Increasing goal commitment using performance management: a case study of a Dutch HR-services multinational

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Increasing goal commitment using performance management: a

case study of a Dutch HR-services multinational

Ruben Steenmeijer

S1789716

rcsteenmeijer@gmail.com

University of Groningen

MSc BA: Organizational & Management Control

Supervisor: drs. M.M. Bergervoet

Co-assessor: dr. J.S. Gusc

Word count: 15.483 (excl. references and appendices)

June 2014

Abstract

Performance management is defined in this study as: an integrated process in which managers work with their employees to set expectations, measure and review results, and reward performance, in order to improve employee performance, with the ultimate aim of positively affecting organizational success. While many organizations use performance management to improve performance, they are struggling for optimal effectiveness. Many authors responded to the great interest of researchers and managers in performance management. This research draws on these authors by evaluating how effective performance management is in increasing goal commitment using a case study. From this evaluation, it follows i.a. that performance management can be effective in increasing goal commitment, when goals are challenging during the year, when managers have the right behavioral aspects, when the story behind the figures is used and when accompanying rewards are distributed.

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Preface

Dear reader,

With this thesis, my life as a student comes to an end. It was a period in which I developed myself in huge pace. From this thesis I learned how to perform a qualitative research independently.

The opportunity to conduct thirteen interviews at Randstad Nederland NV was extremely valuable for my. This way, I like to thank to company for this opportunity. In specific, I want to thank my supervisor at Randstad, Nico van Loo, for his valuable insights and his support. Furthermore, I would like to thank all interviewed participants for their time and their honesty.

Moreover, I am grateful for my supervisor, drs. M.M. Bergervoet for providing valuable insights to make this research possible. I also would like to thank dr. J.S. Gusc for co-assessing my thesis.

Last but not least, I would like to thank my family and friends for their support and believing in me during the writing of my thesis.

I hope you will enjoy reading my thesis.

Yours sincerely,

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1. Introduction

As noted by former Siemens CEO Heinrich von Pierer: ‘‘whether a company measures its workforce in hundreds or hundreds of thousands, its success relies solely on individual performance’’. Not surprisingly, virtually all organizations have in place some type of performance management system (PMS) to improve individual performance (Aguinis, 2011). Despite of the startling amount of criticism surrounding this topic, there is no industry in which the use of PMSs is reducing. PMSs are no temporary hype; they have proven to be very resistant (De Bruin, 2010).

For employees to meet or even exceed the expectations, they need to be aware of the need to perform and behave accordingly. Establishing such a culture asks for goal commitment among employees. Eventually, goal commitment of employees will lead to improved performance (Locke & Latham, 2013). It is the responsibility of senior leaders to create a culture in which employees are aware of the need to perform and want to perform, but they can benefit from the advice, guidance and support of HR in developing performance and reward systems (Armstrong, 2010).

Even though PMSs are studied extensively, there is a need for more attention towards the employee perspective of research opposed to the more common organizational level variables (Guest, 1999). The bulk of research focuses on the technicalities of performance management and not on the behavioral implications (De Waal, 2004). As Vagneur and Peiperl (2000) suggest there is a significant opportunity for further research on the individual psychological responses relating to performance management.

An optimal functioning performance management system (PMS) is critical to get better results from the organization, team and individuals. Yet, managers and employees are equally skeptical that performance management adds value; usually, it is seen as a waste of time and resources. Specifically, only 30% of employees believe that their company’s PMS actually helped them improve their performance (Aguinis, 2011). Many complain that performance management systems are cumbersome, bureaucratic and too time consuming for the value added. This leads both managers and employees to treat performance management as a necessary evil of work that should be minimized rather than an important process that achieves key individual and organizational outcomes (Pulakos, 2004).

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1.1 Problem analysis

In order to keep performing above industry standards, the board of a top HR-services multinational in The Netherlands (Randstad Groep Nederland B.V.) agreed in 2012 on a strategy change towards a culture in which employees are aware of the need to perform and behave accordingly. An important issue before the implementation of the renewed PMS in 2013 was that managers did not have the courage and skills to give critical feedback and to start a mature dialogue about the performance of their subordinates, due to strong interpersonal relationships. Thereby, managers were not able in performance evaluations to differentiate between employees. During the layoff in the reorganization, this lead to surprised employees who got fired, they did not know they were performing below standards. The board has commissioned the HR department to analyze, design and renew the PMS to reach this culture. One of the goals of the renewed PMS is to get the HR professionals of the company more motivated to strive for their goals.

