Agency theory and performance appraisal: How bad theory damages learning and contributes to bad management practice

Abstract

Performance appraisal interviews remain central to how employees are scrutinised, rewarded and sometimes penalized by managers. But they are also often castigated as ineffective, or even harmful, to both individuals and organizations. Exploring this paradox, we highlight the influence of agency theory on the (mal)practice of performance appraisal.The performative nature of HRM increasingly reflects an economic approach within which its practises are aligned with agency theory. Such theory assumes that actors are motivated mainly or only by economic self-interest. Close surveillance is required to eliminate the risk of shirking and other deviant behaviours. It is a pessimistic mind-set about people that undermines the supportive, co-operative and developmental rhetoric with which appraisal interviews are usually accompanied. Consequently, managers often practice appraisal interviews while holding onto two contradictory mind-sets, a state of Orwellian Doublethink that damages individual learning and organizational performance. We encourage researchers to adopt a more radical critique of appraisal practices that foregrounds issues of power, control and conflicted interests between actors beyond the analyses offered to date. Keywords: Performance appraisal; agency theory; motivation 2 INTRODUCTIONIn an influential paper published posthumously in 2005, Sumantra Ghoshal argued that what he termed 'bad' theories were wreaking havoc on management practice. His argument was focused with particular force on agency theory. In Ghoshal's view, this had produced a preoccupation with self-interest among managers who then engaged in behaviours inimical to their organizations' long term interests. Immediate support came from leading management thinker Jeffrey Pfeffer (2005), who argued that the bad theories in question become self-fulfilling. That is, business schools teach them as though their empirical basis were much sounder than it is, students emerge with an enriched theoretical lexicon but a diminished sense of social responsibility, and poor management practices become institutionalised to such an extent that, although they fail to deliver on their original intentions, they become naturalised and therefore are assumed to be beyond interrogation (see also Ferraro et al, 2005).Consistent with this critical approach, we argue that many of the problems associated with performance appraisal can be explained by the wider influence that agency theory has had in organizations. To be clear, it is not our intention to suggest that all problems with appraisal can be explained in this manner 1 . Nor do we deny that many employees and managers find appraisals to be a positive experience -for example, when there is a high degree of employee participation in the process (Roberts, 2003). However, our focus is on those instances where negative outcomes are the norm. In exploring why this is so often the case we argue that agency theory has had a significant and often harmful impact on management learning and practice.1 For exampl...

Competing institutional logics in talent management: talent identification at the HQ and a subsidiary

“…We thus engage with the critical HRM stream (e.g. Delbridge et al, 2011;Evans & Tourish, 2017;Watson 2004) by questioning the exaggeration that people are motivated by self-interest mainly on the basis of economic calculations, instead advancing social relationships, with cultural values and behavioral norms, as root causes of how and why actors engage differently with HR practices.…”

“…Jones et al, 2012;M€ akel€ a et al, 2010;McDonnell et al, 2011;Silzer & Church, 2010) and in the mainstream HRM literature, using theories based on economics, e.g. agency theory and rational choice theory (Eisenhardt, 1989;Jensen & Meckling, 1976); if we aim to develop TM, we need to examine more deeply, in practice, the root causes to how and why actors engage differently with TM practices (see Evans & Tourish, 2017;Watson, 2004).…”

“…While much of the contemporary HRM literature has focused on cross-national variations as its main contextual factor (see Almond, 2011;B evort & Poulfelt, 2015), we highlight the importance of local organizational contexts in our aim of understanding the contextual embeddedness of HR practices. We also emphasize social relationships, with cultural values as root causes of how and why actors engage with HR practices as they do, in contrast to the rational explanation, as adopted in much of mainstream HRM (Delbridge et al, 2011;Evans & Tourish, 2017).…”

Human Resource Management and the Performance Appraisal: satisfaction analysis of the Guarda Nacional Republicana Administration Officers

“…In more precise terms, PA is considered of extreme importance by several authors ( [14]; [59]; [71]; [75]; [82]), as it translates into the following benefits, among others: validating recruitment and selection methods; guide HR allocation by its capabilities; measure individual or team contribution to the organization's objectives; identify the employee's development potential; identify knowledge and practice needs; manage rewards system; motivate and prize employees; career management, and improve the employeemanager communication. It is not negligible to raise the problems of poor PA practice [24]. According to Arshad, Masood, and Amin [7], Lin and Kellough [50] and Fakhimi and Raisy [26] these are considered as the most persistent problems: bad evaluation parameters and weight; lack of information; lack of training in performance evaluation; lack of authority; diverse patterns of rigor; low motivation for evaluators to assign low ratings; communication difficulties.…”

“…For all this, there is a process that, combining information culminates in five essential stages [59], [14]: In the first stage, should be noted that the better the quality of the objectives, the better the quality of the evaluation [92]. For employees to achieve their goals, there is a need to create indicators to measure performance and define which specific goals to achieve, all of which before evaluating [24]. These objectives should be set through negotiation, as the employee must have participated in the definition of these same objectives [36].…”