and policies about performance management revealed that performance is evaluated both considering objectives and competencies.

According to the performance management guidelines and handbook, objectives are different for office and labour staff as indicated earlier. Analysis of job description and interview responses revealed that employees do not undertake any job activities which are not related to their roles. Contextual performance is not considered and HR people do not have any idea what that means. The HR manager stated that.

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“In fact, we don’t consider any contextual performance. In addition, the process is applied the same across countries. We apply the same process for both team and individual works but with little differences. Objectives and competencies are different for labour and office staff. This is because the outcome of job processes and the work environment are quite different. One is manual work, the other is brain work. One is done in a severe, hazardous work environment; the other is done in a non-hazardous office environment. So we consider these factors.”

In conclusion, data from document analysis and interview responses revealed that the criteria for performance are a set of results and competencies at BOS Shelf. Both behaviours and results are strategically aligned. Contextual performance and team work are not considered although job characteristics are considered. Employees do not undertake any job activities which are not related to their roles.

5.3.6 Employee Acceptance of Performance Management System at BOS Shelf

One of the objectives of this study is to investigate how the performance management system is accepted by employees in the Azerbaijan Oil and Gas sector. BOS Shelf is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and secondary data. This section introduces data on employee viewpoints about the performance management system at BOS Shelf.

The investigation revealed that implementation of the performance management system is a little different from that stated in the guidelines. Office staff stated that they are appraised by their managers and that no any planning stage exists. They have job duties according to their job descriptions and they are evaluated on the relevant actions. Most office employees feel free to express their complaints about the feedback and it is accepted as normal.

“The managers are open to contra arguments and always welcome such behaviour.”

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According to the interview respondents, employees are aware of the evaluation rating and they participate in signing the form at the end of process to become familiar with their performance. In addition, according to the interview responses of office staff, they are aware about the criteria on which they are evaluated. They all accept the process positively because: “It defines strong and weak areas for development, its outcome is highly related with promotion and other reward opportunities.”

Interview responses demonstrate that labour staff knows that there is a performance management process at the company but it is realised confidentially. They are not aware of the rating process and outcome of the process. They don’t even know on which criteria they are assessed although they assume that it might be safety, compliance and quality of the work.

“To tell the truth, I have never participated in the performance management ceremony. I’ve worked for the company for more than ten years, and I haven’t once faced such a process. There is probably a process in place but as an employee I’m not aware of this. I’ve heard that we are evaluated but it remains confidential. We are not told. I think that we are evaluated on the basis of safety, working according to the rules and quality of our work. Because these are mostly demanded and required by our managers when we are working.”

In addition, no planning stage takes place at the beginning of the process. According to interview respondents, employees stated that they knew about their daily or monthly activities according to the size and duration of the projects ordered by the customer company.

“If we have to finish any part of the construction in six months, we know what we have to do. According to the monthly jobs, we know the weekly and daily schedule. These schedules are not written. We assume the activities according to our past job experience. Or, if it is totally new project, we are orally informed by our managers.”

One manager stated that the annual job plans of BOS Shelf is defined by BP. But this is not outlined as objectives and action plans. Employees know generally that they

127 have to finish this construction in 6 months. Every day, they are told what actions must be taken during the work process.

According to employees, the purpose of performance management at the company is to assure that all work is done according to the project in order to be completed on time, to track employee performance and to make administrative decisions. Some people consider that the purpose of a performance management system is to ensure that employees do the minimum job requirements.

Generally speaking, age issues don’t impact upon the process. Subordinates who report to younger supervisors/managers stated that they trust the capacity of the supervisors and accept the assessment fairly.

In general, interview responses show that the attitude of labour staff employees about the performance management system is positive, even if they don’t participate in the process and know relatively little about it.

However, foreign managers, especially, HR managers, see performance management as a challenge. Because performance management is linked to pay, local managers tend to award more employees with the best scores in order to help them gain a higher salary.

“In the field and workshops, all of the managers are local and they tend to give high scores to employees to help them get a good salary. They don’t evaluate actual performance and their attitude to the process is not what it should be. This creates a challenge to the effective application of the performance management process at the company.”

In conclusion, data from the BOS Shelf respondents seems to suggest that employees have a positive attitude towards the performance management system. The advantages of performance management according to employees, managers and HR include: defining strong and weak areas for development, its outcome is highly related with promotion and other reward opportunities. Challenges include: tendency for over scoring of employees by local managers in the workshops. Data also suggests that fairness issues arise among local managers. Age factor does not influence the process.

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5.4 Employee Performance management in Schlumberger

5.4.1 Company information

Schlumberger is one of the world’s leading suppliers of technology, integrated project management and information solutions to customers working in the oil and gas industry worldwide. The company employs approximately 120,000 people in more than 85 countries. The company opened in Azerbaijan in 1997. In Azerbaijan, the company provides services at the country's oil and gas fields, including Azeri-Chirag-Guneshli (ACG), Shah Deniz, and Umid. Areas of special expertise that the company provides is 3D and 2D time imaging around the Caspian Sea. The number of employees is 500 and 90 percent of them are local.

Table: 4.5 Number of interview participants at Schlumberger

Schlumberger Department Number of Employees Number of Managers Drilling 3 1 Geosciences 3 1 HSE 1 1

Maintenance 1 1

Management support 2 1

Oilfield services 2 1

Operations support 1 1 Total number of interviewees: 13 7

5.4.2 General Process of Performance Management

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Management in the company which is applied in every country. Management by Objective is central to the company’s performance. Process starts with setting objectives between line manager and worker. Objective setting starts at the beginning of each calendar year. The process continues with quarterly reviews taking place throughout the year, and ends with the annual appraisal occurring at the start of the year.

The performance management system of the company intends to assess both performance and development actions. It is retrospective in that it assesses actual performance but is also forward focussed in that identifies or develops future potential. The performance management system of the company is used for the purpose of developing a cultural base and performance against objectives. It combines top-down assessment with mutually determined goals and milestones.

Objective setting occurs at the beginning of the calendar year with setting goals and objectives. At this stage, the employees have a conversation with the line managers and they set expectations for the year. During quarterly meetings, employee performance is reviewed by the manager. The line manager discusses to what extent the objectives have been achieved and provides recommendations when required. The formal evaluation of the employee’s performance takes place at the beginning of the year. This is called the annual appraisal session which aims to assess whether objectives for the previous year have been achieved. Both line manager and employee discuss the objectives and provide feedback. The employee is assessed with an overall performance rating: development needed, meeting expectations, exceeding expectations and outstanding.

5.4.3 Documentation

The documentation is carried out electronically with an SLP-3 form which is called “The performance appraisal and development plan”. This form consists of 3 sections including “Key performance objectives”, ‘Performance factors”, and “Appraisal summary”.

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The first section “Key performance objectives” consists of two parts covering “Main objectives” and “Other personal objectives”. “Main objectives” are related to business goals, “Personal objectives” are related to individual development goals. “Main objectives” include “Revenue”, “Return”, “Integrity and Safety”, “Quality”, and “Engagement”. Under the headings of each objective, job-related actions are specified in order to reach these goals. There are several actions related to each objective. In addition, objectives are aligned with a “result” and “comments” sections. The “Result” section shows whether an employee completed the actions. The “Comments” section covers feedback from both employee and manager. In the feedback, the employee and manager provide explanations as to whether the objective was achieved, partially achieved or not achieved. The employee’s feedback section is separate from the managers and it enables comments to be covered from both points of view. “Other personal objectives” are related to development actions related to training programs either on-the-job or off-the-job.

The second section, “Performance factors”, covers mind-sets and rating of related behaviours. The mind-sets are “Commitment”, “Integrity”, “Teamwork” and “Drive”. These mind-sets summarise the behaviour expected of every Schlumberger team member, including attitude, words and actions. “Commitment” is related to behaviours such as service focus, continuous improvement, and self-development. “Integrity” is related to behaviours such as decision-making and responsibility. “Teamwork” behaviours are collaborating, communicating, coaching and mentoring, and diversity. Behaviours for “Drive” are creativity, initiative, adaptability, results, and focus. Each behaviour is rated (ticked) according to four levels: development, satisfactory, strength, and leadership. The third section is the “Appraisal summary”. This section has several parts including overall performance rating, managers and reviewing manager’s feedbacks, development plan, and employee feedback. Overall performance rating is the rating provided by the line manager of the employee. The ratings are outstanding, exceeds expectations, meets expectations, and development needed. The manager comment covers the feedback of the employee regarding performance for the past and coming

131 year. The manager comments on overall performance, results versus objectives, significant strength and improvement areas.

The reviewing manager/functional manager comments are feedback relative to the employee’s work and methods. The plan for development identifies specific actions to develop competencies or to improve in an area of needed development. Employee comments are related with his/her assessment, development plan, or any other aspect of the work.

5.4.4 Industrial and Cultural Impact on Performance Management System at SLB

The performance management process is applied in the same way in all countries where the company operates. Everyone follows all the stages of process, and documentation is carried out electronically in every country. The HR manager stated:

“The performance management system is a global process applied the same in every country. We are not allowed to make differences or adjustments to local country characteristics. Some aspects of the process are carried out electronically by employees and managers. Meetings with supervisors, monitoring and review process are carried out face to face.”

Interview responses of employees and managers revealed that differences and variances emerge during implementation of the process. Both local and foreign employees apply the procedures accordingly. However, communication and interpersonal issues arise during the process. Employees feel comfortable working with

132 foreign managers because they always assess job-related factors. Local managers consider other things together with job-related factors.

“Foreign managers assess my job and what I have done. They don’t consider out of work relations, our outgoings and so on when we are at work. However, local managers do. These job unrelated factors gain power over the job-related factors and influence our assessment rating at the end. Local managers don’t accept it if the employee knows more than they do or provides smart decisions or ideas. Most of them don’t like it.”

Because of the nationalization process in foreign companies in Azerbaijan, Schlumberger has to increase its number of local employees versus foreigners. Employees state that this will impact on a lot of aspects, including the performance management system. They think that performance management is a tool for motivating the employees. Performance results are considered in promotion, pay increase and so on. The nationalisation process makes an impact on correct application and implementation of the performance management system at the company.

“Local managers try to guide their relatives, friends and support each other even if they are not right. It is interesting that most employees are defended by foreign managers. Foreigners intervene in such situations in order to make everything clear and fair. The nationalization process that has fostered recently is not so good. We have already been feeling the change in our work environment. Without foreigners it will be impossible to keep the work attitude, work environment created by them, and also required by them.”

Employees state that most of these cases happen in the older local managers. Young employees and managers who have been educated abroad and worked with foreigners do not possess these characteristics. Employees aged 30 or above who had graduated in Azerbaijan are inclined to think like much older people.

The feedback providing process also occurs differently with locals and foreigners. Employees admit that foreign managers aren’t afraid of accepting their faults

133 in the assessment process. They may change their opinion and accept all kind of counter arguments from an employee. With local managers it is different.

“My manager rated me with ‘met expectations’ last year, however, I have exceeded expectations. He further admitted that he did a wrong assessment and tried to do me favour to compensate for it. I always feel free to question my feedback with him. Most of the managers attempt to make conversation before filling the electronic form in order to avoid misunderstanding.”

Regarding the impact of industrial factors, the HR manager stated that their process is universal and there is no adjustment to the process of the local environment. According to the Code of Conduct, Schlumberger is subject to the laws and customs of different countries. Sometimes these laws vary from place to place and could even conflict. The company is responsible for knowing and following the laws and regulations that apply where it operates. However, in reality, HR specialists admit that Labour Law of the Azerbaijan republic is not strictly followed.

“We realise that we didn’t follow Labour Law when an employee made a complaint about the company. Now we understand that we should have done this.”

Safety, which is the main characteristics of industry, is reflected in the relative behaviours in the performance management SLB-3 form. Document analysis revealed that commitment to health, safety and protection of the environment is considered a platform for success and is demanded from all employees. The SLB-3 form consists of “Main objectives” which are related to business goals.

The HR manager stated that commitment to technology is the basis for the company’s competitive advantage. Acquisition of new skills and abilities is realised with development targets and actions that are clearly reflected in the SLB-3 form. The “Personal objectives” section is related to individual development goals in terms of getting new skills and abilities.

The business environment of the company in Azerbaijan is stable, but it is competitive in the global arena.

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“It’s one of the few companies who provide employees with better working conditions, benefits and salary, development and promotion opportunities.”

Economic factors are not considered in components and stages of performance management.

“We don’t consider any economic factors. However, when setting main objectives for the year it may impact on our objectives. Oil price decrease may impact on customer orders. The size of orders is reflected in the “Revenue”, “Return” sections of the “Main objectives” in the SLB-3 form.”

The Company doesn’t consider the local labour market as the process is universal.

“In Azerbaijan, we face problems with a skill shortage in the labour market. We solve these problems with other processes, but not with performance management. If we look at the process generally, it may be assumed that general characteristics of industry in terms of labour market are considered from the global point of view when setting and formulating policy and system. In fact, the characteristics of the labour market are that there is a skill shortage and performance management of the company includes development related activities.”

In conclusion, data from the SLB respondents seems to suggest that employees and managers view the impact of culture and industry characteristics as identified during the feedback and communication processes. In addition, nepotism and favouritism creates certain challenges. Industry characteristics are considered on a global but not local level. Local legislation creates certain challenges for effective implementation of performance management. Further discussion of these findings will be presented in the following chapter.

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5.4.5 Criteria of Performance at SLB

One of the objectives of this study is to investigate how performance criteria in terms of result, behaviour, competency is defined and accepted by the developers and participants of performance management systems in the Azerbaijan Oil and Gas sector. SLB is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and secondary data. The investigation of company documents and policies about performance management revealed that performance is evaluated by considering both behaviours and performance results. This section presents data on what criteria of performance is used and how it is defined at Schlumberger.

Analysis of SLP-3 revealed that employees are assessed based on their behaviours and performance results. Results are aligned with the main ambitions of the company: growth, returns, integrity and engagement. The main objectives of each employee are related with these ambitions and quality.

The SLP-3 form is a “Performance appraisal and development plan”. This form consists of 3 sections including “Key performance objectives”, ‘Performance factors”, and “Appraisal summary”. The first section “Key performance objectives” consists of two parts covering “Main objectives” and “Other personal objectives”. “Main objectives” are related to business goals. “Personal objectives” are related to individual development goals. “Main objectives” include “Revenue”, “Return”, “Integrity and Safety”, “Quality”, and “Engagement”

Key performance objectives of every employee are coordinated with the ambitions or main objectives of the company. Employees are assessed based on performance factors. There are behavioural factors associated with the four mind-sets of the company. Section 2 “Performance factors” in SLP-E covers mind-sets and rating of related behaviours. The mind-sets are “Commitment”, “Integrity”, “Teamwork” and “Drive”. These mind-sets summarise the behaviour expected of every Schlumberger team member, including attitude, words and actions. Company mind-sets are commitment, integrity, drive and teamwork. Commitment is reflected with the

136 behaviours such as service focus, continuous improvement and self-development. Integrity related behaviours are decision-making and responsibility. Creativity, initiative, adaptability and result focus are behaviours of drive. Teamwork related behaviours are collaborating, communicating, diversity, coaching and mentoring. According to the HR manager:

“Schlumberger is a service provider company and its main customer in Azerbaijan is BP. Company activity for the relevant year is defined by the orders of customers. That’s why our main objectives of growth, returns, integrity, engagement, quality remained stable. In case of any change in projects, services or activity, this is reflected on the comments part and relevant feedback is provided to ascertain why objectives are not achieved or not related with the role.”

In addition, interviews with engineers revealed that they prefer results rather than behaviours.

“The process is time consuming and we have a large workload. It takes time to consider every element on an SLP-3 form. I don’t think that behaviours are so important. As a manager, I would rather evaluate results than behaviours. Results are more important for engineers. Behaviours probably have to be considered for administrative jobs.”

However, HR and managers think that behaviours are also important as they reflect the company mind-set.

Analysis of job descriptions and interview responses revealed that employees don’t undertake any job unrelated activities. Contextual performance is not considered and HR people don’t have any idea what it means. The process is universal for all types of jobs. The employee performance in team work jobs and complex jobs are assessed accordingly. Job characteristics are not considered and interviewees don’t have knowledge about it.

“Whether contextual performance is considered or not, I’m unable to talk about it. I think it’s probably considered when setting rewards. If contextual performance is either offshore or onshore, we have different wage systems considering the work

137 environment. However, it doesn’t make any impact on our performance management system. Process is applied the same across countries and we don’t consider any job characteristics. For individual and team work, we apply the same process.”

In conclusion, data from document analysis and interview responses revealed that criteria for performance are a set of results and behaviours at SLB. Both behaviours and results are strategically aligned. Contextual performance, job characteristics, team work are not considered. Employees don’t undertake any job unrelated activities.

5.4.6 Employee Acceptance of Performance Management System at SLB

One of the objectives of this study is to investigate how the performance management system is accepted by employees in the Azerbaijan Oil and Gas sector. SLB is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and secondary data. This section introduces data on employee viewpoints about the performance management system at SLB.

The investigation revealed that viewpoints of employees about the performance management system at SLB are that it is used totally for administrative purposes and it gives them nothing. Employees admit that the system is useful because it gives opportunity to know what your main objectives are for the coming year, and it is useful for exploring weakness and areas for improvement.

“The company uses it for promotion or other decision-making purposes. It doesn’t influence my work. With this performance appraisal, my work doesn’t change or improve. It is used totally for company purposes rather than employee purposes.”

Managers feel that they can easily track employee performance with the help of the system. The employee is assessed only by his or her manager. However, an informal way of peer assessment exists in the company. An employee makes the manager aware when a colleague is not performing properly or demonstrating unrelated behaviour.

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“The employee is assessed by the manager formally. However, hidden peer assessment also exists in our company. The manager may not observe all behaviours of all employees. He is informed about it by other employees. If a person is underperforming or breaking the rules, other employees make manager aware of it.”

Employees do not participate in setting objectives. Objectives are defined according to these objectives. An employee has activities relative to job description. At the planning stage, the employee and manager have a conversation about previously defined objectives, relative actions, and development plans.

All employees admit that they feel more support from colleagues rather than managers throughout the year.

“Managers have less time to deal with us. That’s why I feel support more from my colleagues in terms of development or other job-related issues.”

Employees consider that the criteria defined are totally job-related and clear. Fairness of assessment is accepted by employees according to the relatedness of criteria. However, problems with fairness arise in different aspects. Employees state that most of the local managers fail to assess fairly.

“They have other factors in the mind apart from the stated job-related activities and criteria. And these factors always impact on the assessment process or communication process.”

Interview responses revealed that age issues do not influence the assessment process. The subordinates who report to younger supervisors/managers trust the capacity of the supervisors and accept the assessment fairly.

“In fact, these things are not related with age. Fairness and trust issues may arise even with an older manager. I trust the skills and capacity of my manager.”

In conclusion, data from the SLB respondents seems to suggest that employees have a positive attitude towards the performance management system. The advantages of performance management according to employees, managers and HR include clear

139 expectations, scope to explore weaknesses and areas for improvement, and easy track of employee performance. Disadvantages include the process being time consuming and behavioural indicators from engineers. Data also suggests that fairness issues arise among local managers. The age factor does not influence the process.

5.5 Employee performance management at Baker Hughes Azerbaijan

5.5.1 Company information

Baker Hughes Services International, Incorporated. offers drilling and evaluation products and services to the oil and natural gas industry. The company operates as a subsidiary of Baker Hughes Incorporated. Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. The company's 39,000-plus employees work in more than 80 countries in geo-market teams that help customers find, evaluate, drill, produce, transport and process hydrocarbon resources and develops solutions designed to help manage operating expenses, maximise reserve recovery and boost overall return on investment through the entire life cycle of an oil or gas asset. Baker Hughes Services International, Inc. has 500-800 employees (local and foreign) in Azerbaijan. The number of employees interviewed is 30.

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Table 5.6: Number of interview participants at Baker Hughes

Baker Hughes Department Number of Employees Number of Managers Wireline formation, 4 1 evolution and perforating services

Field services 4 1

Technical support 3 1

Customer Services 2 1

HR Department 2 1

Department of Law 1 1

CT, Stimulation and 4 1 Cementing

HSSEE 2 1

Total number of 22 8 interviewees:

5.5.2 General Process of Performance Management

One of the objectives of this study is to investigate the general process of performance management in the Azerbaijan Oil and Gas sector. This section presents data on the PM process of Baker Hughes.

Baker Hughes have leveraged an enhanced performance management culture and technology to improve results. Baker Hughes has also begun to leverage up-to-the- minute research to create a culture, supported by their technology solutions, that fully supports their business initiatives and recognises meaningful employee achievements.

Switching from a process-oriented to a people-oriented viewpoint helped lead the company to a method of PM that emphasised constant contact and ongoing dialogues that help keep their company completely abreast of all their inner-workings, while also signalling to employees their importance to overall business performance,

141 reflected in the reduction of non-productive time is a key metric for their industry. The performance management process focuses on a high touch culture that combines a blended method of connecting, enabling and evaluating the employees’ performance throughout the year. The combined focus of talent management and performance has helped to address the shortage of qualified workers.

At the beginning of the year, employees and their supervisors discuss and agree performance objectives. These objectives are then tied to a performance plan. In addition to setting goals related to job function and company strategy development opportunities are also discussed.

5.5.3 Documentation

The documentation is electronically managed. The evaluation form consists of four parts - key business goals, developing goals, core values and other goals. Key business goals are companywide global goals relating to safety/technical excellence and personal goals, including key deliverables for the coming year. Development goals are long-term goals for 5 years and ahead.

The core values section covers actions related to at least three of the main values of company. Other goals include additional objectives which are added by line manager if necessary. Core values include teamwork, integrity, learning, performance and courage. Teamwork leverages individual strength. Integrity is the foundation of individual and corporate actions. Performance excellence is the will to drive results that differentiate from competitors A learning environment is the way to achieve the full potential of each individual and the company. Courage empowers to lead boldly and act decisively.

5.5.4 Industrial and Cultural Impact on Performance Management System at Baker Hughes

One of the objectives of this study is to investigate how certain environmental factors are considered and impact during formulation or implementation of performance

142 management systems in the Azerbaijan Oil and Gas sector. Baker Hughes is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysing secondary data. The investigation revealed that there is a performance management process supported by written policies and guidelines related with the process exit in the company. This section presents data on the challenges the company faces considering cultural and industrial factors.

Interview responses suggest that the stages of the process are applied accordingly. However, problems exist in collaborating and feedback sessions. Document analysis revealed that Baker Hughes has shifted to a collaborating and coaching culture for effective performance management process by fostering dialogues between line managers and employees. In reality, the employees see things very differently.