Performance management, at the case company, is changed on three elements: target setting, feedback and the reward system. Targets are no longer assigned, but subordinates participate in selecting targets. Training programs are designed for managers to improve their feedback skills, so that they learn how to start a critical conversation with their subordinates about their performance. The reward system has also been changed. In the new structure, professionals can earn: a salary increase with a fixed range; a bonus, more directly linked to individual performance; and an extraordinary bonus, a significant bonus for extraordinary performers.

The renewed PMS was introduced by the senior staff specialist who provided the HR managers with the ins and outs of the new system. Subsequently, the HR managers informed the first line managers about the renewed PMS. The first line managers are responsible for the communication of the new system towards their subordinates. Since the developers of the PMS are not in direct contact with the line manager or their subordinates, they have little insight whether performance management is effective in increasing the goal commitment of professionals.

1.2 Problem statement

The problem is that the board and HR department have little insight whether performance management is effective in increasing the goal commitment of professionals.

1.3 Goal and significance of the study

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3 influence the goal commitment of professionals in a top HR-services multinational in The Netherlands. Contextual factors play an important role when studying the influence of performance management on goal commitment in a specific context. Therefore, the most relevant contextual factors for this research will also be discussed, which are: type of people, organizational culture and external environment. Thus, this research also contributes by illustrating how these contextual factors influence the relationship between performance management and goal commitment.

1.4 Research question

The following research question will be addressed in this study:

How effective is performance management in increasing the goal commitment of professionals at a top HR-services company in The Netherlands?

2. Research Framework

In this chapter, an overview of the theory will be presented, which forms the basis for the empirical research. First of all, the theory will be used to explain the term goal commitment, why it is important for increasing performance and how goal commitment can be influenced. This way, it is possible to understand how it can be increased. Next, performance management will be explained with its different components and its effects on goal commitment. Furthermore, the theory will explain how leadership can contribute to increasing goal commitment. The final part of the theory explains the effect of the context of this study on the goal commitment of professionals on the topics professional behavior and culture.

2.1 Goal commitment

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4 strong commitment to pursue the goal. The fourth is the unwillingness to abandon the goal. The last characteristic is that the employee thinks the goal is good to shoot for.

There are two broad categories that can increase goal commitment: factors that make goal attainment important to people; and factors that make people confident that they can attain the goal (Locke & Latham, 2002). Factors that influence the desirability of goal attainment are for example: participative decision making, reward structure, leadership and goal specificity. Examples of factors that influence the confidence of the individual that the goal can be attained are: goal difficulty, feedback, supervisor supportiveness, social influence and performance constraints (Locke & Latham, 2013). Some of these factors are important elements in the area of performance management, which will be explained in the next sections.

2.2 Performance management

Despite the extensive research on the topic of performance management and the fact that PMSs are widely used, there are substantial differences in meaning (Broadbent & Laughlin, 2009; Merchant, 2010). Performance management is here defined as ‘‘an integrated process in which managers work with their employees to set expectations, measure and review results, and reward performance, in order to improve employee performance, with the ultimate aim of positively affecting organizational success” (Den Hartog, 2004). PMSs are often used in the context of HRM. It is a system to control individual employee behavior (Broadbent & Laughlin, 2009). A PMS is a management control system designed to improve individual, team or organizational performance (Aguinis, 2011). Management control is about influencing the behavior of managers to ensure that they do what is best for the organization. The key to effective management control is motivating employees (Merchant & Van der Stede, 2011). Highly motivated employees are a critical factor in the long-term success of many organizations and therefore, accountants are becoming increasingly interested in how elements of control systems affect employee motivation at all organizational levels (Drake, 2007). Management control in this study is related to managing performance of employees to affect goal commitment. The framework of Otley (1999) is used to describe the different components of performance management. Those components are: objectives, strategies and plans for their attainment, target-setting, information feedback loops and the reward system. These components will be explained next with their behavioral consequences.

2.2.1 Objectives, strategies and plans

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5 success of the organization in achieving its objectives (Ferreira & Otley, 2009). For employees to get a better sense of why they should focus on the performance measures that are set, the organization should communicate its objectives, strategies and plans (Merchant & Van der Stede, 2011). Lack of direction is one of the key control problems observed in practice which can be prevented by clearly communicating the desired impact of the plans on the behavior of organizational members (Ferreira & Otley (2009). In this study, this means that the objectives of the PMS should be clearly communicated, so that employees understand how their individual actions contribute to the overall strategy.