“Line managers are always busy and they don’t have time for collaborating or close coaching. I don’t blame this on managers because they have a heavy workload and simply can’t afford the time.”

Employees don’t feel enough support from the managers because of their busy work schedule.

“We have conversations about setting new goals with managers at the beginning of the year, finalizing around mid-March. We have mid-year and year-end reviews with line managers. I don’t feel coaching or any support in terms of learning from my line managers because of lack of time.”

Some employees agree. They feel support and coaching from their colleagues but not always, as they have their own work to do. Most employees try to learn individually, getting international support from the main offices in the USA where experts are located.

“We have to learn individually most of the time, because colleagues and our managers can’t spare the time to help and support us. It’s not that they don’t want to help, it’s because they don’t have time to help and support others’ learning. If I don’t

143 know anything or I have a problem, I ask experts for international support in the USA. They’re very helpful and guide us effectively.”

According to employees, line managers are not too open to discussing feedback, but they listen to their views. They do create an environment for employees to share. However, they do not consider feedback important and they do it for formality.

“Opinions are not always considered, although most of the line managers pretend to do so. Those opinions are related with indirect motivation redirecting to what at the end line manager wants.”

The HR manager and specialists do not think that there is any cultural impact on performance management. They are sure that the process is applied as required.

“I don’t think that there is any cultural impact. The process is applied accordingly and no differences exist.”

Employees suggest that personal emotional bias exists in both foreign and local line managers. Local employees consider that foreign managers have to take the personal problems (problems occurring with the family) into account when evaluating or assigning tasks. They complain about the lack of mercy in foreign managers regarding these issues. Local managers do consider these issues but they have other negatives such as dealing with employees outside of the work/job.

“If one has conflict with the manager, he always remembers it and makes decisions based on these factors. Foreign managers don’t behave in this attitude. But they also have negative sides in terms of being merciful. They don’t consider your emotional, family situation. However, local managers are good at doing so. They understand the problems employees face. During the evaluation process, foreign managers may assess an employee with a low score without considering his personal problems. Local managers, however, consider this and may put a higher score even if the performance outcome is not satisfactory.”

In addition, employees also confirm that they do not encounter any cases of nepotism and favouritism among managers.

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“There are no such cases among managers because almost all of them are foreigners. We have local managers also, but they have studied abroad and worked abroad for a long time. They also act like foreigners. But I’ve worked at other companies where nepotism exists. In Azerbaijan, it’s normal, especially where the locals have status and power in their hands. During performance assessment, local managers may consider factors that are not related directly with the job. It hampers the effectiveness and fairness of the process.”

The impact of industry on the performance management process is not observed in Azerbaijan. The HR manager stated that:

“Baker Hughes has considered some environmental factors and changed its process oriented process to a people oriented process. All major forces have been considered when setting performance management at Baker Hughes. For example, I think that impact of technology is considered as the process includes development based activities. Furthermore, characteristics of the labour market in the global arena is also considered as the company faces a skill shortage in both the global and local labour market.”

The HR manager also emphasised that environmental safety issues are considered very important. Goals related with safety are key business goals and are reflected in performance management. Interview responses also demonstrate that economic factors do not impact on performance management, but only on key business deliverables.

“I think safety is the main value or slogan for companies in the petroleum industry, as the sector is quite dangerous and hazardous. Not only safety but environmental protection is also important for Baker Hughes. All these aspects are implemented with HSSE management system. From the HR side, it is also considered because the safety culture is formulated well when HR practices and policies are in place. In performance management, safety is one of the main criteria to assess employee performance. It is included in key business goals where the employee is obliged to contribute to safety.”

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Regarding the impact of technology, the HR manager stated that technology does impact in their process. On a global level, the impact of technology is considered in performance management by a strong emphasis on development of goals and activities.

“Technology is frequently changing and we have to adapt our employee skills to this changing process. Our performance management system considers the impact of technology by providing development activities. These activities make employees learn new skills related to their work duties in order to contribute to business goals.”

Analysis of the performance management form revealed an existing “Developing goals” section which consists of short- and long-term development targets to contribute to business goals.

The impact of legislation is also not noticed according to the interview responses of HR.

“We have not faced such a situation that legislation creates a problem for the implementation of performance management. We don’t fire an employee according to poor results, we try to develop skill shortages in employees. In addition, I may say that we don’t strictly follow local legislation. We mostly work with the company’s HR policies and practices. We also try to avoid any legal conflict that may arise in the future.”

In conclusion, data from the Baker Hughes respondents seems to suggest that there is not any cultural impact on performance management. Some aspects of performance management are not implemented accordingly and the responses revealed that these variations are not because of cultural sources. Industry characteristics are considered. Legislation also does not create any challenge for the company in terms of application of performance management. Generally, industry characteristics are considered on global but not local level. Further discussion of these findings will be presented in the following chapter.

5.5.5 Criteria of Performance at Baker Hughes

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One of the objectives of this study is to investigate how performance criteria in terms of result, behaviour and competency is defined and accepted by the developers and participants of the performance management system in the Azerbaijan Oil and Gas sector. Baker Hughes is one of the companies investigated in this study. This section presents data on what criteria of performance is used and how it is defined at Baker Hughes.

The organisation’s performance management (EPM) was examined through interviews and analysis of secondary data. The investigation of company documents and policies relating to performance management revealed that employees are assessed based on their behaviours and performance results/goals. Document analysis also revealed that they are strategically aligned.

“Employees are assessed on key business goals, developing goals, other goals and core values. Key business goals are companywide global goals about safety/technical excellence and personal goals including key deliverables for the coming year. Development goals are long-terms goals for 5 years and ahead. The core values section covers actions related to at least three of the main values of company. Other objectives include additional goals which are added by line manager if necessary.”

The HR manager stated that employees are assessed on their behaviours which are aligned with the core values of the company. According to document analysis core values of the company include teamwork, integrity, learning, performance, and courage. Core values have accepted specific behaviours that all employees must demonstrate at work.

Interview responses suggest that employees do not undertake any job unrelated activities. Contextual performance is not considered and HR people do not have any idea what it means. The process is universal for all types of jobs. The employee performance in team work jobs and complex jobs are assessed accordingly. Job characteristics are not considered and interviewees don’t have knowledge about it.

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“The process is global and applied in all countries. It’s the same for all types of jobs. We don’t consider whether this is team work or a complex job when implementing procedure. Each member is individually evaluated within the group. In addition, we mostly consider task performance-criteria that are related with key business goals and core values of our companies. In terms of contextual performance, I am not aware of this word.”

In conclusion, data from document analysis and interview responses revealed that criteria for performance are a set of behaviours and outcomes at Baker Hughes. Both behaviours and results are strategically aligned. In addition, contextual performance, team work and job characteristics are not considered. Employees do not undertake any non-job related activities.

5.5.6 Employee Acceptance of Performance Management

One of the objectives of this study is to investigate how the performance management system is accepted by employees in the Azerbaijan Oil and Gas sector. Baker Hughes is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. This section introduces data on employee viewpoints about the performance management system at Baker Hughes. The investigation revealed that employees admit that the existence of this system of performance evaluation is better than its non-existence. It is positively accepted because plans for the future are clear and employees know what is expected from them for this coming year.

However, employees accept the process as “tick the box” for formality and emphasis on business needs rather than personal development requirements. Employees also suggest that they do not feel that they have a performance management culture and accept it as a formal process for administrative decisions.

“I don’t feel that we have a strong performance management culture. The process is just “tick the box” and a formal filling out process twice a year. I think it’s just for formality that employee performance is managed at Baker Hughes.”

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“This process is probably only implemented for administration purposes. They probably consider it during promotion or other processes.”

“It’s not always comprehensive enough to cover both business and development needs. The process is mainly concentrated on business needs and underestimates personal development requirements.”

Regarding the age of supervisor, employees do not accept the age but focus on leadership skills and professionalism of line managers, regardless of the age in evaluation.

“Age issue don’t matter. The main thing is that your manager is professional. If he possesses effective leadership skills and professional expertise, I accept and trust the capacity of the manager. I never expected fairness from my manager.”

In conclusion, data from the Baker Hughes respondents seems to suggest that employees have a positive attitude towards the performance management system. The advantages of performance management, according to employees, is that it helps plan for a clear future and employees know what is expected from them for this coming year. The disadvantages of the process include “tick the box” and formality, less emphasis on personal development requirements and strong emphasis on business needs. Age factor doesn’t influence the process.

5.6 Employee Performance Management in Azneft Production Union

5.6.1 Company information

Azneft Production Union is developing 34 oil and gas fields, 20 of which are onshore and 14 of which are located in Azerbaijan’s sector of the Caspian Sea. The Azneft Syndicate has 11 operating oil and gas production divisions with up to 5,700 wells in service. Many processing units, different kinds of pipelines, pumps, compressors, and power plants, and other communications and infrastructure systems constitute the basis for oil and gas production. The Syndicate's two underground gas

149 storage facilities play a major role in ensuring a steady year-round supply of gas in Azerbaijan. Currently there are sound projects to expand and upgrade both facilities to accommodate the reconstruction of gas supply systems outside the metropolitan area and greater gas exports by SOCAR. The number of employees is 20,000 and in general, 61 participants were interviewed.

Table 5.7: Number of interview participants at Azneft PU

Azneft Production Unit

Department Number of Employees Number of Managers

HR department 2 1

Department of economy and 3 1 accounting

Economic analysis and prognosis 2 1

Department of oil production and 3 1 transportation

Geology and geophysics 3 1

Department of drilling and control 3 1

Oil and gas production 4 1

HSSE department 2 1

Main technological service 3 1

Department of Power engineering 3 1

Department of Mechanic 3 1

Wells 4 1

Department of Legal issues and 2 1 contracts

Department of waterworks and 2 1 corrosion

Gas processing, compression and 2 1 transportation

Automation and meteorology 3 1

Total number of interviewees: 44 17

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5.6.2 General Process of Performance Management

One of the objectives of this study is to investigate the general process of the performance management in the Azerbaijan Oil and Gas sector and this section presents data on the PM process of Azneft PU.

There is no policy or written procedure of the performance management system at Azneft PU. The purpose of the process is to identify strengths and weaknesses of employees and to implement career related activities. There is only a paper format of performance evaluation and development plans to be filled in twice a year. At the beginning of the year, employees have to plan activities for the next year. These activities include: objectives and duties, other non-job-related activities, training, knowledge sharing activities and expectations from the managers.

Objectives and duties are mainly job specific tasks covered in the job description. Other non-job-related activities include the tasks which are not specified in the job description. These types of activities are preparation of reports, participation in a project, scientific research, education and so on. Training includes planned training courses for development purposes for the next year. Knowledge sharing activities are activities related with the employee’s knowledge, skills and abilities which he or she may transfer or share with other employees. Expectations from managers cover activities which they have to do during the next year in terms of giving opportunity for education to the employee, to increase job duties and/or to initiate job training. The process ends with the filling in of the above specified sections and signing of the form by the employee and the manager.

5.6.3 Documentation of Performance Management Process

This section presents the data about how performance management is applied: either paper based or electronically in the company. The process is paper based and the form is filled by employees and signed by both employee and the manager at the end. The form is called “My performance” and consists of five parts-personal information,

151 planning activities for the beginning (6 months) of the year, evaluation of these activities, planning activities for the next 6 months, evaluation of these activities and analysis of performance.

The first part includes personal information about the employee. The second part, planning activities for 6 months include information about objectives and duties, other non-job-related activities, training, knowledge sharing activities and expectations from the managers. The third part covers information about the status of the relative activities. Planning activities for the next 6 months include information about objectives and duties, other non-job-related activities, training, knowledge sharing activities and expectations from the managers. The status of the activities for the last 6 months is covered in the evaluation part. Analyses of the performance of the employee consist of two sections. The first section is about challenges and obstacles that the employee has faced during implementing the activities. The second section covers information about the manager’s feedback. At the end, the employee and the manager sign the form.

5.6.4 Industrial and Cultural Impact on Performance Management System at Azneft PU

One of the objectives of this study is to investigate how certain environmental factors are considered and impact during formulation or implementation of the performance management system in the Azerbaijan Oil and Gas sector. Azneft PU is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and secondary data analysis. The investigation revealed that there is no formal performance management process, or written policies and guidelines related with the process exit in the company. This section presents data on the challenges the company faces considering cultural and industrial factors

Interview responses and document analysis revealed that there is only an appraisal process and the purpose of the process is to identify weaknesses and strengths of employees and to implement career related activities. There are only document forms of performance evaluation and development plans which are recommended to be filled twice a year.

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Employees and managers do not accept the evaluation seriously as the process has not any purpose or direct influence on anything. They do not even fill out the form each year, just make amendments or copy pasting

“This process hasn’t any purpose. My colleagues and I don’t take the process seriously. But if it was linked with reward or promotion purposes then it might be very attractive to us. In most cases, promotion process is not aligned with performance of employees but other subjective factors. Thus, the process is seen as useless in the company.”

Employees also think that if the job is more critical, then there would be less negative cases.

“It depends where they do nepotism: because for highly responsible and critical jobs, everyone wants to promote the right person with the right experience and skills. No one wants to make faults. Thus, because of the responsibility, they are serious with critical jobs.”

All employees think that they are evaluated by their managers fairly. However, they are not so sure about other managers. They state that some managers are not fair as they discriminate between their relatives, friends and non-relatives.

“I think that the evaluation of my manager is fair, because I know him and I trust him. But, I’m not sure about other managers. There are negative cases happening. If you have support, you’ll be graded and promoted easily. I know this from other departments. Managers acts unfairly in regard with their relatives, friends and non- relatives, non-friends.”

Managers admit that they tend to provide positive feedback and emphasise areas of weakness as employees develop themselves or attend a training course. All managers emphasise training programmes as a motivational tool for employees.

“I personally provide positive feedback about the outcome of the job performance. I mention the areas of weakness or need for training for new a project and send my employee for training in order to motivate them. As you know, we have a grading

153 system and managers don’t have the power to make certain decisions about motivation of an employee. Sending employees on training courses motivates them in some way.”

Environmental factors and industry characteristics are not considered by the developers of the performance management system. The HR role is only supportive and administrative. It is not strategic and this is the reason why HR developers are not considered in strategic decision-making. In addition, most respondents have no idea how the environmental factors should be considered and they do not have any viewpoint about the topic.

“We don’t consider these issues in our process. Probably these issues are considered when setting business plans for the next year, but for HR processes there is no use in doing these things. We don’t apply modern HR processes here. We continue doing things as we did them during Soviet times but with minor changes. All employees in the HR department have been working here since Azerbaijan was part of Soviet Union.”

The manager of the Personnel department stated that all HR processes are implemented according to legislation.

“We apply all the processes according to legislation. All employment relations correspond with labour law and other legal documents. In addition, certain HR processes are not covered in our labour law. It’s not right to invent new things which are not in the law. This might create problem for us.”

In conclusion, data from the Azneft PU respondents seems to suggest that industry characteristics are not considered in HR processes. The only dimension that has influence on all HR processes is legislation. All HR processes are implemented according to labour law. Cultural impact demonstrates itself through management thinking and attitudes to performance management. Further discussion of these findings will be presented in the following chapter.

5.6.5 Criteria for Performance

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One of the objectives of this study is to investigate how performance criteria in terms of result, behaviour, competency is defined and accepted by the developers and the participants of performance management system in the Azerbaijan Oil and Gas sector. Azneft Production Union is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. The investigation of “My performance” which is a paper based form used in evaluation process revealed that the criteria for performance is of the result based type. No strategic alignment is found. The criteria are related with job duties in the job description. No behavioural criteria are mentioned in the “My performance” for evaluation purposes. Paper based evaluation form, “My performance”, consists of information about “Objectives and duties, other un-job-related activities, trainings, knowledge sharing activities, and expectations from the managers”.

Interview responses revealed that these criteria do not have any importance for the managers and they have their own criteria to differentiate between a good and poorly performing employee. In addition, different managers evaluate and prefer different criteria. The main criteria for the managers are ethics, knowledge and abilities and they are guided by this criterion when providing feedback.

“The main thing is ethics, the behaviour of the employee. In fact, first of all, one has to be a good person, then a good employee. If the employee doesn’t have ethics, discipline, what can do with them? They will not be responsible and successful in their jobs. Knowledge and abilities are also important.”

“The main thing is ethics for me. If an employee has good manners and knows how to behave with younger and older people, his knowledge is not important. I myself will teach them everything which is required to do the job.”

Managers of administrative positions focus on ethics and discipline rather than knowledge. Managers of technical positions focus on either knowledge, skills or ethics together with knowledge and skills considered to the same degree.

“Ethics is important, but in production, knowledge and relevant skills are more important. If a person doesn’t have the relevant knowledge and skills, it will be difficult

155 for him to work in the field. In addition, it is also difficult for us to work with such a person. It is better to have all the attributes.”

Analysis of job description and “My performance” revealed that employees undertake unrelated job activities. There is a section in the job description which states “Any task required by the manager”, and there is a section in “My performance” about “unrelated job activities” to be evaluated.

Regarding contextual performance, the HR manager states that it is not a familiar term and is not considered by the company. The HR manager stated that the process is applied the same for all jobs. However, engineers think differently. Job characteristics should be considered and they emphasise that all factors which are associated with the job have to be considered as the jobs are different in their characteristics.

“There are engineer positions in the office and engineer positions in the production fields. What they are doing and in which environment they are working are totally different. They require different skills and competencies to deliver the outcome. For example, a drilling engineer in the main office is dealing with planning, monitoring, and reporting analysis process. A drilling engineer in a field drills wells and is considered accountable for the drilling process. It is not fair to consider both behaviour and result the same when evaluating the two. For example, for one job the outcome is important and more measurable, behaviour is not important. For the other job, for example in the office, behaviours are also important. Thus, most of us consider different criteria for different positions.”

According to the views of engineers and HR, team jobs and complex jobs exist but these types of jobs are not assessed differently and individual contribution is evaluated rather than group work.

“I pay attention and always remember individual contribution. For example, let’s say that the job is completed by five people successfully. However, not all of them contributed to the same degree, one is trying hard and one is trying less, waiting for

156 others to take the initiative. This is important. Thus, I prefer to assess individual contribution. If the person is not working well, I do certain things for him.”

In conclusion, data from document analysis and interview responses revealed that criteria for performance are result/outcome based at the company. The main preferred criteria are job knowledge, skills and ethics. Contextual performance is not considered and individuals are assessed separately from team work. However, job characteristics are considered informally by engineers. Employees undertake job unrelated activities. Further discussion will be provided in the next chapter.

5.6.7 Employee Acceptance of Performance Management

One of the objectives of this study is to investigate how the performance management system is accepted by employees in the Azerbaijan Oil and Gas sector. Azneft PU is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. This section introduces data on employee viewpoints about the performance management system at Azneft PU.

The investigation revealed that there is no formal performance management process. The existing process is employee performance assessment which consists of a paper based evaluation form. Employees are neither positive nor negative about the process. They simply fail to take it seriously.

“The process has no value and importance for us. It doesn’t have any influence on anything. The only positive thing is the training need sections where specific comments are provided on training and ways to improve our skills. Not always, but sometimes you are sent on training courses.”

Managers and employees also admit that they do not even fill out the form each year and just make amendments or copy and paste.

“To tell the truth, I don’t fill it each year and spend time on writing duties and relevant details on this form. I only change the date and submit it in this way. In fact, I don’t think that personnel department seriously takes it into account.”

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However, HR specialists think differently about the process. According to HR, the process is strictly applied at the company and is used in the decision-making process. Conversely, technical employees and managers consider the form useless and think that it doesn’t cover the real aspect of their performance. In addition, all employees and managers think that as it does not have expectations such as training activities or rewarding process at the end then it has little importance. Furthermore, they mention that despite providing feedback about training needs, they are not always sent to training programmes to improve their skills.

Age issue doesn’t have impact on performance assessment. It does have an impact on the manner for providing feedback though. Feedback is conveyed more softly and showing respect for older employees. Conversely, it is critical, demanding and developmental for younger employees.

“I have employees older than me. If they make mistakes I notify them but in a polite way. I provide feedback to young employees in a critical and demanding way. The feedback is more developmental for young employees and less demanding for older employees.”

In conclusion, data from the Azneft PU respondents seems to suggest that employees have an ambiguous attitude to the performance management system. They neither accept it positively or negatively. They do not consider that it has advantages. The disadvantages include that it does not cover all aspects of performance and is not linked with any reward process. It is also revealed that fairness issues are problematic. Employees trust only their managers and think that other managers do not assess fairly because of their subjectivity. The age factor does not influence the process but does impact how feedback is provided. The feedback is more critical and demanding of younger people, but softer, stable, informative and respectful for older people. Further explanation will be provided in next chapter.

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5.7 Department of Geophysics and Geology

5.7.1 Company information

Geophysics and Geology (DGG) was established by Decree No. 340 of the President of the Republic of Azerbaijan of December 22, 1994 from the former "Geophysics and Engineering Geology" Production Union. It has three operating divisions, one research institute (the Geophysics Research Institute), and one service division (the Department of Transportation and Special Machinery). The Department's divisions conduct geophysical and geotechnical surveys, do exploratory drilling and conduct research at all of Azerbaijan's onshore and Caspian offshore areas. The Union studies the geology of oil and gas areas, does deep exploratory drilling, forecasts the petroleum potential of prospects, assesses the geology and productivity of the fields, runs well logs and formation tests during drilling, prepares reserve estimates, drills into oil-bearing formations, monitors field development, conducts a variety of geotechnical surveys, designs new methods and technologies, and so forth. This is a local company with 10.000 employees who are all local. During the interview process, 72 employees were interviewed.

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Table 5.8: Number of interview participants in DGG

Geophysics and Geology

Department Number of Employees Number of Managers

Accounting department 2 1

Economic analysis and 2 1 prognosis

Mechanics 5 1

Department of Electric and 3 1 Power engineering

Department of 4 1 transportation and special equipment

Department of Geophysics 4 1

IT department 2 1

Complex geophysical 4 1 exploration

Geology and Geodesy 4 1

HSEE department 2 1

Organizational health 2 1

HR department 3 1

Department of law 1 1

Total number of 38 13 interviewees:

5.7.2 General process of performance management

One of the objectives of this study is to investigate the general process of performance management in the Azerbaijan Oil and Gas sector. This section presents data on the PM process of GGU. There is no formal process and policy of performance management at the company. No evaluation of employee performance is carried out periodically and systematically. During grading and promotion periods the employee manager submits

160 his or her viewpoints about the employee. Alongside employee performance employee characteristics play an important role in his or her promotion and career perspectives.

5.7.3 Documentation process of performance management

This section presents the data about how performance management is applied: either paper based or electronically in the company. There is not any documentation process in this Company.

5.7.4 Industrial and Cultural Impact on Performance Management System at GGPU

One of the objectives of this study is to investigate how certain environmental factors are considered and impact during formulation or implementation of the performance management system in the Azerbaijan Oil and Gas sector. GGPU is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. The investigation revealed that there is no performance management process, written policies and guidelines related with the process exit in the company. This section presents data on challenges the companies face considering cultural and industrial factors.

All employees of the company are locals. Managers and employees admit that values have an impact on the decision-making process of managers, employee behaviours and their perception. When making decisions, managers have to consult with their managers and have to respect subordination. In addition, during the evaluation process for grading, favouritism and nepotism persistently exist. In addition, managers are asked or ordered to do certain things when promoting or grading the employee.

There are informal ways of evaluating employees for grading and promotion activities. The process consists of taking managers viewpoints about the employee during the grading or promotion process. The Head of the Personnel Department stated:

“There isn’t any performance management process in our company. But we have some kind of informal process when we consider the performance of an employee,

161 their service and contribution to the company during the grading or promotion process. We also consider the manager’s viewpoint about the employee. In fact, we all know how the employee is. We are aware of employee’s behaviour and job results. In some cases, the grading and promotion process is implemented without considering viewpoints of the manager, as the top manager decides who will be graded and promoted.”

Interview results show that favouritism and nepotism consistently play an important role during the grading and promotion process. Employees think that managers do favour their relatives and friends. However, managers do also think that favouritism and nepotism exist as they are asked or ordered to do certain things when promoting or grading the employee by top management or relatives.

“Sometimes it’s difficult to reject any offer when grading or promoting an employee because my employee is either a friend or relative of top management. I’m ordered to do things which I’m not so eager to do. If I don’t do it, I’ll lose my job or reputation.”

Managers admit that they do these things even if they are not asked by top management. Interestingly, managers admit to nepotism and favouritism and that they have to implement what has been said to them. If fail to do this, then there is conflict with the manager or they will lose respect or the relationship with a friend.

“It’s sometimes impossible to avoid nepotism. These cases create inequality and demotivation among employees. Thus, managers tend to evaluate and give positive feedback about most employees in order to keep the balance. In most cases, evaluation doesn’t consider real employee performance but other factors, such as to strike the aforementioned balance among employees, employee social status and so on.”

In regard to attitude about the performance management process and evaluation by the manager, most employees and managers think that it is not suitable for their company.

“The way of evaluating employee performance as Europeans or Americans do is not suitable for us. As this is not Europe and we are not Europeans. This system is an outcome of European thinking. When the guy invented the process, he considered the

162 situation around him and this situation is totally different from what exists here. It means that considering our situation, environment and characteristics of our people, we have to think of an alternative variant in order to evaluate performance of our employees. We have to consider nepotism, favouritism and other characteristics of our people when implementing a process.”

Employees and managers also consider that assessment of the employee only by his supervisor is not considered effective. The alternative variant that the respondents offer is evaluation of performance of the employee in a commission, similar to what took place during the USSR period. Employees and managers believe that evaluation of an employee by a person leads to subjectivity and other negative results. However, a committee evaluation comprises of not just one person, but three to five. This is more objective compared to one-person-evaluation.

Regarding the impact of industrial factors, these issues are not considered. Even the HR manager was unable to understand how these cases are implemented and asked for clarification about what it means.

“Safety is the main thing in the petroleum industry. However, this is not the case in this company. In addition, none of the employees and managers mentioned doing work safely as one of the criteria for good performance. Safety is not strictly followed, because we lack safety tools and equipment. Safety means only guidelines and brochures and daily signing of forms for formality. But in international companies, safety is provided by the company and strictly followed by the employees. However, our company neither provides safety nor makes us follow strict rules.”

The company strictly follows the Labour Law of the country. All processes and activities regarding people management are implemented and guided by Labour law and other relative legislation according to the Head of the Personnel Department.

The Labour market is lacking demanded skills and capabilities and these problems are solved with other HR processes.

“We need employees with knowledge of modern technology and processes. However, these types of people prefer foreign companies like BP and so on as they offer

163 a good working environment and higher salary. New graduates lack of knowledge with certain technology as they are taught technologies applied in the 1950s at the universities. In this case, we focus on training of employees on the job.”

Engineers and the Head of Personnel stated that most technologies used in the company are outdated. They have started to apply new technologies but face problems with it. The main problem is that some employees don’t know English but have lots of experience. Younger employees know English but lack the required experience. Language creates obstacles for understanding instructions and so on. Older employees need to adapt to new work technologies. Considering these factors, development activities are mostly set for younger employees as older employees are considered not worth investing in. In addition, most managers prefer young employees with knowledge of new technologies and equipment.

“I prefer young employees because they are more motivated to learn new technology and processes. Experienced employees are also important, but it’s pointless investing in an employee who will leave or retire in two or three years. As a manager, when evaluating or rewarding, I consider the development of young employees. In regard to older employees, I try to increase their salary or keep the salary stable and keep away from any redundancies.”

In conclusion, data from the Department of Geology and Geophysics respondents seems to suggest that there is not a formal performance management system at the company. There is informal assessment of employees by managers. Environmental characteristics are not considered in HR processes. The only dimension that has influence on all HR processes is Legislation. All HR processes are implemented according to Labour Law. Safety is not considered important. The characteristic of the labour market is that it lacks the demanded skills. They counter these problems with different HR activities. Managers suggest that culture makes an impact on their decision-making process. In addition, cultural impact affects management thinking and attitudes to performance management. Further discussion of these findings will be presented in the following chapter.

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5.7.5 Criteria for Performance

One of the objectives of this study is to investigate how performance criteria in terms of result, behaviour, and competency is defined and accepted by the developers and participants of the performance management system in the Azerbaijan Oil and Gas sector. GGPU is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and secondary data. This section presents data on what criteria of performance is used and how it is defined at GGPU. The investigation of company documents and policies relating to performance management revealed that the criteria is different for each manager and is applied differently between employees. The most preferred criteria for managers are completion of a task in a given time, ethics and ability.

“I value those employees who are ethical and respectful, who know their places and how to respect older and younger colleagues. Now, there are a lot of people who are talented and know much. But most of them lack personality in terms of respect and ethics.”

A few managers have stated attitude and motivation to work as the main criteria.

“An employee may be talented and knowledgeable, but the way he or she contributes to a task is more important. Some put more effort in terms of searching and so on, some are negligent to the task. The attitude toward the work is more important for me.”

Managers mostly prefer to evaluate the outcome of any given task. Some managers have stated that competency is also important but the job result is more important.

“An employee may be competent, but the main thing is job outcome. One is competent and doesn’t put much effort on the job. I’m only interested in results, the outcome.”

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The main criteria for employee evaluation are their ethics, punctuality at work, no absences, and to complete tasks promptly. Employees are mostly in favour of evaluating both their competencies and performance results.

“Both our competencies, behaviours and results have to be considered. Sometimes, the result of the job doesn’t depend on our competency but other problems. For example, each time when I work with an open text program the software creates a problem, resulting in me not being able to submit the document on time. It’s not fair to blame me as the poor outcome is not the result of my competency but other technological, system factors.”

The job description contains a job duty which states “any other duty required by his manager”. However, employees state that they don’t undertake any non-related job duties. Contextual performance is not considered and HR professionals are unsure what it means. Team jobs and complex jobs exist but these types of jobs are not assessed differently. Managers stated that individuals are assessed individually within the team.

The job characteristic is informally considered and engineers emphasise that all factors which are associated with the job have to be considered as the jobs are different in their characteristics.

“The scope and duties of jobs are different. That’s why I don’t think that the same criteria or process should be applied to manage employee performance.”

In conclusion, data from interview responses revealed that criteria for performance are result/outcome based at the company. The main preferred criteria are to complete the task in a given time, ethics and ability. Contextual performance is not considered and individuals are assessed individually when working in teams. However, job characteristics are considered informally by engineers. Interview responses suggest that employees do not undertake non job related activities. Further discussion will be provided in the next chapter.

5.7.6 Employee Acceptance of Performance Management

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One of the objectives of this study is to investigate how the performance management system is accepted by employees in Azerbaijan Oil and Gas sector. Department of GG is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and secondary data. The investigation revealed that there is not a formal performance management process. This section introduces data on employee viewpoints about the performance management system at GGU.

Employees, managers and HR stated that they do not have a performance management system and that they do not want a Western-style of performance management as it is managed by a one-person- employee manager. They prefer committee-based performance management.

“We don’t have such as system, but we would like to because it will enable us make administrative decisions rationally. But one-person evaluation is not fair because your destiny is in the hands of only one person. It is better to have a system where the evaluation of an employee is not carried out by only one person but by more than three. It’s more transparent and less subjective.”

Most employees emphasise negative cases in informal performance evaluation. Some employees think that their managers are fair in evaluation but they may not speak positively about other managers, or if their managers change.

In regard to age factors, managers admit that when they give feedback about any job result they choose different styles for younger and older employees. For young employees, the feedback is strict, and the employee is urged to develop themselves. For older employees, feedback is softer because of respect for elders. Older people also have stated that their managers respect them because of their ages as it comes from mentality. They have noticed differences when managers are talking with younger employees. Conversely, managers stated that age issues do not impact on the fairness of the performance evaluation process.

In conclusion, data from the Department of GG respondents seems to suggest that employees are in favour of a committee-based performance management system.

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They consider Western-based performance management ineffective as it leads to more subjectivity and negative cases. It is also revealed that fairness issues are under question in one-to-one evaluation. Employees trust only their managers and they consider that other managers do not assess fairly because of subjectivity. Age factors do not influence on the process but on the manner of the provided feedback. The feedback is more critical and demanding of younger people, yet softer, stable, informative and respectful of older people. Further explanation will be provided in the next chapter.

5.8. Employee Performance Management at H. Aliyev Oil Refinery

5.8.1 Company information

The Heydar Aliyev Oil Refinery was established by order of the Ministry of the Oil Industry of the former USSR on July 29, 1953. At present, the refinery is processing 21 out of 24 grades of Azerbaijanian crude oil and 15 different petroleum products, including automotive gasoline, aviation kerosene, diesel fuel, black oil, petroleum coke, and others. The plant is meeting the republic’s entire demand for petroleum products completely. 45 percent of its petroleum products are exported. The plant's most important units are the initial refining unit, the ED-AV-6 electric desalter, and the fuel oil vacuum distiller. The catalytic cracker placed in service in 1993 to produce high octane gasolines and the catalytic reformer that went into service in 1980 made it possible to improve the quality of the refinery's gasolines and diesel fuels. This is a local company with 6,000 local employees. During interview process, 67 respondents participated.

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Table 5.9: Number of interview participants at H. Aliyev Oil Refinery

Heydar Aliyev Oil refinery

Department Number of Employees Number of Managers

Technological department 3 1

Production unit 4 1

Mechanics 2 1

Main Power Engineering 2 1

Meteorology 2 1

Technical control 2 1

Economic analysis and prognosis 2 1

HSSEE and Quality control 2 1

Marketing of Oil Products 2 1

Export of oil products 2 1

HR department 3 1

Reception and transportation of raw 3 1 oil

First refining process of raw oil 3 1

Catalytic reforming 3 1

Cocs production 3 1

Catalytic cracking 3 1

Production of Nathen Acids and 3 1 Reagents

Automation and Instruments 2 1

Research and Development 2 1

Total number of interviewees: 47 20

5.8.2 General Process of Performance Management

One of the objectives of this study is to investigate the general process of performance management in the Azerbaijan Oil and Gas sector and this section presents data on the PM process of the company.

There is no formal process and policy of performance management at the company. No evaluation of employee performance is carried out periodically and systematically.

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Observation of behaviours by line managers is not carried out accordingly. During the grading period, the employee manager submits his viewpoints and these viewpoints may not be related to real job performance. The reasons for grading might be both job performance and other factors such as employee living conditions, service time and so on. Sometimes during grading and promotion periods managers’ viewpoints are not considered as nepotism impacts everything. Informal evaluation of employees by managers without any written policies and settled system exists.

5.8.3 Documentation

There is no documentation process of performance management.

5.8.4 Industrial and Cultural Impact on Performance Management at Oil Refinery

No evaluation of employee performance is carried out periodically and systematically. Observation of behaviours by line managers is not carried out accordingly. Informal evaluation of employees by managers without any written policies and settled system exists.

In the decision-making process, managers have stated that cultural values and the Azerbaijani ways of doing things in most cases make an impact.

“We can’t call women at night if an accident occurs because she has a husband and children. This is not accepted in our society. That is why we try to eliminate the

170 number of female chemical engineers and substitute them with men. Women mostly work in the laboratory where it is safer and more suitable for them.”

Managers admit that if they were in other countries with a different situation they would act differently regarding certain issues.

The company does not have formal policies and written guidelines about performance management systems because such practices did not exist during the Soviet period. During USSR rule, norms and reward systems were more important.

“If you look at the education materials and also the documents within the companies, you can see that most of them are related with norms and payments. Performance management, what we’re talking about now, is a new thing. During the Soviet period, these soft aspects of people management process were not seriously considered. It was a planned economy and everything was based on planning from top to bottom, and everybody concentrated only to fulfil the plan.”

The Head of the Payroll Department stated that employees during the Soviet period were evaluated only in regard to fulfilment of the plan. There were different names for people to value and motivate them and also to differentiate employees. The names included “honoured worker”, “employee of the month”, “employee of the year”, “hero of socialist labour “and the employees were nominated with different kinds of orders.

These were methods to differentiate good employees. Managers admit that some remnants of the past remain. They still apply some of the old techniques. 70 percent of managers are older people with a Soviet mentality and new ways of doing things are not easily accepted. Most of the managers manage and differentiate the employee with the same criteria as they did during the Soviet period.

In addition, nepotism and favouritism are also important elements of employee management. However, managers admit that for strict and important positions, employees with high technical knowledge and good behaviours such as responsibility and ethics are advised and promoted.

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“Everyone wants the work completed. Nepotism exists where the job is not so important. Or if there are two people, and both are good at technical knowledge and behaviours, the one who has support will be promoted.”

Employees admit that people who have support easily get promotion and grading. Employees are very positive about their managers in terms of fairness. However, they are suspicious about other managers. In addition, managers and employees don’t think performance management-evaluation of employee by one person a good idea. They have stated that it is time consuming and also there is a subjectivity issue.

Regarding the impact of industry, the Head of the Personnel Department stated that they do not consider any industry dimension in their HR practices. Legislation is the only influencing power on HR processes at the company. Engineers have stated that safety is important as the industry is very dangerous. Everyone is required to undertake the job safely. Managers also pay attention to safety to ensure the job is completed without incident.

“The main thing in our job is to do the job safely. If safety rules are neglected, big problems may arise during work processes. We work in a hazardous environment and we face safety risks every moment. We have to be attentive, responsible and accountable.”

A characteristic of the labour market is a lack of in demand skills and capabilities. They solve this problem with different processes.

“There is reconstruction in the oil refinery plan. Foreign experts are invited to undertake the process. Employees, especially experienced ones, don’t have enough language skills to communicate. In addition, the level of education at the local universities is not satisfactory. The company initiates different internship (paid and unpaid) programs for students to apply their knowledge and prepare them for the job market.”

“We are mostly interested in the younger generation, because employees will retire and have to be substituted with younger ones. The level of education not so good, and

172 we work hard on the younger generation to make them the perfect engineers for the future.”

As indicated, Labour law and other legislation are strictly followed during implementation of HR processes.

Most technologies used in the company is outdated. They have started to apply new technologies but face problems with it. They tackle these problems with different HR processes. The company initiates different internship (paid and unpaid) programmes for students to apply their knowledge and prepare them for the job market.

“We are mostly interested in the younger generation, because employees will retire and they have to be substituted with younger ones. The level of education is not so good and we work hard on the younger generation to make them the perfect engineers for future.”

In conclusion, data from the Refinery Plant respondents seems to suggest that there is no formal performance management system at the company. There is an informal assessment of employees by managers. Environmental characteristics are not considered in HR processes. The only dimension that has influence on all HR processes is legislation. All HR processes are implemented according to Labour Law. Safety is considered important by engineers. The characteristics of the labour market are a there is a lack of in demand skills. Cultural impact demonstrates itself on management thinking and attitude to performance management. Further discussion of these findings will be presented in the following chapter.

5.8.5 Criteria for Performance

One of the objectives of this study is to investigate how performance criteria in terms of result, behaviour, competency is defined and accepted by the developers and participants of performance management systems in the Azerbaijan Oil and Gas sector. Oil Refinery Plan is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. The investigation of company documents and policies about performance management

173 revealed that the criteria are different for each manager to differentiate employees. This section presents data on what criteria of performance is used and how it is defined at the refinery plant.

Interview responses revealed that most managers pay attention to job results rather than competencies and behaviours.

“Outcome of the job is more important for me. If an employee has potential and competency, but doesn’t put effort into his job and delivers a poor outcome, I have no need of them. An employee might be not so competent, but he may put more effort into the job and deliver a quality outcome. That is why I prefer the outcome-result, the end product.”

In addition, they are most likely to consider behaviour of employees such as ethics and respect to others. Competencies are important for a few managers.

“To complete the task without any accident is important. If the employee has the ability to complete the task safely it means that the task has been completed without accident as required. So they are related to each other - competencies and results.”

One of the most preferred criteria at this company is a relevant and high level of technical knowledge. The best employees are those who are good at relevant technical knowledge, have ethics and know how to behave in certain situations and complete the task safely and within the given timeframe.

“Our job is very dangerous. One is required to have responsibility in order to do the job safely and without any accident. We are called to the job at night if any accident or problem occurs. We don’t say that’s it too late. We feel a responsibility to come as its production and if any problem occurs it will hamper the other processes. So responsibility and technical knowledge and safety are most important in our job.”

The criteria for employees when re-evaluated is that they must have responsibility, technical knowledge and ethical behaviour. They favour being evaluated on both their competency and results.

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In the job description there is a job duty which states “any other duty required by the manager”. Contextual performance is not considered and HR people don’t have any idea what it means.

According to the words of HR and managers, team jobs and complex jobs exist but these types of jobs are not assessed differently. Individuals are assessed individually within the team. Job characteristics are informally considered and engineers emphasise that all factors which are associated with the job have to be considered as the jobs are different in their characteristics.

“When we differentiate between workers-operators and engineers-technologists we use different criteria. We look at different aspects, as these jobs and positions are different in their nature. Differences are a result of job duties and job characteristics. In one job, the outcome is highly visible, and in another it is less visible. In one job, the result may be out of one’s control due to the contextual environment or other factors, in another job the behaviours are important. These aspects should be considered.”

In conclusion, data from interview responses revealed that criteria for performance is result/outcome based at the company. The main preferred criteria are relevant technical knowledge, ethics and knowing how to behave in certain situations, and safe completion of the task within the given timeframe. Contextual performance is not considered and individuals are assessed separately when working in teams. However, job characteristics are considered informally by engineers. Employees undertake job unrelated activities. Further discussion will be provided in the next chapter.

5.8.6 Employee Acceptance of Performance Management

One of the objectives of this study is to investigate how performance management systems are accepted by employees in the Azerbaijan Oil and Gas sector. Oil Refinery Plant is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. The investigation revealed that no formal and written procedure of performance management exists. However, there is an informal evaluation of managers to make

175 certain decisions about grading and promotion activities. This informal evaluation of employees by a manager depends on different criteria. This section introduces data on employee viewpoints about the performance management system at the refinery.

Employees, managers and HR stated that they do not have a performance management system. They would like to have such system but not in the Western-style. They prefer committee-based performance management.

“Management of employee performance by one person is not a good idea. We live in Azerbaijan and have realities to consider. It may be ok in Europe, but here in our country “brains are working differently”. Management or assessment of performance by three people or by a committee is more preferable because of transparency and objectivity.”

Employees stated that they are quite confident about their managers in terms of being fair. However, they are not sure about other managers. They also added that nepotism exists in Azerbaijan and other managers use negative cases during evaluation.

“It is normal in our company that if you have relatives or friends in top positions you will be one step ahead. This happens in Azerbaijan. There are only a few cases where a person is promoted because of his knowledge and skills. It happens when the position is very critical and when the manager is strictly responsible and accountable for the production process.”

Employees admit that they feel support from both their managers and colleagues during the work period.

“Since starting work, I have enjoyed a lot of support from both my manager and colleagues. They are friendly and always try to help and explain things. In addition, they motivate you to learn. They have quite a lot of experience and you learn interesting things that you can’t find in books or elsewhere.”

“Here in our plant, learning and development is highly appreciated and supported. From top management to bottom level management, they are all interested in developing skills and competencies of employees and workers. Thus, everyone is

176 provided and provides support for learning and developing new skills. The company is interested in promoting employees from lower positions to higher by fostering a learning environment.”

With regard to age factors, managers provide feedback or make a complaint when the job is not completed accordingly. Everyone is provided with feedback when any problem arises. The way and method for older people is different from the younger ones. For young employees, the feedback is stricter and the employee is urged to develop him or herself. For the older employee, feedback is softer because of respect to elders.

“As a thirty-four-year-old manager, I have four employees older than me. Of course, you behave differently when you address and work with them. We have a mentality that we respect older people. They are the same age as our mother, father, big brother etc. But regarding work problems, I give feedback or make complaint about their outcome as I do with other employees. However, the communication method and tone of voice is different. I’m more demanding and critical with young people. With older people, feedback is only informative so they get the message.”

In conclusion, data from the Refinery Plant’s respondents seems to suggest that employees are in favour of a committee-based performance management system. They think Western-based performance management is ineffective as it leads to more subjectivity and negative cases. It is also revealed that fairness issues are under question in one-to-one evaluation. Employees trust only their managers and consider that other managers don’t assess fairly because of subjectivity. Age factor doesn’t influence on the process but on feedback providing. The feedback is more critical and demanding for younger people, yet softer, stable, informative and respectful for older people. Further explanation will be provided in next chapter.

5.9 Employee Performance Management System at Integrated Drilling Trust

5.9.1 Company information

The Integrated Drilling Trust (IDT) was established in March 12, 2007. The Integrated Drilling Trust includes five drilling departments ("Bayil Limany" Offshore

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Exploratory Drilling Department, the "Sahil" Drilling Department, the Offshore "Neft Dashlary" Offshore Drilling Department, the "Absheron" Drilling Department, and the "Gobustan" Exploratory Drilling Department), the "Drilling Services and Logistics" Department, The Cementing Department, the Logistics Department, and the Specialised Machinery Department. The Integrated Drilling Trust does exploration and production drilling at SOCAR's approximately 25 onshore and offshore fields. Integrated Drilling Trust provides a full range of services, performs maintenance, rig building, and directional drilling and, along with other drilling organizations in Azerbaijan, is preparing to enter the drilling services sectors of foreign countries in the future. It is a local company with 5,000 local employees. Interviews were conducted with 60 employees.