2.2.2 Target setting

Target setting is about identifying and agreeing on the required results, actions and competences of employees with their manager to reach the objectives set by the organization (Armstrong, 2010). The outcomes of target setting are performance agreements for meeting objectives and improving performance. Performance agreements influence employees directly, they are the basis for evaluation. Target setting has a motivational impact toward improving performance (Medlin, 2009). Targets can be self-set, participatively-set and can be assigned. The degree of participation in goal setting influences goal commitment significantly (Locke & Latham, 2013). Sue-Chan and Ong (2002) and Lozano & Stephens (2010) found goal commitment significantly higher for participatively-set goals than for assigned goals. These authors argue that when individuals have influence on determining their targets, they feel more committed towards those targets. Locke & Latham (2002) explain that when a subordinate participates in goal setting, the person is more committed to the goal, since one would, at least in part, own the goals.

Another possibility to increase goal commitment with the use of target setting is to build self-efficacy by ensuring that the targets set are challenging, but not too difficult. The motivating and energizing influence of challenging personal goals may even be more important than self-efficacy (Locke & Latham, 2002; Perry, Mesch & Paalberg, 2006). Presslee et al. (2013) found a significant negative relationship between target difficulty and goal commitment, which was consistent with prior research of Klein (1991). Target difficulty can be caused outside one’s control, for example due to a competitive environment, and it can be caused within one’s control, for example due to too high expectations of one’s performance. Also, when subordinates are actively involved in target setting, their opportunities to influence the performance target increases, which may result in a more attainable target and thus goal commitment can increase (Dekker, 2012).

Merchant and Van der Stede (2011) identified that employees must know which targets are desired and that employees need to be able to influence the targets, otherwise the targets will not effectively influence behavior.

2.2.3 Feedback

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6 cognitive processes and enhancing understanding (Letmathe, 2012). In performance management, different feedback moments are planned wherein the performance of subordinates is reviewed by the manager. Those meetings are a HR tool to get managers discuss the performance of the subordinates using performance information. Graphic feedback is another tool to inform individuals about their results.

Klein et al. (1999) found a significant positive relationship between feedback and goal commitment. They describe feedback as the knowledge of results. Without this knowledge, it is difficult or even impossible to adjust the level or direction of their effort or to adjust their performance strategies to match what the goal requires (Locke & Latham, 2002). Good feedback ensures that the performance review at the end of the year is no surprise (Pulakos, 2004). Graphic feedback is more effective than verbal feedback (Stansfield & Longenecker, 2004), since employees can more closely monitor their performance and adjust it to improve output.

Northcraft et al. (2011) found that the effectiveness of feedback on the behavior of employees is dependent on the frequency of feedback. Feedback that comes too rarely will not give employees timely information (Locke & Latham, 2013). Generally, more frequent feedback reported to individuals increases their motivation and workplace performance, since they learn more quickly how to improve their performance (Letmathe, 2012). Moreover, feedback frequency increases motivation due to the awareness that someone cares and is attending to a performer’s progress (Locke & Latham, 2013). On the other hand, too frequent feedback can be redundant, time-consuming, and distracting resulting in lower efficiency (Locke & Latham, 2013).

2.2.4 Reward system

In performance management, employees get rewarded by recognition through feedback, opportunities to achieve, the scope to develop skills, guidance on career paths, and variable monetary awards based on the level of performance (Armstrong, 2010). Incentive systems tie rewards and or punishments to performance evaluations (Merchant & Van der Stede, 2011). Rewards impact individual and organizational performance in different ways. First, by focusing attention on the values of the organization to stimulate behavior that will achieve the required performance. Second, by providing the means to encourage and recognize high performance. Third, by enhancing engagement and promoting positive discretionary effort. Fourth, by persuading talented people to join and stay within the organization (Armstrong, 2010).