Table 5.10: Number of interview participants at Integrated Drilling Trust

Integrated Drilling Trust

Department Number of Employees Number of Managers

HSSEE 1 1

Department of Law 1 1

HR department 2 1

Accounting and auditing 1 1

Geology 2 1

Main power engineering 2 1

Technical and technological 2 1 department

Rig building 3 1

Drilling equipment and internal- 3 1 combustion engine

Electrical equipment 3 1

Drilling pipes 3 1

Top drives 4 1

Total number of interviewees: 27 13

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5.9.2 General Process of Performance Management

One of the objectives of this study is to investigate the general process of performance management in the Azerbaijan Oil and Gas sector. This section presents data on the PM process of IDT.

There is no formal process and policy for performance management at the company. No evaluation of employee performance is carried out periodically and systematically. During grading and promotion periods, the employee’s manager submits his viewpoints about the employee. Not only employee performance, but also characteristics play an important role in promotion.

5.9.3 Documentation Process of Performance Management

This section presents data about how performance management is applied: either in a paper based or electronically based format in the company. There is no documentation process.

5.9.4 Industrial and Cultural Impact on Performance Management System at IDT

The investigation revealed that there is not a performance management process and no written policies and guidelines related with the process exit in the company. No evaluation of employee performance is carried out periodically and systematically. During the grading and promotion process, the employee manager submits his or her viewpoints about the employee. Not only employee performance, but also his characteristics play an important role in his promotion and career perspectives.

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Managers admit that certain factors affect their decision-making process and ways of doing things.

“I agree that certain things influence the decision-making process. Not only the Azeri way of doing things, but also personal and educational background impact upon certain decisions. The one with dignity will decide fairly, the one without dignity will decide unfairly. If you are Russian, you will do as Russians do, if you are American you will think as an American, whether you are an employee or manager. We grew up with these values and we live with these values and these values are embedded in our minds. This certainly impacts upon our decision. For example, here in our company we have a poor planning process. We make plans or critical decisions when a serious accident occurs. We may make different plans regarding certain issues in a limited time period and this creates chaos in the company, because they assimilate certain things then hear that everything is changed and they have to start from scratch again. This happens in our company. But I don’t think that this happens with companies where the managers are European and American.”

Interview responses revealed that not only employees, but also managers complain about the difficulties that nepotism, favouritism, and subjectivity creates. Managers state that nepotism in most cases creates problems for them in doing the job effectively.

“This is a very dangerous process for unskilled people. It affects job quality. But what are we to do? The order is the order. It also affects the mood of other employees. Nepotism and favouritism exist everywhere.”

Managers state that they are asked or ordered to do certain things when recruiting, promoting or grading the employee. There is no system for evaluation of performance. Employees and managers have different viewpoints about setting and formulating such a system in a company.

Both managers and employees prefer to have a performance management system only different from Western patterns. Evaluation of the employee by his manager, by one person, is not accepted as it leads to subjectivity and other negative factors. Instead, they prefer evaluation of employee by more people from outside of the

180 department. In addition, the employees think that in case of the application of such a system (evaluation by their manager), they totally trust their manager and they admit that their manager will evaluate them fairly. However, they are not sure about other managers. Each manager states that they will evaluate fairly without any subjectivity, but they are also unsure about other managers. Employees think that they totally trust their manager and they admit that their manager assesses them fairly. However, they are not sure about other managers.

The HR manager stated that the main problem the company is facing is the problem created with application of new technology and equipment in drilling service. Employees have difficulties adapting to and learning new technology because of language and age problems. Language creates an obstacle for understanding instructions and so on. Older employees with experience have failures in adapting to working with new technologies. They try to overcome this problem either by recruitment and training programmes.

Safety is the main focus in the petroleum industry. However, this is not the case within this company. In addition, none of employees and managers mentioned safe working practices as one of the criteria for good performance. Engineers consider that health, safety, security and environment (HSSE) is totally dependent upon top management and they don’t have responsibility to cease or terminate any process until it is accepted by them.

“HSSE is only a position. HSSE has no power. Only if they have support from top management do they have any freedom to do a good job. But the situation is that HSSE is waiting for a response from top management regarding any serous decision. There happen to be such cases where HSSE warns the employee that he’s not doing the job according to safety rules. The employee doesn’t take it into account and responds “if you’re a man, go and tell these things to the relative or friend of someone. Imagine that things are working here like this regarding with HSEE. That’s why we have a lot of safety accidents.”

The Head of the Personnel Department stated that all HR processes are implemented according to the Labour Law of the Azerbaijan Republic. Any idea or

181 process which contravenes the law is not acceptable and is always rejected. HR personnel have no knowledge about HR management. They are experienced in the application of Labour law and do not see any requirements for further learning. The Head of the Personnel Department, (30), with HR education abroad stated:

“Employees in the personnel department don’t have any idea about modern human resources processes. They don’t even want to learn. In addition, top management doesn’t have the support to apply new ways of doing things. All processes regarding personnel are implemented according to labour legislation”

No environmental factors are considered in any process regarding HR according to the Head of the Personnel Department and Head of Payroll and Employee Relations.

In conclusion, data from the Integrated Drilling Trust respondents seems to suggest that there is no formal performance management system at the company. There is an informal way of assessing employees by managers. Environmental characteristics are not considered in HR processes. The only dimension that has influence on all HR processes is legislation. All HR processes are implemented according to Labour Law. Safety is ignored. Characteristics of the labour market are that it lacks the demanded skills and they counter these problems with different HR activities. Managers suggest that culture makes an impact on their decision-making process. In addition, cultural impact affects management thinking and attitudes to performance management. Further discussion of these findings will be presented in the following chapter.

5.9.5 Criteria for Performance

One of the objectives of this study is to investigate how performance criteria in terms of result, behaviour and competency is defined and accepted by the developers and participants of performance management systems in the Azerbaijan Oil and Gas sector. Integrated Drilling Trust is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and secondary data. The investigation of company documents and policies about performance management revealed that the criteria are different for technical and non-technical

182 managers. This section presents data on what criteria of performance is used and how it is defined at IDT.

Technical managers mostly consider technical knowledge, skills and abilities of employees as the main criteria for promotion and grading.

“Our work is different. If you don’t have the technical knowledge you will not survive in the work environment. It is essential that employees possess technical knowledge, abilities and skills of the relevant job. If he doesn’t have any job-related knowledge skill and ability, his work is worthless.”

The second most preferable criteria is responsibility for technical managers when evaluating employees.

“A good employee is one who is knowledgeable, skilful and responsible. We work in a very difficult and dangerous environment. If you don’t have good ability and skill you will not complete the job successfully. But even this is not enough. Good engineers with sound knowledge and skill have to have responsibility. This factor is important because if you are a responsible person you will complete the job with quality, you will check it several times and finish it on time.”

Non-technical managers think ethics, innovation, attention to detail, hard-work, the ability to complete the work on time, and knowledge/skill/ability are the most important criteria. Managers mostly prefer to evaluate the outcome of any given task. Non-technical managers pay attention to such competencies as innovativeness, creativeness, attention to detail and control. Technical managers think it depends on the job characteristics whether to evaluate competency or result. They emphasise that the result for the out-field work must be evaluated.

“In fact, the result of the work is a reflection of a technician’s ability and skills. If the technicians don’t have the relevant skills the result of the job will be negative.”

Most respondents consider that both competency and outcomes of the job are important. The criterion for employee evaluation are technical skills and knowledge,

183 responsibility and effectiveness. Employees mostly are in favour of evaluating both their competencies and performance results.

Job descriptions and interview results revealed that employees undertake non job related activities. According to managers and HR, contextual performance is not considered and HR people do not have any idea what it means. In addition, they stated that there team jobs and complex jobs exist, but these types of jobs are not assessed differently. Individuals are thus assessed individually within the team. Job characteristic is informally considered and engineers emphasise that all factors associated with the job must be considered, as the jobs are different in their characteristics.

“Evaluation of employees with mentally and physically demanding jobs should be different. In addition, work environment, the nature of job must be considered. In addition, there are jobs which are interdependent - one complete certain aspect of the job - the outcome is not there yet, but the process is ongoing. The quality of outcome doesn’t depend only on this person but other people and factors. Such issues have to be considered.”

In conclusion, data from interview responses revealed that criteria for performance are result/outcome based at the company. The criteria are different for technical and non-technical managers. Technical managers mostly consider technical knowledge, skills and abilities of employees as the preferred criteria. Non-technical managers think ethics, innovation, attention to detail, hard-work, the ability to complete the work in the given timeframe and knowledge/skill/ability are the most important criteria. Contextual performance is not considered and individuals are assessed separately in team work. However, job characteristics are considered informally by engineers. Interview responses suggest that employees undertake non job related activities. Further discussion will be provided in the next chapter.

5.9.6 Employee Acceptance of Performance Management

One of the objectives of this study is to investigate how performance management systems are accepted by employees in the Azerbaijan Oil and Gas sector. Integrated Drilling Trust is one of the companies investigated in this study. Its performance

184 management (EPM) was examined through interviews and analysis of secondary data. This section introduces data on employee viewpoints about the performance management system at IDT

The investigation revealed that no formal and written procedure of performance management exists. However, there is an informal evaluation of managers to make certain decisions about grading and promotion activities. This informal evaluation of employees depends on different criteria such as technical knowledge and responsibility.

Employees and managers admit that during grading and promotion periods they face negative cases of nepotism and favouritism. But interview responses revealed that with critical positions it is not the case.

“There exists more nepotism and favouritism when the department or position is less critical. With critical positions everyone is interested in promoting highly technically expert employees. Promotion of unskilled employees to critical positions also creates problems for management.”

In addition, employees completely trust the fairness of their managers, but they are not quite sure about other managers.

“Of course, there exists nepotism in our company. I know a few people who work here because they had support from top management or relatives. Of course, the managers do negative things. I trust my manager and always felt supported fairly. But I can’t say that about other managers.”

Managers state that they treat younger and older employees differently. They are more demanding of younger employees. Younger employees are provided with development loaded feedback.

“It is impossible to make older employees learn new skills and capabilities. They don’t have the motivation. They are interested in having a stable job and a monthly salary before retirement. Considering these issues, I’m not so demanding of them, and don’t make the job challenging for them. But I’m highly critical and demanding of

185 younger employees. They are our future and it is our duty to develop competent engineers for tomorrow.”

In addition, the HR managers and employees’ viewpoints about performance management is that they are not in favour of assessment of employee by managers as it leads to subjectivity and other related issues.

“I don’t think this system will be successful here because it’s not a good idea to give all the power to one person to manage the employee’s performance. Whether you want it or not, there will be subjectivity and negative issues. The best method is that employees are evaluated by a committee of three or more people as applied in the Soviet period.”

In conclusion, data from the IDT respondents seems to suggest that employees are favour of a committee-based performance management system. Employees only trust their managers and consider that other managers do not assess fairly because of subjectivity. The age factor does not influence the process of providing feedback. The feedback is more critical and demanding for younger people and conversely softer, stable, informative and respectful for older people. Further explanation will be provided in next chapter.

5.10 Employee Performance Management at Caspian Drilling Company

5.10.1 Company Information

Caspian Drilling Company is an international petroleum company based in Baku, Azerbaijan. It was founded by the State Oil Company of Azerbaijan Republic (SOCAR) and Santa Fe Inc. of US to conduct drilling services for many PSA agreements in Azerbaijan. SOCAR controlled 55 percent while Santa Fe held the remaining 45 percent of the stake. Santa Fe sold all of its shares to Caspian Drilling Company in June 2009. Over a 15-year period, the company drilled at 30 deep water locations on 14 geological structures and 35 directional, inclined and horizontal wells were drilled from subsea templates. The employee number is 600 and the total number of employees interviewed is 21.

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Table 5.11: Number of interview participants at Caspian Drilling Company

Caspian Drilling Company

Department Number of Employees Number of Managers Drilling 4 1

Oilfield services 5 1

Accounting and Finance 2 1

HR department 3 1

Employee relations and 2 1 Legal issues

Total number of 16 5 interviewees:

5.10.2 General Process of Performance Management

There is no formal process and policy of performance management at the company. No evaluation of employee performance is carried out periodically and systematically. There is an annual process where line managers fill out a form about one employee to submit the viewpoints about his or her promotion. This form is filled manually in A4 form. The criteria consist of language skills, professional expertise/ability, ability to receive new information and interpersonal skills. In addition, the line manager provides information about the status of the tasks completed by the employee. The line manager

187 then evaluates the criteria as fair, good, normal or excellent. At the end, the manager and the employee signs and provides feedback. The process is only undertaken for those who will be promoted.

5.10.3 Documentation of Performance Management Process

This section presents the data about how performance management is applied: either paper based or electronically in the company. There is no documentation process.

5.10.4 Industrial and Cultural Impact on Performance Management System at Caspian Drilling Company

One of the objectives of this study is to investigate how certain environmental factors are considered and impact during formulation or implementation of performance management systems in the Azerbaijan Oil and Gas sector. Caspian Drilling Company is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. This section presents data on challenges the companies face considering cultural and industrial factors. The investigation revealed that there is no performance management process, written policies and guidelines related with the process exit in the company. No evaluation of employee performance is carried out periodically and systematically. There is an annual process where line managers fill out a form on one employee to submit the viewpoints about his promotion. This form is filled manually in A4 form. The evaluation is based on the criteria which consists of language skills, professional expertise/ability, ability to receive new information and interpersonal skills.

Most employees of the company are locals. Local managers admit that certain values and mentality issues do impact on a lot of things. They have stated that it sometimes might be challenging when working with foreigners in the same company.

“We have disagreed with foreigners on certain issues. At the beginning, they didn’t take our opinions into account. Then they started to make discussions on certain issues. Eventually they admitted that they had been wrong.”

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The disagreement occurred on issues related to female employees. According to the interview responses, local managers prevent female employees from working on platforms, at night and in high engineering positions. However, foreign managers considered this discrimination. After appointing female employees on platform and night work, they have noticed that female employees do not want to work because of family problems caused by the new appointment.

“They are other issues and, unfortunately, they are strictly confidential. Some business processes have to be dealt with in certain ways that are unique to our country. At first, foreigners didn’t take this into account and they failed in certain cases. Then we explained the different types of methods to deal with certain types of issues.”

In addition, they have some difficulties with employees regarding application of new technologies or methods. Older employees are more resistant and negligent towards new things than younger ones.

Foreign managers think that there should be a performance management system, but are concerned about the effectiveness of this system in Azerbaijan.

“To have such a system is good for the employees, managers and company. However, I am a bit sceptical about its effective implementation. Local managers don’t realise that it isn’t like it used to be. They have an inclination to personalise job-related issues and consider job unrelated factors. In addition, the system has to be supported from the top. I don’t think that people at the top are interested in such a system. Even if they are interested, I’m still not sure that the system will work. You know things happen here in different ways. Local people have different ways of doing things and thinking.”

Local employees also admit that local managers favour certain people. They do not like counter arguments, and they consider job unrelated factors quite frequently.

“It’s easy to work with foreigners because they always keep work and out of –- work activities isolated. We probably have problems in our real lives, but at work they forget about it and focus only on work-related issues. But our managers act a bit differently. They always consider job and out of job activities at work. Most of them

189 don’t even like it if a young engineer provides good advice. They can’t accept it. They favour power and status and feel that everyone’s life is in their hands.”

In addition, employees also stated that for the critical positions, competent employees are promoted without any consideration.

“If an employee is competent he is promoted. This happens frequently when the job is critical. They are afraid of promoting unskilled employees where responsibility is high.”

Regarding industry related factors, the HR manager stated that in HRM processes environmental factors are not considered.

“We don’t have a performance management system, and therefore I’m not able to say how these factors impact upon it. But generally we apply HR processes according to legislation. We strictly follow labour law during recruitment, selection and other employment processes. Any practice against the law is not allowed. In fact, we don’t consider any other factors related with economic, environment, and technology in HR process. Regarding safety and environmental protection, these are managed by HSSE team. We overcome certain problems that technological changes pose in regard to acquiring new skills and competencies with training programmes.”

According to the engineers, safety is strictly followed in the work environment. According to the health and safety policy of the company, provision of superior health and safety is a core company value of equal importance to environmental protection, operational efficiency, customer service and profitability. Employees and engineers also stated that safety is strictly applied. However, they are not sure that environmental protection is seriously managed.

“Safety is very important and we are not permitted to start working until everything is safe. We are provided with safety suits, equipment and instructions. We have a safe working environment. Regarding environmental protection, I don’t think we care much about “mother nature”. It’s a drilling process that we do, and of course we create certain problems for the environment by polluting earth, water and living beings.

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We apply technology to make minimum pollution and damage, but again it’s impossible not to pollute at all.”

In conclusion, data from the Caspian Drilling Company respondents seems to suggest that there is no formal performance management system at the company. There is an evaluation process at the end of year but only for employees considered for promotion. There exists an informal way of assessment of employees by managers. Environmental characteristics are not considered in HR processes. The only dimension that has influence on all HR processes is legislation. All HR processes are implemented according to labour law. Safety is strictly considered during the work process. Cultural impact demonstrates itself on management thinking and attitudes to performance management. Further discussion of these findings will be presented in the following chapter.

5.10.5 Criteria for Performance

The investigation of company documents and policies about performance management revealed that the formal criteria consist of language skills, professional expertise/ability, ability to receive new information and interpersonal skills for promotion. However, managers consider expertise in technical discipline, professional ability, innovation, motivation for learning.

“These criteria are good for engineers, but the main thing is expertise in technical discipline. If it is not at the required level, the rest is unimportant. For young technical engineers, beside from technical skills, motivation for learning is highly

191 appreciated. If the person is always welcome to learning, he will be professional and one step ahead.”

The interview responses of local managers suggest that they are mostly interested in result and outcome of the job. Foreign managers stated that both behaviour and results are important to them.

“Behaviour is also important. An employee may complete the job without following safety rules and not according to the company standards. This is not acceptable. In addition, one may be good at completing and carrying out the task effectively, but he doesn’t behave in a required manner, he’s always treating his colleagues badly, he doesn’t respect others. I don’t think we have to focus on only outcome of the job because of these reasons.”

Employees think that they are evaluated based on their technical competency and language skills.

“It’s essential to know the English language and to have technical expertise. We work with foreigners and language is important. During recruitment and promotion process, these factors are considered. If you don’t know English, you’re not hired.”

Employees mostly favour evaluating both competencies and performance results.

“I think that managers have to take into account both competencies and results together. Certain problems emerge in the work environment and they are not under our control. These problems influence our job outcome. These problems are related with weather, working conditions, equipment, system errors and with our mood, our psychology.”

Analysis of job description and interview results revealed that employees do not undertake non job related activities. The HR manager stated that contextual performance is not considered and he does not have any idea what it means. Engineers and the HR manager confirmed that there exist team jobs and complex jobs, but these

192 types of jobs are not assessed differently. Individuals are assessed individually within the team as stated.

“I don’t know what you mean by contextual performance. In reality, we consider only performance related with job duties. Employees are evaluated individually whether they are in a team or not. In fact, we don’t have a performance management system and we don’t have any consideration for team jobs or different types of job characteristics. I don’t think we consider job characteristics in our own way of evaluation method either.”

“Accountants are assessed by different criteria than drillers. This is because of the variations existing in their job description, job tasks and job duties. Criteria have to be different but in terms of the system or method I’m not sure.”

In conclusion, data from interview responses revealed that criteria for performance are both competency and result/outcome based at the company. Local managers are in favour of result based performance criteria. Foreign managers prefer both behaviour and result based competency. Job characteristics, contextual performance, team work are not considered, and individuals are assessed separately in team work. Employees do not undertake non job related activities. Further discussion will be provided in the next chapter

5.10.6 Employee Acceptance

One of the objectives of this study is to investigate how performance management systems are accepted by employees in the Azerbaijan Oil and Gas sector. Caspian Drilling Company is one of the companies investigated in this study. Its performance management (EPM) was examined through interviews and analysis of secondary data. This section introduces data on employee viewpoints about the performance management system at Caspian Drilling Company.

The investigation revealed that no formal and written procedure of performance management exists. However, there is a paper-based formal evaluation of managers to make certain decisions about grading and promotion activities for the employees

193 considered for promotion. This process is not applied to all employees. However, informal evaluation of managers exists and they evaluate the employee in terms of their expertise in technical discipline, professional ability, innovation, and motivation for learning.

Employees and managers think that it is better to have a performance management system for defining areas of weaknesses and linkage with rewarding and promotion. They also suggest it being different from the Western style.

“Such a system is good. I know from my friends who work at foreign companies with a performance management system. They are rewarded at the end and also this process helps them identify development areas. But the assessment part is a bit problematic because the employee is assessed only by one person. This leads to bias and subjectivity. Probably HR managers have to think about an alternative variant in order to overcome nepotism, and subjectivity that exists among local managers.”

HRs viewpoint about performance management is negative as they do not believe that it will succeed in Azerbaijan.

“I don’t believe that this process will be successful because we have different viewpoints, approach, and our own way of doing things that are totally different from Western people. We must invent our own method of performance management. I think we have to apply committee-based performance management as we did during the Soviet period. It’s better for the employee to be assessed by three or more people to avoid of subjectivity.”

Concerning, the fairness issue, employees think that foreign managers are fair in evaluation. But they are suspicious of local managers. In regard to age factors, managers admit that when they give feedback about any job result they choose different styles for younger and older employees. For younger employees, the feedback is stricter and the employee is urged to develop him or herself. For older employees the feedback is softer because of respect afforded to elders.

In conclusion, data from the Caspian Drilling Company respondents seems to suggest that employees, HR and managers think negatively about Western-style

194 performance management and they prefer an alternative variant. They consider Western based performance management to be ineffective as it leads to more subjectivity and negative cases. Employees trust foreign managers and some local managers. Age factors do not influence the process only on the approaches to feedback. The feedback is more critical and demanding for younger people, yet softer, stable, informative and respectful for older people. Further explanation will be provided in the next chapter.

5.11 Conclusion

Data analysis suggests that culture and industry influences in different ways on local and international companies. This section provides general information about how different performance management processes exists and how different industry and culture impact on the PMP in international and local companies.

Interview responses and document analysis revealed that international companies have certain performance management systems. Both written and formal procedure and documentation exist. All stages and cycles exist and start from goal- setting to feedback discussion. Components of performance management systems are applied accordingly. Differences and variances emerge during implementation of the process. Both local and foreign employees apply the procedures accordingly. However, communication and interpersonal issues arise during the process. Nepotism and favouritism exist and it hampers the effectiveness of performance management. Industrial factors, such as the impact of technology, legislation, labour market and environment are considered when formulating the process in a global arena. In fact, on the local level legislation has a strong impact on performance management. The culture, characteristics of Azerbaijani people are not considered as the process is universal. However, cultural characteristics are demonstrated in realization of the performance management process.

Performance is a set of both behaviours and results. Results are aligned with key business goals, developing goals and other goals. Behaviours are aligned with core values of the companies. These are strategically integrated. Goals are cascaded down from strategic to operational and individual level. Behaviours are associated with core

195 values and mind-sets of the company. All employees have to undertake the work according to these behaviours. Contextual performance is not considered. Task performance is strongly considered. In addition, the process is unique for all job activities, individual, team and complex jobs. Job characteristics do not define performance criteria.

The overall impression of performance management is positive. Advantages of the process include clear expectations, opportunity for exploring weakness and area for development, alignment with bonus and promotion. Disadvantages of the process are that it is time consuming, does not cover performance totally, generates useless information and so on. Fairness issue arise in assessment of local managers. Age issues do not make an impact on the process.

Local companies do not have any formal written policies and procedures for performance management. Informal procedure exists for only promotion and grading purposes. As there is not any process, it is clear that there are no stages and cycles of the process. Industrial factors are not considered and, in fact, managers do not have any idea how these factors impact on any HR processes. The only thing they consider is labour law and all processes have to be followed according to the legislation. As there is not any formal process and procedure, a set of standardised criteria does not exist either. Managers consider behavioural factors such as ethics, respect to others, ability to complete the task on time and technical skills of employees. Managers mostly prefer to assess employees according to their job results. Employees prefer to be assessed based on their competencies and job results. Employees undertake non job related activities and it sometimes impacts on job performance. Contextual factors are not considered. Team work is not assessed, only performance of individual team members. According to the technical managers and employees, criteria for job performance must be different considering nature and characteristics of the job. All employees trust their managers and accept fairness. But they are not quite sure about other managers. Managers admit that they tend to provide positive feedback and emphasise areas of weakness as an employee may develop him or herself or attend a training course. Employees who are critical figures are evaluated fairly. Managers admit that they do indulge in nepotism

196 and favouritism, but they also think about their responsibility and accountabilities. When the job is highly critical it goes to capable and talented people. Age influences only on feedback providing as the communication method is soft and respectful for older employees, but is more critical, demanding and developmental for younger employees.

Employees at the company do not consider evaluation of the employee by his manager a good idea.

They think that evaluation of performance by one person leads to subjectivity and bias, they favour evaluation of employee by a panel group that consists of three to five people.

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Table 5.12: Industrial and cultural influences

Company name Company information Performance management Impact of industrial factors Variations in the process process

BP International  Impact of industrial  Communication factors in global arena  Assessment (Majority of managers are PMP process with  Not any local foreigners) written policy and guidelines environmental factors are considered Bos Shelf International PMP process with  Impact of industrial  Local managers’ factors in global arena tendency for over (Majority of managers are written policy and guidelines  Not any local scoring local) environmental factors are considered Shlumberger International PMP process with  Impact of industrial  Communication factors in global arena  Feedback (Majority of managers are written policy and guidelines  Not any local foreigners) environmental factors are considered Baker Hughes International PMP process with  Impact of industrial  Collaborating factors in global arena  Feedback (Majority of managers are written policy and guidelines  Not any local foreigners) environmental factors are considered Azneft PU Local PMP process doesn’t exit  Not any industrial  There is not any goal- factors are considered setting, review, and (All managers are local) (Differentiation of  Strong impact of Labour evaluation stages employees exist in informal legislation on HRM  There is paper based manner) process assessment of

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employees with identifying weakness

GGPU Local PMP process doesn’t exit  Not any industrial  There is not any goal- factors are considered setting, review, (All managers are local) (Differentiation of employees exist in informal  Strong impact of Labour assessment and manner) legislation on HRM evaluation stages process

Oil Refinery Plant Local PMP process doesn’t exit  Not any industrial  There is not any goal- factors are considered setting, review, (All managers are local) (Differentiation of employees exist in informal  Strong impact of Labour assessment and manner) legislation on HRM evaluation stages process

Integrated Drilling Trust Local PMP process doesn’t exit  Not any industrial  There is not any goal-

(All managers are local) factors are considered setting, review, (Differentiation of employees exist in informal  Strong impact of Labour assessment and manner) legislation on HRM evaluation stages process

Caspian Drilling Company Local PMP process doesn’t exit  Not any industrial  There is not any goal-

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Table 5.13: Criteria for performance

Company name Company Performance Performance Contextual Non Job related information management criteria performance/Job activities process characteristics/Tea m work

BP International Result Contextual no performance/Job (Majority of PMP process with Behaviour characteristics/Te managers are written policy and Strategically aligned am work are not foreigners) guidelines considered,

Bos Shelf International PMP process with Result Contextual no Competency performance/Tea (Majority of written policy and Strategically m work are not managers are local) guidelines aligned considered Job characteristics are considered Shlumberger International PMP process with Result Contextual no Behaviour performance/Job (Majority of written policy and guidelines Strategically characteristics/Team managers are aligned work are not foreigners) considered,

Baker Hughes International PMP process with Result Contextual no Behaviour performance/Job (Majority of written policy and Strategically characteristics/Team managers are

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foreigners) guidelines aligned work are not considered,

Azneft PU Local PMP process doesn’t Result Contextual yes exit Not Strategically performance/Tea (All managers are aligned m work are not local) (Differentiation of considered employees exist in Job characteristics informal manner) are considered by engineers

GGPU Local PMP process doesn’t Result Contextual no exit performance/Tea (All managers are Not Strategically local) m work are not (Differentiation of aligned employees exist in considered informal manner) Job characteristics are considered by engineers Oil Refinery Plant Local PMP process doesn’t Result Contextual no

(All managers are exit Not Strategically performance/Tea local) aligned m work are not (Differentiation of employees exist in considered informal manner) Job characteristics are considered by engineers Integrated Drilling Local PMP process doesn’t Result Contextual yes

Trust (All managers are exit Not Strategically performance/Tea aligned m work are not

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local) (Differentiation of considered employees exist in Job characteristics informal manner) are considered by engineers Caspian Drilling Joint (local/foreign) PMP process doesn’t Result Contextual no Company exit Competency performance/Tea (few managers are foreigners) Not Strategically m work are not (Differentiation of employees exist in aligned considered informal manner) Job characteristics are considered by engineers

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Table 5.14: Employee acceptance of performance management

Company Impression Advantages Disadvantages Fairness of the process Age influence on the name process

BP positive  Clear objectives  Time Fairness issues arise Age doesn’t influence on for the year consuming with local managers the process  Actions for  Too much development details  Alignment with  Job promotion and unrelated bonus criteria  Performance is not covered totally  Behavioural factors (engineers) Bos Shelf positive  It defines strong Fairness issues arise Age doesn’t influence on and weak areas with local managers the process for development,  its outcome is highly related with promotion and other

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reward opportunities. Shlumberger positive  Clear Age doesn’t influence on the process expectations Fairness issues arise  Explore the with local managers weakness and area for improvement  Easy track of employee performance Baker positive Clear expectations  Tick the box and Fairness issues arise Age doesn’t influence on with local managers Hughes formality the process  The criteria not comprehensive to cover both business needs and personal needs  Mainly concentrated on business needs and underestimate personal development

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Azneft PU  Negative  The form is  Employees consider  Age have influence in feedback providing  The useless that their managers process employees,  Doesn’t are fair, but they are  The feedback is more respectful and stable managers cover the not sure about other for old aged employees don’t real aspect managers  The feedback is more critical, demanded and consider of  Managers admit the developmental for that performance subjectivity and younger ones assessment  Is not linked other negative of to any issues in decision employee training, making only by one rewarding person is outcomes good idea GGPU  Negative  Employees consider  Age have influence in feedback providing  The that their managers process employees, are fair, but they are  The feedback is more respectful and stable managers not sure about other for old aged employees don’t managers  The feedback is more critical, demanded and consider  Managers admit the developmental for that subjectivity and younger ones assessment other negative of issues in decision employee making only by one person is good idea

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Oil Refinery  Negative  Employees consider  Age have influence in feedback providing Plant that their managers process  The are fair, but they are  The feedback is more respectful and stable employees, not sure about other for old aged employees managers managers  The feedback is more critical, demanded and don’t  Managers admit the developmental for consider subjectivity and younger ones that other negative assessment issues in decision of making employee only by one person is good idea Integrated  Negative  Employees consider  Age have influence in feedback providing Drilling  The that their managers process Trust employees, are fair, but they are  The feedback is more respectful and stable managers not sure about other for old aged employees don’t managers  The feedback is more critical, demanded and consider  Managers admit the developmental for that subjectivity and younger ones assessment other negative of issues in decision employee making only by one person is

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good idea Caspian  Negative  Employees consider  Age have influence in feedback providing Drilling  The that their managers process Company employees, are fair, but they are  The feedback is more respectful and stable managers not sure about other for old aged employees don’t managers  The feedback is more critical, demanded and consider  Managers admit the developmental for that subjectivity and younger ones assessment other negative of issues in decision employee making only by one person is good idea

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CHAPTER SIX: DISCUSSION AND ANALYSIS OF FINDINGS

6.1. Introduction

The chapter presented the findings of the study. This chapter discusses the analysis of the findings and their alignment with practical and theoretical evidence. The analysis of the findings is presented based on the research questions addressed in this thesis. The chapter looks at why certain industrial and cultural factors impact on PM, why the criteria for performance is different, and how employees think about performance management in a particular way. Each finding is analysed broadly in relation to the existing literature.

6.2 Summary of research questions and findings

The aim of this study is to investigate how cultural and industrial factors make impact on PM, how the criteria for performance is formulated, and how PM is accepted by employees in the petroleum industry of Azerbaijan. The findings drawn from the previous chapter are summarised in the tables shown below and are further discussed in three sections structured according to the three research questions

Table 6.1 Summary of findings: Industrial and cultural impact (overleaf)

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Research questions Foreign companies Local companies

How do industry  It is not local but global/international characteristics of the  Industrial factors are not considered and people do characteristics industry that impact on foreign companies’ PM system. not have any idea why these factors have to be impact on the  The Industry Environment of Azerbaijan does not have any considered. performance impact on the process.  All processes are applied according to labour management legislation; the only factor that has a strong impact on system? the HR process is legislation.

How do cultural  In communication, feedback providing and  The process is informal and consists of aspects in which characteristics evaluation process variations exist. managers differentiate bad employees from good impact on the  Nepotism and favouritism mostly exist among local performance managers and it makes impact on the performance employees in their mind. This impression is required management process. management when promoting and grading employees. system?  The tendency of over-scoring by local managers for pay increase is observed.  Nepotism and favouritism exist.  The process is successfully implemented where the majority of managers are foreigners. The process is a failure where the majority of managers are local. The nationalization process is starting to demonstrate its impact on the effectiveness of performance management.  There is zero or little nepotism, favouritism and subjectivity/bias among young managers who graduated abroad unlike older managers.  Fairness issue arises with local managers

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Research Foreign companies Local companies questions

How are  Criteria are results, competencies and  Results of the job are more important than performance behaviours. The results are linked with main behavioural/competency factors for managers criteria defined or goals and objectives, and behaviours are  Both competencies and results are important what are the aligned with company values. for employees. criteria for  Main goals and objectives are cascaded down  Criteria are the ethics, respect for others, performance? and interpreted with results-based performance completion of task on time, and technical criteria; main values are interpreted with knowledge/skills to differentiate employees. behaviour-based performance criteria  Employees undertake unrelated job activities.  Employees do not undertake unrelated job  Contextual factors are not considered. activities  Teamwork is not assessed, only performance  No contextual performance and job of team members is evaluated individually. characteristics are considered.  Technical managers and employees think that  The process is unique for all job types and criteria for job performance have to be universal. different considering nature and characteristics of the job.

 Administrative managers mostly pay attention to behavioural factors and abilities/skills of the employee.  Technical managers mostly prefer the technical knowledge/skill of employees.

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Table 6.2: Summary of findings: employee acceptance of performance management system (shown overleaf) Research questions Foreign companies Local companies

 Employees have good views about  In regard to the performance management performance management. It clarifies what is process, all employees, managers and HR to be done for the coming year and it think negatively about the process. They demonstrates weakness and strength. consider that an employee has to be assessed  Employees think that the purpose of the by a panel group and not by one person, as How effective is process is to monitor the employee that leads to subjectivity and negativity. performance performance, whether everyone is doing the  Employees are positive and trust their management in the job accordingly. managers. But they are not quite sure about eye of employees?  From the manager and HR point of view, the other managers. They think that they do not purpose of the process is to serve to reach trust other managers as there are subjective business goals by developing necessary issues employee skills and abilities.  Age factors impact on the communication  Disadvantages of the process are: it is time- process. consuming, “tick the box and formality”,  Feedback at the end of the job is more critical, criteria do not cover the performance and mandated and developmental for younger some of them are deemed useless by people than older employees. employees.  The feedback is more respectful and stable for  They have a conversation at the beginning and older employees they feel supported throughout the year by their colleagues, not supervisors or managers / Managers do not have time for it.  There is a feedback process and employees engage in arguments and discussions. They feel more comfortable with a foreign manager than a local one. Foreign managers also are not open to counterarguments but they pretend to be.  Age issue does not make an impact on the process. Subordinates who report to younger supervisors/managers trust the capacity of the supervisors and accept the assessment fairly.

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6.3 Research question 1: How do industry and culture influence performance management in the petroleum industry of Azerbaijan?

The main aim of this study is to investigate how industry and culture impact on performance management in the petroleum industry of Azerbaijan. Firstly, this section discusses the findings related to the impact of industry on performance management in Azerbaijan. Further, a discussion of the findings associated with the impact of culture on performance management is presented.

6.3.1 How do industrial characteristics impact on performance management in the petroleum industry of Azerbaijan?

The study aims to investigate how the industry context impacts on performance management in the petroleum industry of Azerbaijan. Industry characteristics have been highlighted as a critical contextual variable for HRM processes in organizations (Wright and Snell, 1998). The impact of regulations, industrial relations systems and labour market conditions have been identified as major influential environmental factors for HRM processes (Jackson, 1995) in literature. For this purpose, the main influential environmental dimensions in organizational processes in the petroleum industry have been identified for investigation. Literature suggests that petroleum companies are mostly influenced by technology, legislation and the labour market (IBM report, 2010). Guided by these suggestions, this study adopted these three dimensions in order to examine how technology, local legislation and the labour market influence performance management processes in Azerbaijan. The study revealed that only a few of the dimensions of the industry impact on the performance management process in Azerbaijan. In addition, according to the findings, the degree of influence and types of dimensions are different for local and foreign/multinational companies. Technology impacts on performance management as well as on other HR processes in foreign companies. In local companies, technology influences HR processes. Legislation impacts on the performance management process in local and foreign companies. In local companies, industry characteristics are not considered and legislation is the only influencing factor on all HR processes.

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Findings depict that in multinational companies, all dimensions of industry (legislation, technology, labour market, and the environment) are considered in performance management globally, not locally. Multinational companies pursue a standardised approach for global integration, uniformity, organizational culture cohesiveness, fairness, and as a control mechanism. This finding is in line with existing literature which indicates that MNEs attempt to achieve it with bureaucratic control supported by cultural control (Pucik & Katz, 1986). Similarly, experts also suggest that integration of MNE’s performance management with other management policies and practices is an essential, complementary bureaucratic control mechanism in a strategy of cultural control (Evans, 1992; Harvey, 1997). Given that performance management is among the most transferred HR practices in multinational companies (Schmitt & Sadowski, 2001), it is logical to find that MNEs’ performance management in Azerbaijan is influenced by global industry practices rather than the local condition. In regard to transferring and application of performance management practices in subsidiaries, multinational companies generally use three strategic options. (Tarique et al., 2016). An “exportive” strategy is that the performance management system is developed in the home country and transferred to the subsidiaries; an “adaptive” strategy is that the performance management system is developed separately for each foreign unit; an “integrative” strategy is that local performance management practices are linked to the regional and global practices. The findings confirm that multinational companies operating in Azerbaijan use the “exportive approach” in the application of performance management practices. The companies operating in Azerbaijan apply their performance management system globally and it is not customised to the local environment. The study also confirms that the global characteristics of environmental factors (technology, labour market, legislation) are similar to local ones. The petroleum industry in Azerbaijan applies new technology frequently to achieve maximum benefits, to save cost and to prevent pollution. The labour market is characterised by skill shortages and legislation in Azerbaijan heavily influences business processes in the oil industry. However, these create different challenges in various degrees for performance management processes in Azerbaijan. The study revealed that local legislation is the only factor influencing performance management in foreign companies. This is because according to the

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Labour Code of Azerbaijan foreign companies operating within the country’s borders have to apply local legislation to their local employees (Labour Code, 2016). Termination of the employee contract is relevant to certain terms and conditions stated in the Labour Law of Azerbaijan Republic. As the “notion of performance management” does not exist in the code, it is against the law to terminate the contract or to fire an employee because of performance results. However, reports from NGOs stated that foreign companies do not consider the labour law in Azerbaijan (Mammadov, 2008). Foreign companies are applying processes that are against the law or probably not accepted by the law. In fact, the illegality of any process is only noticed when a matter in dispute is brought before a court. The findings also confirm the literature that performance management is a legally sensitive process and has been subject to employment legislation in different countries (Werner & Bolina, 1997; North, 2015). Research conducted in Russia also revealed findings similar to those of this study. Komissarova and Zenin (2016) analysed the legal issues associated with performance in Russia. Their research found that there are no laws mandating performance appraisals although there are some federal requirements related to some aspects of employees’ evaluation. It is consistent with the findings of this study that in Azerbaijan the attestation process, which is an assessment of the professional expertise of an employee, has to be applied according to certain items in the Labour Code (Labour Codex of Azerbaijan Republic, 2016). The attestation is not mandatory, but if a company applies the process it has to be consistent with the legislation.

Therefore, legislation creates certain challenges for the performance management process in foreign companies. According to an NGO report in Azerbaijan, employees mostly appeal to the court against their dismissal after the performance management process (Mammadov,2008). Most cases have been completed in favour of employees as termination of employee’s contract was not carried out according to the local legislation.

The legal aspects of a country are one of the main institutional forces accounting for country-specific variance in performance management systems (Sparrow et al., 2004). Consideration of local legislation is useful when analysing the country-specific adaptation of performance management (Farndale et al., 2010; Milliman et al., 2002.) In fact, this study revealed that there is a lack of formal

214 performance management systems and its components in local companies. This is related to both the legislative system and Soviet management principles. In Azerbaijan, HR processes are still managed according to Soviet principles. Azerbaijan is one of the former Soviet countries and is still ruled according to Soviet principles. For a long time, managerial practices in Azerbaijan were affected by the post-Soviet way of doing business (such as lack of knowledge creation, career planning and the predominance of control functions). This fact significantly affected the speed of development of local companies and its managerial practices, including HR and can still be considered as an important factor influencing successful implementation of this system (Denisova-Smidtch & Gallen, 2011). Research conducted in the former Soviet countries found that these countries inherited a legacy of highly centralised, very bureaucratic and authoritarian management policies and practices created according to ideologically planned economic arrangements (Denisova-Smidtch & Gallen, 2011). In addition, a lack of performance management practices is related to the absence of such practices during the Soviet period. There was no performance appraisal because it contradicted socialist egalitarianism (Koubek & Brewster, 1995). During the Soviet period, the professional expertise of employees was assessed by an attestation committee. Attestation is considered an alternative to a performance management system. Analysis of the Soviet Labour Code revealed that certification of employees was implemented in the former Soviet Union. Qualification or attestation exam aims “to identify professional knowledge, skills… and to assess the productivity” (Lieber et al., 2013). In addition, employees and managers have stated attestation as alternative to performance management system in this research. They confirmed that there were attestation processes during the Soviet period although this is not currently implemented. Attestation of employees was implemented according to the Labour Code of the Soviet Union.

The current study confirms that variations in performance management in local companies exist because of local legislation of the Azerbaijan Republic. Analysis of the Labour Code of Azerbaijan Republic revealed why employees and managers in local companies consider attestation an alternative to performance management system. In addition, they also prefer attestation to performance management system because of several factors which are discussed in detail in other sections.

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Analysis of documents relevant to the Labour Code of Azerbaijan revealed that there exists “country-specific type of performance management” which is presented as “certification or attestation of employees” in the Labour Code. The relevant chapter in the Labour Code describes the purpose, terms and conditions of the process to be followed in the country. The employee certification process presented in the Labour Code of Azerbaijan Republic is broadly discussed below.

Chapter nine of the Labour Code relates to “Legal norms regulating the certification of employees and workplaces”. Article 65 of this chapter describes employee Certification, Procedures for Implementation and Terms and Conditions. According to the law, all employees (with the exception of those employees indicated in Article 66 of this Code as described below) may be certified in order to examine their professional standing expertise and to determine their compliance with their speciality, profession or position.

The implementation of a certification process is at the intent of the company, which means that the company may implement or may not implement the process. Only those employees who have been employed at their places of work for at least one year may be certified. A given employee may be certified no more than once every three years. According to the law, these employees are exempted from certification.

 Employees who have been wounded (injury, trauma, contusion) or disabled in military actions carried out for the defence, freedom and territorial integrity of the motherland;  Employees who displayed courage and were awarded state medals and decorations and granted honorary titles during the protection of Azerbaijan independence and territorial integrity;  Employees with refugee and displaced-persons’ status who have been holding one position (profession) for less than 5 years;  Pregnant women;  Women (and men independently raising a child) on social leave until the child is three years old and who have worked for less than one year in a proper position (profession) after the aforesaid leave is over;  Employees under 18;

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 Employees who have worked in one position (profession) for less than a year;  Employees who have been certified, at least, three times in his position (profession) and whose compliance with his position (profession) has been established;  Employees who are not certifiable as stipulated in collective employment contracts (agreements);  Employees engaged in practical medical or pharmaceutical activity in the Azerbaijan Republic.

The relevant terms and conditions in the Labour Code differentiate the attestation process from a performance management system, which does not have certain principles. According to the law, the certification process of employees is carried out by a Certification Commission. The Certification Commission consists of experienced, objective and impartial persons with highly professional skills as well as a representative from the trade union. It is established pursuant to the employer’s order (instructions).