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7 A bonus is a form of variable pay, which can lead to an increase in motivation and employee performance, largely due to the incentive effect (Burke & Hsieh, 2005). The presence of rewards can enhance employees’ perception of the importance of the goals, which improves their commitment to those goals (Wright, 2001; Guthrie & Hollensbe, 2004). Monetary incentives strengthen goal commitment when goals are perceived to be attainable and when people value the amount of the rewards as significant (Locke & Latham, 2013). Moussa (2012) found that goal commitment is significantly higher under goal attainment bonuses than under an hourly flat rate. However, there are some drawbacks. When bonuses are only paid when goals are attained and those goals are too difficult to reach, this can decrease goal commitment due to a decrease in a person’s confidence that the goal will be attained (Locke & Latham, 2002). When bonuses are tied to an easy goal, people get rewarded for not working hard. These problems of all-or-none bonus systems are luckily surmountable using multiple goal levels with a higher bonus attached to each higher level (Locke & Latham, 2013). A possible drawback concerning multiple goal levels could happen when the amount of incentive per level is too small. This might hurt goal commitment, since goal commitment significantly correlates with the amount of incentive offered (Riedel et al. 1988). Locke and Latham (2002) argue that when goals are very difficult, pay for performance should be used, rather than paying when goals are attained.

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2.3 The contingency theory

The contingency theory suggests that there is no universally applicable system of management control but that the choice of appropriate control techniques will depend upon the circumstances surrounding a specific organization (Otley, 1999). This suggests that performance management should be adapted to the context of the organization. Armstrong (2009) identified seven contextual factors which are important to consider when designing or evaluating a PMS. Three of those factors: people, organizational culture and external environment are used in this study, since they are most important for the context of this research.

2.3.1 People

The people of subject in this research are professionals in the HR industry in The Netherlands. Their work is knowledge intensive and they carry out knowledge in the form of customized solutions for clients (Na Fu, 2013). Professionals carry out complex tasks containing many different aspects. When necessary, a professional makes a trade-off between those different aspects. Through time, professionals will build their tacit knowledge in handling the complexity. Part of this knowledge is about specific, local circumstances (De Bruijn, 2002).

De Bruijn (2006) indicated that negative justice perceptions are more likely for professionals, due to the three characteristics of their profession. First, the performance of a professional depends on several actors, rather than only on the professional is accountable for the performance. Second, for a professional, the causality between the outcome that is desired and the actual output is more likely to be contested. Therefore, a too strong focus on output can be unfair. Third, a profession tends to be characterized by multiple values, it has to comply to several, partly conflicting criteria. If a profession has these characteristics, an actor that faces severe consequences of the PMS will perceive this as extremely unfair.

Since PMSs have great implications for individual reward allocations and motivation, justice perceptions of the PMS are important for employees (Erdogan, 2002). The perceived fairness of evaluations, evaluation processes, and the manner in which information regarding performance management is communicated, plays an integral role in their justice perceptions of the PMS (Jawahar, 2006).

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9 2.3.2 Organizational culture

Organizational culture is the pattern of shared beliefs, norms and values in an organization that shape the way people act and interact and strongly influence the ways in which things get done. In a masculine world of performance control, systems of performance management can create strong incentives for perverse behavior, while in a feminine world of consensus, a PMS can have its desired impact (De Bruijn, 2006). The research field of this study is in The Netherlands, where the polder model prevails, this model emphasizes the striving for compromises and consensus (De Bruijn, 2002). In such a consensus-based culture, the effectiveness of performance management can be more appropriate than in Anglo-Saxon cultures, due to the focus on interaction and dialogue. The performance of professionals cannot only be explained by figures. Figures are only interesting performance information in combination with interaction and dialogue (De Bruijn, 2010). When a manager, during a review of a professionals’ performance, acknowledges that figures give an incomplete view on the professionals’ achievements, professionals will view the measuring of performance more fairly. This causes them to be more positive towards the use of the PMS.

One of the most important manifestations of organizational culture is leadership, because the behavior of employees is highly dependent on the behavior of their manager. Therefore, organizations have to make sure that managers have the right behavioral aspects to support the performance management system (De Waal, 2004). One of the most cited definitions of leadership is described as “the process of influencing others to understand and agree about what needs to be done and how to do it, and the process of facilitating individual and collective efforts to accomplish shared objectives” (Locke & Latham, 2013). Managers monitor the performance of employees by directing them towards the objectives that need to be achieved, by accompanying them towards improving competences, by giving critical feedback and eventually by reviewing and rewarding the employees (Armstrong, 2010). Locke & Latham (2013) and Armstrong (2010) hereby show the importance of the role of the managers in performance management.