Neither the employer nor the employee’s supervisor at his workplace may be a member of the Certification Commission. The Certification Commission must consist of, at least, five persons and in all cases the number of its’ staff must be odd numbers. The term of authority of the Certification Commission shall be determined in the proper order (instructions) concerning its establishment. However, in a performance management system the employee is assessed directly by his manager, which is not allowed in attestation.

According to the Labour Code, the members of the Certification Commission may question an employee regarding his position (occupation), function, specialty (profession), the jobs performed by him/her and their results, as well as on issues concerning his rights and obligations under an employment contract, in order to determine his compliance with his position (profession). The professional standing of an employee that is certified may not be evaluated according to his political outlook, spiritual or moral maturation, personality, faith and other personal qualities including his degree of discipline. The legislation suggests that an employee may be assessed by his job results, and no behaviours or competencies are mentioned here. This also

217 confirms the findings that local managers prefer result-based performance criteria in Azerbaijan. In foreign companies, performance is a set of result and behaviour/competency-based criteria and employees are assessed considering both their behaviours and job results. It is revealed that not only does the dismissal of employees due to their performance result in a challenge but also the criteria on which employees are assessed is also against the law.

The law suggests that the Certification Commission’s activity must be carried out openly, objectively, impartially and in compliance with the requirements of that Legislation. The Certification Commission shall adopt its decision by a majority vote obtained during open or secret balloting. The desire of labour’s collective representatives to participate as observers at the Certification Commission’s meeting must be accommodated.

At the end of the certification process, the Certification Commission shall adopt only one decision: whether an employee complies with his position (profession). Moreover, the Certification Commission may submit recommendations to the employer on the expediency of utilizing said employee in another position (profession).

The law suggests that the employment contract of an employee for whom the Certification Commission has rendered a decision on non-compliance with his position may be terminated by an employer pursuant to the relevant items in the Labour Code. According to the decision of the Certification Commission, employers may transfer employees to another appropriate position (profession) at the employee’s consent by taking into account the Certification Commission’s recommendations. If the employee does not agree with the decision of the Certification Commission he may appeal to a court as it is stated, “Persons who consider the decisions of the Certification Commission on employee and workplace certification to be groundless, illegal, ill-intentioned and biased may appeal to a court”. In the manner established by this Code, the courts alone may consider an individual labour dispute based on the claim of an employee whose employment contract has been cancelled or who has been transferred to another position (profession) by an employer due to noncompliance with his position on the basis of the Certification Commission’s decision.

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As it is suggested in literature, an analysis of the Labor Code of Azerbaijan Republic presents the reason for a lack of performance management system and its components in local companies in Azerbaijan (Farndale et al.,2010; Milliman et al., 2002). Local legislation accounts for variations and challenges in the performance management system in Azerbaijan (Sparrow et al., 2004).

This finding of this study are also consistent with the literature that performance management is differently utilised across countries. Literature states that Western employers tend to focus on searching for better ways to improve personnel performance when organizations direct, assess and develop employees to perform at their best in order to accomplish goals and objectives that contribute to the success of that organization (Abraham et al, 2013). However, in the East, Komissarova and Zenin (2016) revealed that controlling performance which results in disciplinary decisions, mostly contract termination, is carried out by members of a specific commission and has been mostly exercised and regulated by law in Russia.

“According to p.3 Article 81 of the Labour Code of the Russian Federation law, personal appraisal rating can be the reason to justify employee dismissal, if valid, properly organised and registered. An employer may dismiss an employee under this circumstance only if he or she checked the alternatives to the dismissal, i.e. if it is impossible to find another work/post for the employee or train/retrain the worker.”

In fact, an analysis of attestation processes in the Labour Code of Azerbaijan Republic revealed that an attestation process is implemented to assess employees’ professional expertise and the decisions at the end of the processes are associated with whether an employee is in place or not. According to this position, an employer takes decisions about retaining, firing or changing the position of an employee. The finding of this study confirms that in the Azerbaijan attestation process, performance management cannot be the reason for employee dismissal, unlike in Russia. According to the relevant item of the Labour Code of Azerbaijan Republic, an employee is dismissed with certain terms and conditions. One of these terms and conditions is employee dismissal as the result of an attestation process. In Russia, as it is in Azerbaijan, they mainly refer to fair employment termination reasons and some protected groups that cannot be subject to any performance review process. The

219 performance management process does not exclude certain categories of employees from the appraisal process. The Labour Code of the Russian Federation as well as the Labour Code of the Azerbaijan Republic establish special legal restrictions against appraisal and dismissal procedures for certain categories of workers (employees' trade union representatives, older/younger workers, pregnant women and workers with family responsibilities, workers with disabilities, workers absent due to illness or injury, etc.). (Komissarova and Zenin, 2016; Labour Code, 2016).

In local companies, legislation strongly influences HRM practices. This research revealed that all HR processes in personnel or HR departments at local companies perform administrative tasks following Azerbaijan labour legislation. All employment relations are carried out according to the Labour Code. In addition, implementation of employment relations according to the Labour Code in Azerbaijan is also confirmed by ILO reports stating that manufacturing companies in developing countries use “Labour codes” for working conditions, health and safety, wages and benefits, and labour rights for employment relations (ILO, 2012). The application of the Labour Code in employment relation may be related to Soviet Personnel Management principles. During the Soviet period, the labour and employment system was heavily regulated by the government with legislation and "reflected the centralism of the socialist structure and command economy” (Lewinbuk, 2008). Employer-employee relations have been regulated by labour legislation in Azerbaijan during the Soviet Period (Scharf, 1998). As in other post- Soviet countries, human resources management (HRM), as known in the West, did not exist in Communist Azerbaijan. The personnel department was an administrative part of the centralised planning and control system in the Soviet model (Morley et al., 2009). The chief domain aspects of HRM policy and practice operated under strict state control. Characterised in the literature as “a politically oriented decision-making system” (Garavan et al., 1998), the human resource (HR) function and all its associated activities were closely supervised by the Communist Party and government officials (Karoliny et al., 2008). The “personnel office” in communist companies seems to have limited itself to administrating the payroll. The department of “personnel and organization”, which one often finds in north-western European companies, whose tasks include recruitment and selection, organisational problem solving and conflict resolution, training and development, appraisal and evaluation,

220 did not exist in communist Europe (Letiche, 1998). The personnel/cadre department was always run by a senior Communist who was often a member of the Interior Ministry (Securitate), was responsible for monitoring the workforce for loyalty and ideological indoctrination on behalf of the Communist Party (Edwards & Lawrence, 2000). HRM was a key instrument of Party policy in the workplace (Edwards & Lawrence, 2000; Koubek & Brewster, 1995). After the collapse of the Soviet Union, the transition from the socialist regime to a market-oriented economy in Azerbaijan entailed numerous reforms in the labour and employment law. All employment relations and issues are required to be implemented not to break the legislation. The findings of this study are also consistent with the evidence in Post-Soviet Eastern European companies as having only recently established formal HRM departments, many of which still perform relatively limited functions, notably mostly administrative tasks required under the Labour Code (Milikic et al., 2009). Local companies consider only legislation in their HRM practices and they do not consider other factors of industry characteristics. This is also related to Soviet Style Personnel Management principles as local managers in Azerbaijan still hold the ideology of Soviet management principles. The local companies, in general, have not renounced old Soviet style management principles. During the Soviet period, industrial factors were not considered and HR did not have any strategic role. Studies confirm that in the USSR, the personnel department dealt with routine functions such as paperwork relating to hiring and firing, wages administration, work design and work safety (Gurkov & Zelenova, 2009). This approach to human resources management, which did not consider industrial factors, is the output of Soviet thinking. In the transition period, most local companies in Azerbaijan still implemented their HR processes according to the Soviet style of personnel management.

The previous study has revealed that, during the transition period in post- Soviet countries, the personnel function lacked a comprehensive systematic perspective and was characterised by a high-level of centralisation within organisations and low competence of the people taking care of HR issues and insufficient tools to solve personnel-related problems (Pocztowski, 2012). The finding of this study is consistent with the previous studies that HR specialists in Azerbaijan

221 lack competencies in the management of human resources and consideration of environmental factors. Several factors account for this, including a long tradition of adhering to rather outdated systems of administration inherent in the communist era, a lack of appropriate education and development programmes within education system, a preponderance of lawyers and clerical staff within the specialist function and a belief among managers that the main role of the specialist department is to ensure legal compliance and observance of the Labour Code (Pocztowski, 2012). Another issue associated with this finding is that during Soviet times managerial education was not of high priority (Holden and Vaiman, 2013) and management was not considered to be a profession. These have resulted in managers’ lack of modern management skills and knowledge. Literature also confirms that managers in the Soviet Union had strong technical skills, but they lacked management know-hows (Holden and Vaiman, 2013). Managers in local companies in Azerbaijan still hold the ideology of Soviet management principles. This influences the HR practices in local companies, as a managerial mindset is recognised as an important determinant of divergence in HRM practices (Hofstede, 1980; Minbaeva,2007; Zupan & Kase, 2005). As an industrial factor, the study revealed that technology influences the HR processes of both local and foreign companies in Azerbaijan. Literature suggests that, in the petroleum industry, the technological environment is one of the factors that influence the business and organizational processes (IBM report, 2010). This study confirms this suggestion and reveals that technology has an impact on the HR processes of both the local and foreign companies operating in Azerbaijan. The impact of technology in Azerbaijan demonstrates itself in skill upgrading and demand for more highly qualified and competent employees in the labour market. This study revealed that the labour market in Azerbaijan lacks candidates with the new skills required as a result of the application of technology. In addition, at local companies, the application of new technology requires skill upgrading as the employees are working with old technologies dating back to the Soviet period, that is, 80-90 years. Foreign companies apply new technology frequently in order to reduce cost and environmental pollution and to be competitive in the market. Previous research has found that changes in technology were found to be accompanied by changes in performance management systems (McNair & Mosconi, 1989). However, regarding the technological impact on performance management system, the findings from this study are different between local and foreign

222 international companies. Considering technological influences, performance management system consists of developmental-based activities towards improving relevant new skills to complete the task. However, in local companies, this is not the case, and separate HR practices, such as resourcing and training processes, are defined to solve the problem. This contradicts studies which found that most companies apply job training programmes to develop job-related skills as a result of the influence of technology. (Spenner, 1997). In addition, the degree and level of application of new technology in local and foreign companies is also different. Foreign companies apply new up-to-date technology although conversely most technologies, equipment and machines in local companies are not up-to-date and dates back to the Soviet period of 70–80 years. Literature suggests that the use of technology in the oil industry has increases because of the two factors: cost-effectiveness and to eliminate environmental impact which is imposed by legislation. (UN document, 2017). Over the past 15–25 years, a steady stream of legislation worldwide has been introduced, aimed at further cleaning up industrial operations and reducing their environmental impact. Whilst complete elimination of all pollution is not an attainable goal, steps are taken to minimise environmental impact through pollution reduction at source, recycling, emissions control and responsible waste disposal. The current study also confirms that technology is used in the petroleum industry in Azerbaijan in order to minimise waste and to cut production costs. The study reveals that technology also influences skill changes in the labour market. The findings show that as a result of new technology the industry requires candidates with high technological know-how, experience and use of the English language. It is suggested that past technologies primarily affected manipulative tasks whereas current and future technologies affect mental and interpersonal task complexity as well (Spenner, 1997). This is consistent with the findings of the study that HR managers in petroleum companies state that modern technology affects mental complexity and interpersonal task complexity by demanding problem solving and analytical thinking from employees. Another major dimension of skill is autonomy control. It refers to the discretion available in a job to initiate and conclude action and to control the content, manner and speed with which a task is done (Spenner, 1994). The current study reveals that employees are required to act independently during the operation process. They are required to initiate to solve the

223 serious problems or accidents without consulting or waiting for instructions from their managers in foreign and local companies. In Azerbaijan, technology demonstrates itself in skill upgrading through the introduction of new technology in the petroleum industry, and it requires a broader variety of skills and higher than average skills from the labour force (Spenner, 1995). The current study is consistent with the literature that introduction of new technologies calls for more highly skilled employees in the labour market (Petit and Soete, 2001). Highly automated and high-technology work environments require new forms of skills such as the responsibility of monitoring, making adjustments, visualising the whole production process and responding to emergency situations (Billy, 1995). Such arguments have been made for continues process and chemical manufacturing, petroleum refining and applications of robotics in metal working industries (Spenner, 1997; Billy,1995) The study also revealed that the degree of technological involvement is different in foreign and local companies. It is also worth mentioning that foreign companies operate in Azerbaijan according to pay share agreement and they are invited to explore oil fields as local companies lack the required technology. As a developing country, the use and invention of modern technology are not at the same level with other countries. Foreign petroleum companies operating in Azerbaijan are world leaders in the application and development of technology in the oil industry. It is also clear from the findings that the application and use of technology in local and foreign companies is different. The local labour market lacks the required technical skills and relative legislation in Azerbaijan creates problems of technology. This is consistent with the literature that the use of technology and the impact of technology vary, and technological factors affect the process of management differently across cultures. According to Deresky (2014), such factors include: 1) the level of technology required by different operations in different countries; 2) the availability of local technical skills and expertise; 3) the technical requirements of the host country; 4) the level of knowledge and technology transfer required in each country involved; 5) the type of infrastructure needed in each country to support the use of the technology required; and 6) the environmental protection that is imposed by international, regional or local laws. The study also revealed that technology changes the content of the job, and HR managers consider that the technical engineers undertake different tasks compared

224 to 20–30 years ago. Technology has effects on the composition and content of work (Spennner, 1995) and technology changes employee behaviour (Walker & Guest, 1952). As a result of technology’s impact, jobs are becoming more interrelated. This creates certain problems for performance management process as it is not easy to assess individual contribution when jobs are interrelated and complex. (Nadal and Sanz, 2013). However, the findings of this study reveal that the impact of technology is acknowledged by companies but that local companies do not consider it in their performance management process. Foreign companies consider the impact of technology in providing development-related activities in the performance management process. However, the characteristics of jobs which are influenced by technology are not considered and a unique process is applied for all types of jobs. In conclusion, a discussion of the findings shows that legislation is the most influential factor in performance management processes, both for foreign and local companies in Azerbaijan. The legal context of the country is the main cause of variations in performance management in the petroleum industry in Azerbaijan (Sparrow et al., 2004). Technology makes impact on skill upgrading in the petroleum industry at local and foreign companies. Technology does not make impact on performance management at local companies. Foreign companies consider the influence of technology, considering developmental activities in performance management. Technology also influences skill/workforce change in the labour market. The labour market creates certain problems in terms of the required workforce for companies. The problem is addressed by other HR processes, such as recruitment and selection as well as training and development in local and foreign companies. Foreign companies address this issue by providing more developmental activities in their performance management system.

6.3.2 How do cultural characteristics impact on the performance management system in the petroleum industry in Azerbaijan?

The aim of this study is to find out how culture influences the performance management system in the petroleum industry in Azerbaijan. HRM practices differ across the countries because of cultural issues (Salk and Brannen, 2000) and it is cultural differences which make it difficult to standardise aspects of performance management practice (Pucik, 1985; Vance et al, 1992). In order to find out how

225 culture makes an impact on the performance management process in Azerbaijan, this study adopted cultural dimensions of Gert Hofstede as several studies have also used these variables (Aycan, 2005; Hofstede, 2001; Mandinga and Kanungo, 1994). Azerbaijan is not in the Hofstede list of cultural ranking. Considering the neighbouring countries such as Russia, Turkey, Iran and Georgia, which have been included in the cultural ranking scale of Hofstede, it may be argued that Azerbaijan shares the same or similar cultural values with these countries in terms of possessing high power-distance, collectivist, masculine and high-uncertainty avoidance culture.

With regard to the cultural impact on the performance management system in the petroleum industry in Azerbaijan, this study revealed that cultural impact on performance management demonstrates itself in:

 Fairness issue among local managers  Existence of nepotism and favouritism among local managers  Tendency to over-score local managers for salary increase  Age issues between manager and subordinate in the assessment and feedback providing process

The study revealed that fairness issues are related to local managers, both in local and foreign companies. They do not assess the true performance of employees and subjectivity prevails in the process. The issues of subjectivity related to human cognition make it difficult for the performance management system to be fair and accurate (Kim and Rubianty, 2011), and subjective evaluations are perceived to be unfair and biased (Maas and González, 2011). In local companies, all employees, managers and HR think negatively about the performance management process because of the above-mentioned factors, which are consistent with the literature. They consider that employees have to be assessed by a panel group and not by one person, as that leads to subjectivity, unfairness and negativity. In addition, the finding of this study confirms that most of the employee dissatisfaction issues are associated with the subjectivity and fairness issues in performance measurement (Cooke, 2008).

In fact, fairness is a primary concern for employees in an organizational context (Cropanzano et al., 2001). Evidence of its importance can be seen in a great deal of research indicating that fairness perceptions relate positively to

226 satisfaction with performance appraisals (Cohen & Spector, 2001; Colquitt et al., 2001). This study revealed that employees are concerned with fairness issues when local managers give them low scores on their performance measurement. Employees are concerned with fairness issues because local managers consider non job-related factors not the actual performance of employees. The study of people's perception of fairness in organisations is referred to as organisational justice with three sub- constructs: namely, distributive, procedural and interactional justices These justice dimensions can be linked to the perceived fairness of an actual appraisal rating (Narcisse and Harcourt, 2008). Fairness perceptions influenced by these justice perceptions lead to satisfaction with the PA system (Jawahar, 2007). The findings of this study are consistent with the literature. It is stated that even 'perfect' rating instruments and accurate assessments can result in negative responses from employees if the PA processes are not conducted properly or their outcomes are perceived to be unfavourable (Cropanzano and Ambriose, 2015).

It is revealed from this study that employees are satisfied with the performance management system and think that their managers evaluate fairly as the managers tend to over-score employees to get a salary increase at the end. This procedural justice (Reinke, 2003) perspective on the fairness of the evaluation procedures has been related to several process variables and many laboratory studies have shown the importance of procedural variables on the perceived fairness of the appraisal (Greenberg, 2004). When employees perceive the outcomes of PAs as just, they tend to be unconcerned about the fairness of the processes that lead to them (Scandura, 1999). The findings of the study are consistent with Conlon’s (1993) findings that outcome favourability is strongly related to participants’ distributive and procedural justice judgments. In summary, considerable research demonstrates that people react to a process more positively when the outcomes are favourable (Greenberg and Colquitte, 2014).

The study also revealed that, as performance management is linked to pay and promotional activities, there is a tendency for over-scoring among local managers. This puts the effectiveness of the process under question. A tendency for over-scoring may be related to the perception of fairness in the allocation of resources among local managers. The literature indicates that fairness is perceived differently across cultures (Khaliq, 2004). There are three general independent forms of justice norms and

227 principles which influence the decision on allocation of resources. They are equity, equality and needs (Greenberg and Cohen, 1982). Equity takes into consideration the “inputs” or contributions made by recipients. Equality ignores any differential contribution of recipients and leads to an equal distribution of resources to all those involved. Need principle requires that resources be allocated in response to the legitimate needs of the recipient and to prevent sufferings.

While the norms of justice may be universal, the condition under which they are implemented and the relative importance assigned to them is not consistent across cultures. Studies found that there are cross-cultural differences in what is perceived as fair (Kottab et al., 1992). Studies indicate that Western countries allocate the resources according to equity principles. Collectivist cultures prefer allocation of resources according to the norms of equality and need (Tasnky et al.,1997). It is suggested that the norm of need will predominate in situations where fostering personal welfare and development is of interest and when the relationship between actors are friendly and close (Khaliq, 2004). The norm of equality is preferred where group harmony and positive social relations are important; the norm of equity predominates in situations of economic nature where money and goods are involved and where production and efficiency are important. The findings are consistent with this literature that managers prefer allocation of resources according to the equality and need in Azerbaijan because of collectivist values. As Hofstede (1980) suggested, the nature of management skills is such that they are culturally specific a management technique or philosophy that is appropriate in one national culture is not necessarily appropriate in another.

This finding shows that fairness and subjectivity issue is the main concern for the application of the Western style of performance management at local companies because assessment of employees by one person is unacceptable. In foreign companies, employees and managers are concerned about fairness and subjectivity issues with local managers in the evaluation process. This fosters the argument that, in the application of performance management, local characteristics have to be considered (Vance, 2006).

In addition, the study has found that performance management is effectively implemented where the majority of managers are foreigners in foreign companies.

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However, the nationalisation process in foreign companies operating in Azerbaijan creates real problems for performance management. As a result of the nationalisation process, the number of local managers increases and the number of foreign managers decreases. Employees’ concern about those peculiarities of Azerbaijani managers will dominate in the work environment, and nepotism, unfairness, and subjectivity will take the lead while performance management process will lose its actual purpose and role. This is related to the characteristics of the Azerbaijani people. Individual assessment of employee is not suitable for the country as it leads to more subjectivity. This is a cultural issue and Hofstede (1980) explains it this way.

“In collectivist cultures, even in business, people think in terms of ‘we’ (‘our family, tribe, organization’) and ‘they’ (the others). Relations, friends, tribesmen get better deals than strangers and this is the way it should be. It is normal and right. The sociological term for such behaviour is particularist. Considerations of personal trust and relationships should have precedence over business considerations. Whereas in individualist cultures, it is felt that the task should have priority over the relationships; in collectivist cultures, it is felt that the relationships should have priority over the task. In a collectivist society, the domain of work and the domain of family interests cannot so easily be separated. Employers know that behind every employee there is an extended family and that it would be unacceptable for one member to be rich while others are needy. Salaries are shared with relatives, if necessary. If a vacancy occurs at work, employees will volunteer unemployed relatives to fill it. Employing many members of a family is generally considered desirable rather than undesirable. It fits the pattern of employee loyalty which is, at the same time, family loyalty. The tendency to employ relatives exists also on the employer side.

The findings of this study confirm that in Azerbaijan individual assessment is not accepted and group or panel assessment is preferred instead. As Evans et al., (2017) summarise, although multinational firms need a global template for the appraisal process, local business units may need some leeway to adapt that template to their circumstances. Real customisation is suggested only through the local perspective of “who” is assessing, and the “how” performance is assessed in the local context (Caligiuri, 2006).

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The study revealed that nepotism and favouritism are among issues that create problems for performance management across cultures as well as in Azerbaijan. Supervisors/managers who are in authority value their power to affect subordinates’ welfare (Prendergast and Topel, 1996). Performance is gauged from subjective opinions provided by superiors and this opens the door to favouritism, whereby evaluators use their power to reward preferred subordinates beyond their true performance. Cross-cultural studies have demonstrated that high power-distant cultures give importance to power and authority (Hofstede, 1980). The negative use of power and authority is characteristic of Azerbaijan as a high power-distant culture.

The findings of this study indicate that Azerbaijani managers have a tendency for over-scoring employees to offer a higher salary. Foreign managers operating in Azerbaijan see performance management as a challenge because, as performance management is linked to pay, local managers tend to evaluate more employees with best scores in order to help them to get their salary. Favouritism also depends on the incentives offered to the worker, since a stronger incentive pay for workers reduces the accuracy of supervisors' reports (Protergast and Topel, 1996). This arises because supervisors distort their evaluations more when their decisions substantially affect subordinates' welfare as the performance of employees is linked with reward and bonuses in the end.

Another issue on which culture makes impact is the age factor in subordinate/supervisor relationship in the performance management process. The study revealed that the age issue does not make an impact on the process. Subordinates who report to younger supervisors/managers trust the capacity of the supervisors and accept the assessment fairly. This contradicts the viewpoints (Bacharach et al.,1993; Parry et al., 2011) around the impact of organisational position and age on persons’ attitudes and behaviours in performance appraisal. According to the researchers, subordinates who have to report to a younger supervisor may experience status incongruence and subsequently, respond negatively because of perceived violation of the career timetable associated with supervisory positions or because of a lack of trust in their supervisor’s capacity to lead them adequately (Parry et al., 2011). However, the findings revealed that subordinates who report to younger supervisors/managers trust the capacity of the supervisors and accept the assessment fairly. This is related to cultural issues and the findings are consistent with the

230 suggestions of Gert Hofstede (1980). “In cultures high on the Power Distance scale, both superiors and subordinates expect power differences to be translated into visible differences in status. Status differences contribute to the superior's authority and to the subordinate's respect for it; actually, they even contribute to the subordinate's status in the outside world. Power and wealth do tend to coincide and the status derived from one reinforces the status derived from the other. In large Power Distance societies, status is often ascribed based on rank, ancestry, wealth: on who one is supposed to be, regardless of how one got there.” As status is based on rank and position at the workplace in Azerbaijan due to high power distance, subordinates in respect of their ages positively accept this and respect the superiors’ authority even if the superior is younger.

The study also revealed that the age issue makes impact on types of managerial feedback. Feedback at the end of a job is more critical, mandated and developmental for younger people than older employees. The feedback is more respectful and stable for older employees. The reason behind these issues is that supervisors do not believe that older people have the required ability and motivation for further learning and developmental activities. They think that what older people want is stable work and salary. Differences in managerial actions taken toward younger and older workers are partially a function of managers' tendencies to attribute the performance of younger and older employees to different factors (Weiss and Maurer, 2004). The findings of this study are consistent with evidence from both multinationals and SMEs, which suggests that there is a broadly held view that older workers are less able to cope with the demands of a modern, complex and competitive organization than younger people, and that older workers do not have the ability or motivation to change jobs or learn new skills (van der Heijden et el., 2010).

With regard to the type of feedback provided by the manager, they significantly distort feedback to make it more positive, especially when poor performance is attributed to the stable factor of lack of ability, which is associated with older employees (Knowlton and Mitchell, 1980), and more specific feedback was given when poor performance was attributed to a lack of effort, which is associated with younger employees (Larson, 1984). Consistent with these findings, the current study found that managers provide stable and general feedback for older

231 employees and more critical, specific and developmental feedback for young employees. Employee age also affects the choice of managerial actions. The findings of the current study revealed that managers provide developmental activities for younger employees and offer more training to younger employees. In Azerbaijan, managers do not consider that training is a good choice for older employees, as they lack the ability to learn new skills. Research indicate that training was rated as more appropriate for younger employees than for older employees, following poor performance, and was rated as less appropriate for older employees, following poor performance, because their performance was attributed more to stable factors (Dedrich & Dobbins, 1991).

In conclusion, culture is found to be one of the main influencing factors in performance management in the petroleum industry. The discussion shows that findings are consistent with the cross-cultural literature and cultural influences mostly on feedback, rating and communication process in performance management. In addition, the findings of this study foster the arguments around local responsiveness of performance management in host countries. The findings support the suggestions that rating process either by individual or panel group is better to be customised (Caligiuri, 2006) and multinational firms should adapt performance management systems to the local context (Evans et al., l2011).

6.4 Research question 2: What are the criteria for performance and how are they defined?

This study also aims to find out what the criterion for performance are and how they are defined in the petroleum industry of Azerbaijan. Well-designed performance management systems identify the results and behaviours/competencies needed to carry out the organisation’s strategic priorities and maximise the extent to which employees exhibit the desired behaviours and produce the intended results (Cascio & Aguinis, 2005; Aguinis, 2009). The choice between behaviour and outcome control depends on the specific task characteristics (Eisenhardt, 1985) and management philosophy and situation (Cardy and Leonard, 2015). This study revealed that criteria for performance are different between local and foreign-based companies. This is because performance management is applied differently in foreign and local companies. Foreign companies apply the Western-style performance

232 management system whilst local companies do not have such a process. The criterion for performance are also different. The study confirms that the choice of criterion is defined by management philosophy in Azerbaijan.

In foreign companies, an employee is assessed considering his behaviour/competency and job outcome at work. A range of process and outcome criteria provide a more accurate sense of individual performance over time, as uncertain and unpredictable local contexts will inevitably change (Phatak, 1995). In addition, these criteria are strategically aligned with business goals and company values. Outcome/result-based performance criteria are aligned with key business goals, and behaviours/competencies are aligned with core company values. This is the main feature of performance management system that emphasises the communication of organisational goals by integrating them into departmental and, more specifically, individual-level goals and job objectives (Fletcher and Williams, 1997). It could, therefore, be assumed that host-country employees at an MNC subsidiary are, via PM, made fully aware of the organisation's goals and that these become part of their personal job objectives. In addition, in global performance management literature, performance management is accepted as a mechanism to foster company culture (Engle et al., 2008). The study also revealed that technical managers in multinational companies dislike behaviour indicators and consider them not to be useful. They prefer to assess employees based on their job outcome. The reason engineers prefer result-based criteria is because they do not have time to observe all the relevant behaviours of the employee with the main focus being that their outcome meets the standard. They thus mostly use outcome criteria as they see performance in terms of outcome/result— whether goal has been achieved—and they give no importance to activities (Cardy and Leonard, 2015). According to the findings of this study, it is not the contextual but task performance that is strongly considered in foreign companies. In addition, the process is unique for all job activities—individual, team and complex jobs. A job characteristic does not define any performance criteria. This is because performance management is a global process and has to be implemented for all job types across countries. However, managers and employees consider that some criteria are not useful and not relevant to their true performance. Therefore, effective global

233 performance management should determine “the broad content domain” of performance across countries for the same position (Caligiuiri, 2006). With regard to criteria for performance at local companies, the study revealed that, as there is no formal process and procedure, a set of standardised criteria also does not exist in local companies. Managers mostly prefer to assess employees according to their job results. Managers also consider behavioural factors such as ethics, respect for others, completion of the task on time and technical skills of employees. In literature, the impact of culture on the performance appraisal (PA) process is discussed in two areas: performance criteria and method of appraisal. One of the challenges in performance evaluation is the determination of performance dimensions or criteria. Criterion development and measurement in PA generates heated discussions (Campbell et al., 1996; Guion, 2011). The criterion problem is exacerbated at the cross-cultural level because what constitutes ‘good performance’ is culture-bound. (Z. Aycan, 2005). It is also suggested that the choice of result or behaviour depends on management philosophy and situation (Cardy and Leonard, 2015). The findings of this study support these arguments as local managers think differently about good performance. Most of them consider that employees have to be ethical and knowledgeable at the same time and have to respect others, especially older people. Good performance does not mean that the job is effectively completed by the employee. Employee’s ethical behaviour and his discipline are also considered. The study also revealed that employees prefer to be assessed based on their competencies and job results. From an employee’s point of view, job performance is essentially the result of a series of behaviours (Berghe, 2011). According to the findings of the study, local companies’ employees undertake non job related activities and that sometimes impacts on job performance. Contextual factors are not considered. Teamwork is not assessed with the performance of team members being evaluated individually. Technical managers and employees think that the criteria for job performance have to be different considering the nature and characteristics of the job. Administrative managers mostly pay attention to behavioural factors and the abilities/skills of employees. Technical managers mostly prefer the technical knowledge/skill of employees. This supports evidence that raters from different perspectives consider different factors during the rating process (Pulakos et al,1996).

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With regard to the criteria for performance, assessment of employees for the job results is mentioned in the Labour Code of Azerbaijan. In the article (65) of “attestation of employees”, there is item 5, which states that “The members of the Certification Commission may question an employee regarding his position (occupation), function, specialty (profession), the jobs performed by him/her and their results, as well as on issues concerning his rights and obligations under an employment contract in order to determine his compliance with his position (profession). The professional standing of an employee that is certified may not be evaluated according to his political outlook, spiritual or moral maturation, personality, faith and other personal qualities including his degree of discipline.” It is clearly seen from the statement that an employee may only be assessed considering his or her job outcome/result and no competencies or behaviours are mentioned. Why managers mostly prefer result-based criteria may be explained by this. In conclusion, the discussion of findings demonstrate that foreign companies use both result and behaviour/competency-based criteria to assess employees as it enables them to align individual goals with tactical and strategic goals. How criteria encompasses true performance and contributes to tactical and strategic goals is questionable, as employees think that some criteria do not cover the true aspect of their performance. In addition, technical managers consider behavioural criteria useless. In local companies, results-based criteria are mostly preferred by managers. No contextual performance, job characteristics and team work are considered. The discussion depicts that the findings of this study are consistent with the literature in that the choice of criteria depends on management philosophy (Cardy and Leonard, 2015) and that good performance is culture bond (Aycan, 2005). The findings revealed that criteria are unique for all type of jobs which contradicts the viewpoints that choice of criteria depends on specific task characteristics (Eisenhardt, 1985).

6.5 Research question 3: How do employees accept the performance management process in the petroleum industry of Azerbaijan?

This study also aims to find out how employees accept performance management in the petroleum industry of Azerbaijan. Employee acceptance of performance appraisal means employee acceptance of the fairness, validity and

235 accuracy of the assessment of their performance. In spite of the design of a technically sound and accurate performance system, without employee acceptance of its quality, its overall success can be compromised (Cardy & Dobbins, 1994). Acceptance of a performance system by an organization’s members is a function of its process and outcomes (Murphy & Cleveland, 1995). The process refers to the extent to which employees perceive that the performance rating reflects their true performance or contribution to their organization and the extent to which employees perceive their supervisors as making an informed decision based on the information derived from the performance appraisals. Considering these factors, the study investigated this question in terms of employee acceptance of the purpose of the performance management system, its advantages and disadvantages. The study revealed that employees think that the purpose of the process is to monitor the employee performance and whether everyone is doing the job accordingly in the foreign companies. They have a conversation at the beginning and they feel supported throughout the year by their colleagues, not by supervisors or managers. Managers do not have time for it. In addition, during the feedback process, employees engage in arguments and discussions. They feel more comfortable with a foreign manager than a local one. Foreign managers are also not open to counterarguments but they pretend to be. The overall impression about performance management is good as employees are aware of their tasks, targets for the whole year and their weaknesses/strengths. The outcome of the process is linked with promotional and reward activities. However, in local companies, employees and managers do not think positively about the performance management system. They prefer panel-group assessment rather than individual assessment, and they consider attestation to be better than the Western style of performance management. The reason why employees think the purpose of performance management is to monitor them is because they do not get support from their managers in terms of fulfilling tasks and developing their skills. When work practice focuses on managerial compliance, which is characterised as “command and control centred,” employees will experience it as coercive; however, when work practice is focused on guiding and coaching employees, such as identifying their development needs so that they can master their tasks, they will perceive it as enabling (Wouters & Wilderon, 2008). Therefore, too much emphasis on the evaluation function of performance measurement might crowd out the potential of its enabling function and result in

236 employee perception of performance measurement as coercive and punitive. Employees in Azerbaijan think that the purpose of the process is to monitor employee performance because of the lack of interpersonal communication between employee and manager as the literature suggests. Employees do not feel any support from their managers and they are communicating only to set the main goals for the coming year and to evaluate the employee performance. Not all employees share the same perceptions about the performance management system’s effectiveness (Hodgkinson and Wright, 2002). The study revealed that HR and line managers think differently about the purpose of performance management in the company. This study found that managers and HR think that the purpose of the process is to serve to reach a business goal by developing necessary employee skills and abilities. Why managers think differently from employees is because employees are more concerned about involvement, participation and feedback; line managers’ perceptual dimensions are more focused on macro orientations than employees (Hodgkinson and Wright, 2002).

In addition, it has been recently discovered that employees are more demanding about the performance systems that are specific and tailored to their individual work needs (Hodgkinson and Wright, 2002). The findings of this study support this argument by revealing that employees are concerned about their performance are not fully covered, and in addition, the process is more focused on business needs rather than individual developmental needs. The study revealed that the disadvantages of the process, according to the participants, are: it is time-consuming, it is for “tick the box and formality”, the criteria do not cover the performance, and some of them are deemed useless by employees. The finding is consistent with the literature which states that, despite the popularity of the performance management system, in reality employees do not believe that their performance review system actually helps them to improve their performance and managers consider the process a waste of time (Auginis, 2011). Another disadvantage of the process, according to employees, is that the criteria does not cover true performance. As Murphy and Cleveland (1995) stated, employees do not accept performance management positively unless they perceive that the criteria cover their true performance. In spite of these problems, the findings depict that employees are in favour of a performance management system because of the

237 advantages. In general, employees accept that the system is good, it clarifies what is to be done for the coming year and it demonstrates weakness and strengths. In conclusion, the discussion shows that the findings of this study are consistent with the literature. Employees accept performance management as coercive because of the lack of interpersonal communication between employee and manager and the lack of developmental support from the manager throughout the year (Wouters & Wilderon, 2008). The disadvantages and advantages of performance management are also consistent with other study findings (Auginis, 2011; Murphy and Cleveland, 1995). In spite of the disadvantages, employees think positively about the existence of such a system in foreign companies. However, at local companies` where there is a lack of performance management system and component, employees think negatively because of individual assessment of the employee by his/her supervisor.

6.6 Conclusion

This chapter presented discussion of findings within framework of relevant literature. Every finding relevant to each main question have been analysed and discussed considering the initial propositions. It is suggested that the results of the investigation support the proposition that performance management in the petroleum industry in Azerbaijan is influenced by cultural and industrial factors. The result of the investigation shows that the choice of criteria depends upon management philosophy. However, the findings also support arguments that the task and contextual characteristics have to be considered as performance is multidimensional. Regarding the third question, employee acceptance is one of the determinants for effective application of performance management systems as proposed initially.

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CHAPTER SEVEN: CONCLUSION AND RECOMMENDATIONS

7.1 Introduction

The aim of this study was to find out how culture and industry influence performance management systems in petroleum companies in Azerbaijan. The study also aimed find out what the criteria is for performance and how it is defined. The third aim of this study was to investigate how employees accept performance management systems in the petroleum industry in Azerbaijan. The study adopted an interpretivist and constructivist approach to investigation of the performance management process in petroleum companies as a social phenomenon. Guided by the philosophical considerations, this study undertook a collective embedded multiple evaluative case study approach. In line with research orientation, this study adopted an idiographic methodology applying semi-structured in-depth interviews and documentary reviews for data collection. The interviews were held at 9 petroleum companies with 340 employees in Azerbaijan. Participants were selected according to a stratified random sampling approach. They included developers of performance management systems (HR), line managers and employees with implementation experience of the components of this system. Supervisors and employees were from various disciplines, including technical and administrative positions. The study concluded that performance management is influenced by culture and industry, choice of criteria depending on management philosophy and that criteria is culture bond. Employee acceptance of performance management is a main factor for the effective application of the system.

This chapter serves as the conclusion and includes a recommendations’ section for the whole thesis. It initially presents a general synopsis of this study followed by its most significant findings. Afterwards, the researcher’s contribution to both the body of the theory and the business practice are introduced. Moreover, the following sections divulge this study’s limitations and challenges as well as provide suggestions for further research on the topic.

7.2 General Overview of the Research

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The petroleum industry is a major employer and leading economic driver in most countries and makes significant financial contributions to governments. Successful and effective performance of the petroleum companies is important not only for the business purposes, but also for economic development of these countries. It is widely accepted that human resources are considered as key competitive advantages for organizational success and performance of employees plays an essential role in achieving business goals. Contemporary economic challenges have led many organizations to try to improve results by increasing their attention on performance management (Gruman and Sacks, 2011) and performance management is a critical aspect of organizational effectiveness (Cardy, 2015). Although performance management systems are pervasive worldwide, cultural and industrial differences affect how such systems are designed and implemented, as well as their relative effectiveness (Aguinis et al, 2012). The aim of this study was to investigate the cultural and industrial impact on components of employee performance management in the petroleum industry. Although a few studies concerning performance appraisals and culture have been published, research about the impact of culture and industry on employee performance management system is generally thin and more studies are required to understand them (Murphy & Cleveland, 1995). Most conducted studies have focused on investigating particular or isolated components of employee performance management systems. Considering more requirements for study about performance management in the cultural and industrial context, this study aimed to find out how culture and industry influence on performance management in Azerbaijan. In addition, there is no existing sound research concerning Azerbaijan where Western and Eastern values influence each other. As a former Soviet country Azerbaijan provides an interesting context in which to conduct the study. The collapse of the Soviet Union created a new situation in Azerbaijan. After gaining independence, Azerbaijan started to build economic relationships with Western countries. The economic relationships resulted in an introduction of Western values into Azerbaijan society. For seventy years, Azerbaijan was ruled by Communist ideology. Since the introduction of a free market economy, a new work environment has been established in Azerbaijan.

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In addition, application of performance management outside blue-collar administrative and managerial groups have been the focus for nearly all the research done and there is lack of studies about performance management of professional staff in highly technical roles (Fletcher, 2001). This study aimed to discover how performance management of employees in technical roles (production engineers, geologists, geophysics, and mechanics) as well as employees in administrative roles is conducted in the petroleum industry in Azerbaijan. This study also aimed to find out how managers formulate performance criteria in terms of behaviour, competency or outcome and how performance management is accepted by HR staff, line managers and employees. The aims were guided by the following objectives: to understand components of employee performance management and impact of cultural and industrial factors, to understand conception of performance and critically examine outcome, behavioural and competency based criteria and other job-related factors and to discuss relevant literature about employee acceptance of EPMS. This study was guided by the following research questions: How does culture and industry influence on components of employee performance management in Azerbaijan? How do managers define performance criteria as outcome, behaviour or competency for performance? How effective is the PMS in the eye of the employees?

7.3 Research Question 1: How culture and industry influence on components of employee performance management in the petroleum industry in Azerbaijan?

Managing HRM in organisations requires an understanding of the influence of both internal and external environments of the organisations. The role and competence of HRM decision makers are influenced by national culture, varying institutional factors, national business systems, structures and the labour market (Sparrow and Hiltrop, 1997). It is no surprise that some HRM practices are not accepted universally and employee performance management as part of HRM activity is also influenced by external factors such as culture and industry. It is cultural differences which make it difficult to standardise aspects of performance management practice (Pucik, 1985; Vance et al, 1992) and a number of studies have sought to examine the impact of country culture on aspects of the process. Performance management is totally Western-based and successful in a European and American

241 context. Failure to implement the system in other countries is rooted in ignorance of the local context (Auginis, 2011). In order to find out on how culture impacts upon the performance management process in Azerbaijan, this study adopted the cultural dimensions of Gert Hofstede, as several studies have also used these variables (Aycan, 2005; Hofstede, 2001; Mandinga and Kanungo, 1994). Azerbaijan is not on the Hofstede list of cultural ranking. Considering neighbouring countries such as Russia, Turkey, Iran and Georgia, which have been included in the cultural ranking scale of Hofstede, it may be argued that Azerbaijan shares the same or similar cultural values in terms of possessing a high power, distant, collectivist, masculine, and high uncertainty avoidance culture.

The study revealed that fairness issues, nepotism, favouritism, tendency for over-scoring and age factors between participants are the main concerns regarding performance management. Fairness issues are related with local managers both in local and foreign companies. They do not assess the true performance of employees and subjectivity prevails in the process. Supervisors/managers who are in authority value their power to affect a subordinate’s welfare (Prendergast and Topel,1996). Performance is gauged from subjective opinions provided by superiors and this opens the door to favouritism, where evaluators use their power to reward preferred subordinates beyond their true performance. Cross-cultural studies have demonstrated that high power distant cultures give importance to power and authority (Hofstede, 1980). The negative use of power and authority is characteristic in Azerbaijan as a high power distant culture

The study revealed that nepotism and favouritism are among the issues that create problems for performance management in Azerbaijan. This is related with collectivist values existing in the country (Hofstede,1980). The findings of this study indicate that Azerbaijani managers have a tendency for over-scoring employees to obtain a high salary. This depends on the incentives offered to the worker. Their decisions substantially affect subordinates' welfare as performance of employees is linked with reward and bonuses in the end (Protergast and Topel (1996).

The study revealed that age issues do not impact on the process. Subordinates who report to younger supervisors/managers trust the capacity of the supervisors and

242 accept the assessment fairly. This is related to cultural issues, as the status is based on rank and position at the workplace in Azerbaijan because of high power distance. Subordinates, in respect of their ages, positively accept it, and respect the superior’s authority, even if the superior is younger (Hofstede,1980).

The discussion shows that findings are consistent with cross-cultural literature and culture influences mostly on feedback, rating, and the communication process in performance management. The study also discovered that in Azerbaijan individual assessment is not accepted and group or panel assessment is preferred instead. Findings of this study foster the arguments around local responsiveness towards performance management in host countries. The findings support the suggestions that the rating process either by individual or panel group is better to be customised (Caligiuri, 2006) and multinational firms should adapt performance management systems to a local context (Evans et al, 2017).

Considering the second aspect of the research question which is investigating industrial impact, it is suggested that firm's industry is important to frame and execute organisational policies and practices and industry has been highlighted as a critical contextual variable for HRM (Wright and Snell, 1998). Employee performance management as a part of companies’ HRM processes focuses to elicit employee behaviours consistent with firm strategy and other requirements imposed by industry related issues (Jackson and Schuler, 1995). There are very few studies about industrial impact on employee performance management and most of them have been conducted in education, hospitality and the health care industry. Lack of studies about employee performance management exists in the petroleum industry.

Impact of regulations, industrial relations systems and labour market conditions have been identified as major influencing environmental factors for HRM processes (Jackson 1995) in literature. For this purpose, the main influencing environmental dimensions on organisational processes in the petroleum industry have been identified for investigation. Literature suggests that petroleum companies are mostly influenced by technology, legislation and the labour market (IBM report, 2010). Guided by these suggestions, this study adopted three dimensions in order to find out how technology, local legislation and the labour market influence performance management processes in Azerbaijan.