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10 improve performance, managers can increase goal commitment of professionals, since they will be more confident that goals are attainable (Locke & Latham, 2013). Support can be provided by increasing the skills necessary for attaining the targets. Action orientation refers to the degree in which managers give critical feedback on the performance of subordinates in daily work, which allows professionals to learn from this critique and improve their performance. This could lead to an increase in one’s confidence of goal attainment and therefore, also goal commitment. The degree in which professionals can learn from critical feedback depends on feedback quality and the timeliness of feedback (Pulakos, 2004; Steelman et al., 2004). When feedback is not received timely or when it lacks quality, the effects of feedback will impair. Optimal communication is required for performance management to be effective. Managers should communicate the direction of the organization, provide an inspiring vision, and explain the results to be achieved and the rewards that can be earned. Communicating an inspiring vision about performance management ensures that employees understand the objectives of performance management and consequently, they can feel committed to them. Communication can also convince subordinates that goal attainment is important and increase the desirability of a person to attain the goal, which increases goal commitment. Managers can moreover influence the effectiveness of the reward system by communicating the rewards that can be earned and how these can be earned.

2.3.3 External environment

When the external competitive, business, economic, and political environment is turbulent, performance management has to operate flexible (Armstrong, 2009). Flexibility ensures that the targets that are set can be adapted to changes in the environment. Merchant (1990) also indicates that environmental uncertainty is linked to flexibility in manipulating performance information. Moreover, environmental uncertainty asks for more subjective performance evaluations (Chenhall, 2003), whereby superiors can modify the performance evaluations to environmental circumstances during the year. Informal control is more suitable when environments are rapidly changing due to the inability to pre-specify the appropriate targets and performance measures (Ittner & Larcker, 1997).

2.4 Conceptual model

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2.5 Sub-questions

To explore the relations between the different variables in the conceptual model, sub-questions are formulated. The answers to the sub-questions will be given in section 4.2.

1. What is the influence of the PMS on the goal commitment of professionals?

2. How is the relationship between the PMS and the goal commitment of professionals influenced by the external environment?

3. How is the relationship between the PMS and the goal commitment of professionals influenced by leadership?

4. How is the reward system influenced by the PMS?

5. How is the relationship between the PMS and the reward system influenced by the professional context?

6. How is the relationship between the PMS and the reward system influenced by the cultural context?

7. What is the influence of the reward system on the goal commitment of professionals?

8. How is the relationship between the reward system and the goal commitment of professionals influenced by leadership?

3. Research Design

This chapter describes how the research is performed. First, the research type and the research site are described. Subsequently, the method of data collection and data analyses are explained. This chapter closes with describing the quality criteria for this research.

3.1 Research type

This research is evaluative and is established to understand how effective performance management is in increasing the goal commitment of professionals using a case study.

To increase the value of this research for the case company, recommendations will be given to improve the PMS.

3.2 Research site

The research site is Randstad Nederland B.V. (from now on in short referred to as Randstad). Randstad is a HR-services company and is performing above standards in the industry. Randstad is facing fierce competition, but wants to keep performing above standards, and is therefore striving towards a culture in which their people have the mentality to “walk the extra mile”. At Randstad, performance management is seen as an important tool to reach this culture.

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13 time constraints not whole RUB could be researched, the scope of the research site is Noord-West (NW). The professionals at RUB are divided in different units: large-scale, pool, account, and market units. According to the HR director, these units face the biggest challenge of increasing goal commitment. Therefore, the market units will be examined in this research.

3.3 Data collection

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3.4 Data analysis

In preparation for the interviews, a code scheme was developed in Microsoft Excel 2010 (see for an example Appendix 7.3) based on the theory and the context of this case study. This is known as the Template approach (Van Aken et al., 2012). This approach is used, because it enables to focus on those aspects that will answer the sub-questions in depth, but it also leaves room for additional information. Codes were established based on the characteristics of the different variables from theory. Each characteristic has two or more codes. The code scheme was slightly adapted during the data collection for a better fit in the context of the business problem, because some characteristics were not relevant in the business context. After transcribing the interviews in Microsoft Word 2010, the transcripts were coded in Word with the preliminary established codes. The analysis is held by analyzing the fragments of each code. Because the codes are clearly formulated, no explanation per code was necessary.

3.5 Quality criteria for this research

3.5.1 Reliability

The results of a study are reliable when they are independent of the particular characteristics of the study (Van Aken et al., 2012). Since interviews are the main instrument for data collection in this study, the results are not completely objective. The researcher subjectively influences the results by interpreting the answers and by asking questions that are in the researcher’s opinion most important. Because this study is about behavior, reliability is sought by asking examples of the behavior that was asked for, so respondents were forced to think thoroughly about the question being asked. To minimize the subjective aspects of this research method, some measures were taken. After transcribing, the transcripts were read by the respondents and some differences in nuances were indicated, whereby reliability is gained. Moreover, reliability has increased with the use of multiple sources of information. Besides interviews, documents were used and focus groups were held. To get a more balanced view of the behavior of professionals towards the PMS, interviews were conducted at different levels of the organizations. Also, due to the thorough pre-analysis, the perspective of the respondents was assessed to be sensitive for possible personal and positional bias in the answers, which may influence reliability. Also, reliability is sought by narrowing the research site, it was not possible to increase the number of respondents due to time constraints. To overcome unreliability due to circumstances, interviews were held at different moments in time and in a private office.

3.5.2 Validity

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15 Internal validity is sought by examining multiple perspectives Staff members at different levels were interviewed, professionals, their managers and their area director. Furthermore, internal validity is sought by examining multiple perspectives, by analyzing internal documents and by attending a focus group of staff members. Moreover, the interviews with the professionals were conducted before the interviews with the managers to check the stories of professionals, also increasing internal validity (Van Aken et al., 2012). Validity is also sought by selecting the most representative region for RUB, which is NW, since it is a diverse site with both small offices in provincial villages, that mostly deal with smaller clients, and big offices in larger cities, that mostly deal with bigger clients. Another advantage of RUB NW is that the environment is relatively stable, and therefore, the influence of the changes of performance management on the goal commitment of professionals can more easily be assessed. Furthermore, the selection of interviewees was done based on job tenure, gender and location to get a representative population of professionals at RUB NW.

Since this research is based on just one case study, external validity is low. However, formative evaluations focus entirely on the specific context of one situation and does not seek to generalize at all beyond the specific intervention being studied (Patton, 1990). This study does not seek to be externally valid.

4. Results & Discussion

This chapter describes the main findings of the evaluation and is divided in four parts. The first part is a description of the results wherein the sub-questions will be covered. In the second part, the differences between the empirical findings and the literature are analyzed. The third part describes some important points for discussion. A short summary is given in part 4.4 and the research question will be answered. Furthermore, main recommendations are given.

4.1 Description of the results

In this part, a description will be given of the relationships in the conceptual model. To understand the relationships in the descriptions given, the assessment of professionals and the reward system of Randstad are shortly explained here.

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16 There are three different financial rewards that can be attained: a salary increase, a bonus, and an extraordinary bonus. The salary increase and the extraordinary bonus are determined on the composite grade and are based on multiple goal levels. The bonus is only determined on the KPI’s.

4.1.1 The influence of the PMS on the goal commitment of professionals and its moderators

A condition for professionals to be committed to the targets set, professionals need to have knowledge of those targets. Most professionals (8/9) are constantly aware of the targets on which they are assessed. The other professional is unaware of the targets that are set for managing performance: “I just do my best at work, I am not focusing on specific targets and I do not know them”, which shows that this professional is uncommitted towards the goals.

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17 have indicated that I can attain this target level, therefore, I want to prove that I can indeed reach those targets”.

Another condition to be able to be goal committed is to have influence on attaining those goals. Most professionals (6/9) pointed out that they have influence on attaining their targets. One professional who stated to have had no influence on attaining their targets said: “Last year, I had no influence on attaining my goals due to agreements on margins that were made on a national level with my clients. This is a special case and was not applicable to other professionals”. This professional indicated that this caused her to feel less serious towards the goals set. This shows how her inability to influence goals affects goal commitment negatively. The two other professionals who felt that they did not have influence on attaining their targets indicated this was caused by the dependence of their performance appraisal on other factors than their own performance: “I did everything I could, but I could not attain my targets”.

Eight out of the nine professionals said that their targets are attainable when they are set. The professional who had unattainable targets from the start said: “If you play tennis on amateur level and your coach says that you have to win a Grand Slam in three years, you can train whatever you want, you are not going to reach it, such a goal is not stimulating to strive for”. Herewith she showed her negative perception towards her goals due to the unattainability and thus the negative influence on goal commitment. The other eight professionals indicated that challenging goals are set at the beginning of the year, which makes them feel motivated to pursue their goal. An example from a professional: “targets are most motivating to pursue when they are ambitious, but attainable”.