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The study revealed that not all but certain dimensions of industry impact on performance management processes in Azerbaijan. In foreign companies, all dimensions of industry (legislation, technology, labour market, and environment) are considered in performance management globally, not locally to pursue a standardised approach for global integration and as a control mechanism (Pucik & Katz 1986). In addition, according to the findings, the degree of influence and types of dimensions are different for local and foreign/multinational companies. Technology impacts on performance management as well as on other HR processes in foreign companies. In local companies, technology influences on HR processes. Legislation impacts on the performance management process in local and foreign companies. In local companies, industry characteristics are not considered and legislation is only an influencing factor on all HR processes. Discussion of the findings shows that the legal context of the country is the main cause for variations in performance management in the petroleum industry in Azerbaijan (Sparrow et al.,2004). Local legislation considers all activities taken as the result of the performance management process at foreign companies as illegal. This is because employee professional expertise may be assessed only by certain principles and procedures according to the “Attestation process of the employee” in the Labour Code of Azerbaijan Republic. Termination of an employee contract as the result of the performance management process is considered against the law, as the process has to be carried out according to certain terms and conditions stated in the Labour Law of the Azerbaijan Republic. As the “notion of performance management” doesn’t exist in the code, it is against the law to terminate the contract or to fire an employee because of performance results. In Azerbaijan, the degree of technological involvement is different in foreign and local companies. The impact of technology demonstrates itself in skill upgrading and it requires a broader variety of skills and higher average skills from the labour force (Spenner, 1997). The study revealed that modern technology affects mental complexity and autonomy control in the petroleum industry in Azerbaijan. The study also revealed that technology changes the content of the job. Technology has effects on the composition and content of work and also technology changes employee behaviour (Spenner,1995). As a result of technological impact, jobs are becoming more interrelated. This creates certain problems for the performance management process as it is not easy to assess individual contribution when jobs are interrelated

244 and complex. (Nadal & Sanz, 2013). However, technology does not impact upon performance management at local companies. Foreign companies consider the influence of technology on developmental activities in performance management. Technology also influences skill/workforce change in the labour market. The labour market creates certain problems in terms of required workforce for companies. The problem is addressed by other HR processes such as recruitment and selection, training and development in local companies and foreign companies. Foreign companies address this issue by providing more developmental activities in their performance management system, as well as by other HR processes.

7.4 Research Question 2: What are the criteria for performance and how it is formulated in the petroleum industry in Azerbaijan?

The concept and definition of individual performance has received considerable scholarly research attention over the past 15 to 20 years. Some researchers accept only outcome as a conception of performance, others accept both outcome and behaviour together (Armstrong, 2005). However, performance is a multidimensional construct and the measurement depends upon a variety of factors that comprise it (Fitzgerald and Moon, 1996). Performance consists of a performer engaging in behaviour in a situation to achieve results (Mohrman et al (1989). Nowadays it is generally agreed that job performance consists of a complicated series of interacting variables pertaining to aspects of the job, the employee, and the environment. There are numerous studies offering new ways of structuring thinking about job performance (Arvey & Murphy, 1998). There is also contextual performance that goes beyond outcomes and behaviours and covers attributes like cooperation, dedication, enthusiasm and persistence, and the attitudes that enhance the climate and effectiveness of the organization (Murphy and Cleveland, 1995). A great deal of attention has been paid to the distinction between task and contextual performance. There are numerous issues about the nature of contextual performance and whether it is valuable or necessary to distinguish it from task performance (Arvey & Murphy, 1998). The growing importance of team-based work and effective communication in organizations, the kinds of responses described by contextual performance seem to be increasingly relevant. The changing nature of work and organizations has also challenged traditional views of individual work performance (Ilgen & Pulakos, 1999). Criteria that covers real performance is very

245 important for effective performance management systems. Well-designed performance management systems identify the results and behaviours/competencies needed to carry out the organisation’s strategic priorities and maximise the extent to which employees exhibit the desired behaviours and produce the intended results (Cascio & Aguinis, 2005, Aguinis, 2009). Performance is a multidimensional construct and the measurement depends on a variety of factors that comprise it. The choice between behaviour and outcome control depends on the specific task characteristics, (Eisenhardt, 1985) and management philosophy and situation (Cardy and Leonard, 2015). Guided by these suggestions, the study investigated what is the criteria for performance, how are they defined and should characteristics of job be considered? The study revealed that in foreign companies, employees are assessed on his/her behaviour/competency and job outcome at work. Outcome/result based performance criteria are aligned with key business goals. Behaviours/competencies are aligned with core company values. This is the main feature of the performance management system that emphasises the communication of organisational goals by integrating them into departmental and, more specifically, individual-level goals and job objectives (Fletcher and Williams, 1997). It could therefore be assumed that host- country employees at a MNC subsidiary are, via performance management, made fully aware of the organisation's goals, and that these become part of their personal job objectives. The study also revealed that technical managers in multinational companies are not so happy with behavioural indicators and they consider them useless. They mostly use outcome criteria as they see performance in terms of outcome/result, whether the goal has been achieved, and give no importance to activities (Cardy and Leonard, 2015). According to the findings of this study, not contextual, but task performance is strongly considered in foreign companies. In addition, the process is unique for all job activities - individual, team, and complex jobs. Job characteristics don’t define any performance criteria. This is because performance management is a global process and has to be implemented for all job types across countries. However, managers and employees consider that some criteria are useless and do not relate or cover their true performance. Therefore, effective global performance management should determine “the broad content domain” of performance across countries for the same position (Caligiuiri, 2006).

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Regarding criteria for performance at local companies, the study revealed that managers mostly prefer to assess employees according to their job results. Managers also consider behavioural factors such as ethics, respect to others, the ability to complete a task in the given timeframe, and technical skills of employees. The discussion finds that the choice of criteria depends on management philosophy (Cardy and Leonard, 2015) and good performance is culture bound (Aycan,2005). The findings revealed that the criteria are unique for all types of jobs, which contradicts the viewpoints that choice of criteria depends on specific task characteristics (Eisenhardt, 1985).

7.5. Research Question 3: How employees accept performance management system in the petroleum industry in Azerbaijan?

There are a variety of factors other than industry and culture influencing the effectiveness of performance management systems in practice. An employee performance management system is an effective tool for achieving success. However, in a real work environment its negative or positive acceptance by employees really matters. Employee acceptance of the performance system means the employee believes in the fair, valid and accurate assessment of their performance. No matter how well a performance system is designed, it will become useless if there is a lack of employee acceptance, or if they do not see the system as useful or valid (Daley, 1992). When employees gain constructive performance feedback or identify areas of improvement through extensive discussion with their supervisor in the performance appraisal session, employees are more likely to reciprocate by expressing their commitment, loyalty, and positive attitudes in return (Eisenberger and Stinglhamber, 2011). Trust in supervisors is also another determinant for satisfaction with performance management systems (Mani, 2002) In addition, when work practice focuses on managerial compliance, which is characterised as “command and control centred,” employees will experience it as coercive. However, when work practice is focused on guiding and coaching employees, such as identifying their development needs so that they can master their tasks, they will perceive it as enabling (Wouters & Wilderon, 2008). Despite the popularity of performance management systems, in reality employees do not believe

247 that their performance review system actually helps them to improve their performance and managers accept the process as a waste of time (Auginis, 2011; Kim & Holzer, 2014). Despite the design of a technically sound and accurate performance system, without employee acceptance of its quality, then the overall success can be compromised (Cardy & Dobbins, 1994). Acceptance of performance systems by organisational members is a function of its process and outcomes (Murphy & Cleveland, 1995). The process refers to the extent to which employees perceive that the performance rating reflects their true performance or contribution to their organisation, and also the extent to which employees perceive their supervisors make an informed decision based on the information derived from the performance appraisals. Considering these factors, the study investigated this question in terms of employee acceptance about the purpose of the performance management system and its advantages and disadvantages. The study revealed that employees in Azerbaijan think that the purpose of the process is to monitor the employee performance because of a lack of interpersonal communication between employee and manager as the literature suggests. Employees do not feel any support from their managers and they are communicating only to set main goals for the coming year and to evaluate employee performance. The study also found out that HR and line managers think differently about the purpose of performance management at the company. They think that the purpose of the process is to serve business strategy with developing necessary employee skills and abilities. Managers think differently to employees because the employees are more concerned about involvement, participation and feedback, line managers’ perceptual dimensions are based on more macro orientations than employees (Hodgkinson and Wright,2002).

The study also revealed that in Azerbaijan, performance is not fully covered. In addition, the process is more focused on business needs rather than individual developmental needs. This results in negative acceptance when the performance system is not specifically tailored to their individual work needs (Hodgkinson and Wright, 2002). The study revealed that the disadvantages of the process according to the participants, are that it is time consuming, for “tick the box formality”, that criteria doesn’t cover performance, and that some are accepted as useless by employees.

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Despite these problems, the findings show that employees are in favour of performance management systems because of its advantages. In general, employees accept that the system is good and clarifies what is to be done for the coming year, demonstrating weaknesses and strengths. The discussion shows that disadvantages and advantages of performance management which employees in Azerbaijan think are also consistent with other study findings. Despite the disadvantages, employees think positively about the existence of such a system in foreign companies. However, in local companies, where there is lack of performance management system and components, employees think negatively because of trust issues regarding the individual assessment of the employee by his/her supervisor.

In conclusion, having looked at the individual research questions, it is appropriate to return to the initial proposition. It is suggested that the results of the investigation support the proposition that performance management in the petroleum industry in Azerbaijan is influenced by cultural and industrial factors. In addition, the initial proposition was that choice of criteria depends on task characteristics. However, the result of the investigation shows that the choice of criteria depends upon management philosophy. However, the findings also support arguments that the task and contextual characteristics have to be considered as performance is multidimensional. Regarding the third question, research supports the proposition that employee acceptance is one of the determinants for effective application of performance management systems. The study revealed that in Azerbaijan performance management is not accepted by local companies. in foreign companies, employees accept that performance management has disadvantages, but in general, because of its advantages it is accepted positively.

7.6 Contribution to Knowledge

This section examines the contributions to knowledge that this thesis has made of. There are several contribution of the present research.

 This thesis has provided deeper insight into the influence of cultural and industrial variables on components of performance management in practice. In addition, the study contributes to our understanding of performance

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management process in local and multinational companies operating in Azerbaijan.  The results of this research add to the rapidly expanding field of human resource management in post-soviet and transitional countries. This study contributed a sound research in human resources management in Azerbaijan, as previous research does not exist regarding HR practices.  The application of performance management outside blue-collar administrative and managerial groups have been the focus for nearly all the research undertaken and there is lack of studies about performance management of professional staff in highly technical roles (Fletcher, 2001). The findings of the present study make important contribution of the research in performance management of technical staff.  The contribution of this study has confirmed the literature that the legal context of a country is one of the main important factors for variations in HRM processes and for performance management in a cross-cultural study.  Empirical findings of this study provide a new understanding of performance management in terms of “Attestation process of employees” in the Azerbaijani context. It is a similar practice with performance management processes implemented during the Soviet period. Attestation process of employees is applied according to the terms and conditions of the Labour Code of the Azerbaijan Republic. This finding confirms that in Azerbaijan, like other Soviet countries, the attestation process, an assessment of employee’s professional expertise, is regulated by Government. However, in Western countries, there is no legislation specific to the performance management, the process has to be applied to certain general principles in legislation. These findings also demonstrate cultural differences in approach to the assessment of employee’s professional expertise. The findings contributed to knowledge that there are differences between performance management and the attestation process. These differences are caused by cultural issues.  The present study adds to the growing body of research which indicates the performance management process in multinational companies. The study confirms that multinational companies apply performance management

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processes globally and don’t implement any customisation process. The findings of this study also support international human resource management literature in that some components of performance management process must be localised. Findings confirm the argument that group based assessment may be preferred instead of individual assessment for effective application of performance management.  Furthermore, this study’s methodological approach facilitated the understanding of how variations exist in the performance management process in the petroleum industry. One major methodological contribution of this research is that it investigated the questions by adopting a qualitative study as the nature of the research is explorative. This enabled better understanding and analysis of the undertaken research phenomenon. The study represents the largest sample of participants’ view on performance management in petroleum industry in Azerbaijan.

7.7 Recommendations for Multinational and Local Companies

This section draws on the previous discussion of the research findings by offering recommendations for performance management in local and multinational companies in Azerbaijan. The recommendations are offered in order to implement performance management practice effectively. Recommendations are provided considering several issues such as legal, social and industrial aspects of the petroleum industry in Azerbaijan.

1. During the nationalisation process, multinational companies have to review the effectiveness of their processes. As is suggested, the local context must be considered in the performance management process. They have to pay special attention to “Who will rate” and “How will rate” as this component of performance management is more culture bond. The system was probably effective when the majority of managers were foreigners. However, an increased number of local managers makes it hard to realise the process effectively. Individual rating is not accepted in Azerbaijan as managers are eager to use their power negatively. These issues create certain problems for employees to accept performance management as it leads to subjectivity and unfairness.

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2. Multinational companies must comply with the legislation of the Azerbaijan Republic. Any practice or process that is against the law has to be avoided. Performance management practices have also to comply with the Labor Code of Azerbaijan Republic. 3. Competencies of HR specialists have to be developed. Companies must be interested in application of up-to-date HR practices in order to contribute to organisational success. Specific training courses have to be applied for developing relevant skills. In addition, companies may address this issue by recruiting new employees. 4. Local companies have to realise that the environment is different from what it was 30 years ago. Legislation is not enough to solve employment issues or to deal with HR processes effectively. Companies must apply HR practices in order to succeed in a competitive market. Therefore, implementation of HR practices is better to be applied rather than be prevented by legislation. 5. Senior managers of the company must be aware of the importance of HR practices. If they believe in the effectiveness of HR practices, they may insist that HR specialists improve their competencies and apply their skills. 6. Industry characteristics have to be considered in performance management in local companies. Consideration of the impact of technology, labour market, natural environment is very important. For example, as the industry is dangerous and accountable for strict HSSE rules and environmental protection, local companies have to create/foster a safety culture by applying performance management systems in order to formulate relevant behaviors of employees. Emphasis on safety and protection relevant criteria is important in setting goals and assessing performance. 7. Performance management faces certain challenges imposed by the Labour Code of the Azerbaijan Republic. Attestation of employees, which aims at assessing employee professional expertise, may be considered similar to a performance management system. However, it lacks certain practices of the performance management process. Companies have to consider planning, setting goals, developmental based activities, performance reviews. However, appraisal has to be implemented according to the labor law. Individual assessment of employees by supervisor/managers is not accepted by either party. It is also restricted within the Labour Code. Therefore, companies have to benefit from goal-setting, development based activities and performance review practices of performance management. At

252 the same time, they have to consider the Labor Code in the appraising process. Employees have to be assessed by panel group or attestation committee. 8. Criteria is important for the effectiveness of performance management. Both foreign and local companies have to consider that aspect of performance is broad and identified criteria should not be limited with only task performance, but should also consider contextual performance. In addition, job types and job characteristics have to be considered in defining and preferring either result/behavior or competency based criteria. Companies usually apply unique processes in criteria definition for all types. However, depending on job characteristics either result or behavior may be considered important or observable. 9. Performance management processes have disadvantages in terms of being a waste of time and/or formality. Technical managers and administrative managers complain about it. Therefore, it is not necessary to organise a special ceremony for performance management of employees. It is more important to formulate a certain culture that manages employee performance in terms of independent and unformal activities between managers and employees. In addition, the purpose of performance management is very important. In Azerbaijan, it is recommended to apply performance management for development of employees, defining weaknesses, skill shortages, and areas for improvement. Reward based practice may result in failure because of cultural issues. 10. Foreign companies have to take periodic surveys and interview employees about how each HR process is applied. Views of local employees and managers have to be considered if they want to implement any HR process effectively. If any challenges or problems arise, they have to adjust their processes to the local context. 11. An authorised body must regularly assess or audit the process of foreign companies and intervene in any activities that are against the local mentality/culture of Azerbaijan and legislation.

7.8 Limitations of the research

When conducting this study, the researcher faced many challenges and, therefore this research has certain limitations.

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 First, the study adopted a qualitative methodology to conduct this research. Semi-structured interviews were held with 340 participants. It was difficult to analyse the interview results of 340 respondents. A lot of time was required to interpret and analyse the responses.  Second, it was difficult to gain access to the companies. A special letter was submitted by authorised body (SOCAR) to the companies in order to conduct this research.  Third, it was also identified that surveys may be used for some questions instead of interviews, which would make the process less time consuming and interpretation much easier.  Fourth, a lack of prior research studies on the topic related to Azerbaijan. It created challenges to support any argument with exact evidences from Azerbaijani literature. Therefore, relevant literature and evidences from other countries have been adopted.  Fifth, research questions are broad and some aspects of them are not covered because of the availability of resources in terms of time and respondents. Therefore, further research is required separately to be dedicated to each research question to get sound and detailed information.  Sixth, it was also difficult to interview technical managers on a production site. They were not able to be on time to conduct an interview. Therefore, the researcher had to reschedule appointments several times to conduct an interview. Every 15 minutes, they were called away because of work-related problems.

7.9 Areas for Future Research

All research builds on what has gone before and paves the way for further investigation in the future. Qualitative methods are particularly likely to leave loose ends since the researcher does not entirely control the investigation. Even a broadly based study cannot deal with every issue, and being selective will leave some questions unanswered. The research study obtained information from nine organizations. Considering areas for further research, it is required to investigate other companies or to conduct similar research in different sectors, industries to explore

254 issues related with Azerbaijan. In fact, lack of existing research in HRM in Azerbaijan opens a broad horizon for future investigation. There is a need to investigate both foreign and local companies to expand this research. Research questions are too broad and only main aspects have been identified. However, deep investigation is required for each research question to investigate practices of other companies operating in Azerbaijan. This study investigated performance management processes in the petroleum industry in Azerbaijan. The research focused on whole components and depicted general findings. However, components of performance management (goal-setting, performance review, and performance assessment etc.) are better to be investigated separately. The research is conducted in the petroleum industry and revealed industry related findings. Some findings may not be relevant for other industries. Therefore, similar researches are required to be conducted in other industries in Azerbaijan. In addition, further research in petroleum industry in different countries is required to investigate broadly the industry influence on performance management processes.

7.10 Conclusion

This chapter briefly outlined the research background, gaps in the existing literature to make justifications for this study. Research aims and objectives were emphasised for introducing relevant findings. Discussion of findings for each research question was presented. The overall conclusion is that the research findings support the argument on which the questions were based, and support the initial proposition that performance management is influenced by culture and industry, choice of criteria depending on management philosophy and criteria is culture bond, employee acceptance of performance management is a main factor for the effective application of the system. A set of eleven recommendations for practitioners were developed based on the findings to contribute to the effective application of performance management. Limitations of this study were also presented.

Finally, this work is regarded as a stimulus to develop subject knowledge and an experience to do research. It seems appropriate to conclude the presentation of the

255 results of this study by reflecting on whether these objectives have been achieved. As far as the writer is concerned, the answer is in the affirmative. The literature study, data collection process, the interpretation of the data, and the challenge of writing it up into a coherent piece of work, all contributed to an enjoyable experience.

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APPENDIX 1

Interview questions

Research question: How culture and industry make an impact on EPMS?

Interview questions for investigation of management decision making process 1. What are the main factors you consider during your decision making process? How Azerbaijani ways of doing things or attitudes, values influence on your decision making process and in setting or implementing PMS system at your company? 2. How would you define external environment of the company and how you match your internal processes to the external environment? How characteristics of your business environment make impact on your PMS system?

Interview questions for investigation of cultural impact

1. How PMS is applied in your company? 2. What is the purpose of PMS in your company? 3. How EPMS serve the strategic objectives of your company? What are the key values and how EMPS serve to this key values? How employee role requirements are defined? 4. What is more important for you-loyal employee or highly performing employee? How does it influence on your performance assessment? 5. What are the main considerations in the PMS process-planning, execution, review and evaluation? 6. Could you describe planning stage of your EPMS system? 7. Could you describe execution stage of your EMPS system? 8. Could you describe review stage of your EMPS system? 9. Could you describe evaluation stage of your EMPS system?

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10. What are the main challenges or problems you face in implementation of EMPS?

Interview questions for investigation of industrial impact 1. How would you define the environment of your company? Is it stable or dynamic? 2. What are the main external factors make impact on HRM processes as well as PMS of your company? What challenges or problems do they create? 3. How competitive your environment is? How it influences on your HRM processes as well as your PMS? 4. How would you describe technological environment of your company and how it influences on your PMS –directly or indirectly? How technology make impact on work or skill change? What problems or advantages technology create for your PMS of your employees? How technology made a change on your PMS? 5. How could you describe labour market of your industry and how it influences on your PMS –directly or indirectly? 6. How could you describe your legal environment-regulation- how it influences on PMS-directly or indirectly? 7. How environmental issues impact on your PMS system-directly or indirectly? What are the main broad environmental issues you company face or have to care about? How environmental issues is integrated in your PMS and how certain employee behaviours formulated for protection of environment? Research question: How performance criteria is defined and whether companies apply outcome/behaviour/competency based performance system? 1. What do you consider in determining criteria for performance of employees? How is this criteria are defined? 2. Are they (outcome/behaviour or competencies) integrated on strategic objectives or not? How are they integrated? 3. Do employees undertake any job unrelated tasks? How often? How these things influence on its performance assessment? 4. To what extent contextual performance are considered in PMS? 5. How do you set goals or assess employees? What is your EMPS for your team work jobs? How action and results are identified and assessed? 6. How job characteristics define performance criteria?

Research question: How effective performance management system is in the eye of employees? 1. What is your impression about the employee performance management system of the company? 2. What do you appreciate or don’t appreciate in your PMS?

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3. Do you participate in goal setting process? What is your role in goal agreement with the supervisor? Do your opinions are considered? 4. Do you feel enough support for the whole year from your colleagues or supervisors in terms of developing your skills? 5. How do you trust your supervisor? Do you think that you are assessed fairly or not? How would you justify it? 6. Have you ever discussed feedback with your supervisor? Do you think that some feedbacks have been wrong and have you notified your supervisor about it? 7. How do you behave in rating your old subordinate? 8. How do you react or behave in rating by your young supervisor? 9. How would describe your performance management system? What are you most concerned about PMS? (questions for employees) 10. How would describe your performance management system? What are you most concerned about PMS? (questions for HR) 11. How would describe your performance management system? What are you most concerned about PMS? (questions for supervisors) 12. What are your further comments? What questions would you like to be asked about PMS?

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