Targets of five professionals became unattainable during the year due to the uncertain environment: “In my region, companies closed down during the year because of the economic crisis. We could not foresee that when we set up the budget. I did everything I could, but targets were too high”. Others also complained about the uncertainty with which they had to deal. Large customers, for example, can influence the performance to a great extent: ”when such a large customer stops hiring, you can forget reaching your KPI’s”. On the other hand, a professional said that uncertainty can also cause that targets are suddenly easy attainable due to an unexpected application for a large pool of flex workers. Uncertainty is thus a two edged sword. The uncertain environment influences the relationship between target attainability and goal commitment both positively and negatively. Goal commitment of three professionals was negatively influenced since they abandoned their goals: “when it became clear that goals were not attainable, I ignored the goals of the PMS and set other goals for myself just to feel satisfied with my performance”. Another professionals’ goal commitment was negatively influenced, because the unattainable goals created a negative perceptions towards those goals. Also, one professional was no longer motivated to pursue the goal when goals became unattainable.

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18 performed on those indicators the week before. Eight professionals have indicated that the dashboard is positively related to their seriousness towards their goals: “Each week we discuss the results with the unit. If there are figures in red, we discuss what this caused and how we can solve it to turn the figures into green”. One professional even indicated that the dashboard is the most important factor for commitment to pursue goals.

When the renewed PMS was introduced, managers were instructed to have four formal meetings a year in which the performance of the professionals has to be verbally reviewed based on the performance measures. In practice, two managers have only held two formal meetings with their subordinates per year. However, all professionals are satisfied with the frequency of verbal feedback they receive, especially due to the frequent accompanying informal meetings with the manager in which they discuss performance and give feedback. A more specific explanation of the influence of the managers’ feedback is given on the next page. Due to the frequency of feedback from the dashboard and the occasional informal feedback professionals receive, eight professionals find feedback timely. Only one professional indicated that feedback was not timely: “my manager told me during the appraisal at the end of the year that I did things wrong, well that was far too late”. However, this professional indicated that she was still very committed to pursue her goals. The late feedback did not decrease her goal commitment.

All managers feel responsible for the performance of their subordinates since they are assessed on the overall performance of them. Two professionals indicated that the feelings of responsibility of their manager positively influenced their seriousness towards their goal and one professional indicated that it positively influenced her desirability to attain her goals. These professionals said that they find it important to please their manager: “Because my manager finds it important that I attain my goal, I feel urged to reach them”.

Eight professionals said that their managers steers them towards their targets by confronting them with their results. By being confronted with the results, six professionals indicated that this increases their seriousness towards their goal, their desire to attain the goal and/or their commitment to pursue the goal.

Two professionals indicated that their manager should be more critical, so they can develop themselves and increase the ease to attain goals. Six professionals find that the critical feedback of their manager positively influences their goal commitment, due to the increased seriousness towards their goals. For example, one professional said that her manager pointed out that she did not paid attention to a particular goal, which made her more serious towards this goal.

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19 when they need advice”. Two of these professionals did not mind the non-supportiveness that much. The third professional did indicate that she was frustrated and that she was more likely to abandon a goal due to the lack of explanation how to attain this goal. Feedback specificity for these professionals would thus lead to more goal commitment. Other professionals did not indicate that feedback specificity was lacking.

The objectives of the PMS are not clearly communicated to professionals, there is hardly any information available about the objectives or why a new system is introduced. Consequently, most professionals (7/9) are not aware of these objectives: “I truly do not know why this new system is introduced. Suddenly we received a brochure about performance management from our manager without any accompanying explanation. Normally with something new, our server is full of information and you get loads of e-mails”. Another professional thought at the introduction of the new system that it was renewed to save costs. A third professional also indicated that the objectives were not clear and said that the manager did not know exactly how to deal with the new system. A manager said: “I think professionals are unaware of the objectives of the new system due to the little amount of communication. The professionals got notice of the changes of the PMS after the review and the distribution of rewards”. Due to the lack communication, professionals were unaware why a new PMS was implemented. However, this unawareness did not caused these seven professionals to be less committed to pursue their goal.

4.1.2 The influence of the PMS system on the reward system and its moderators

Since KPI’s are more influenceable, now that they are set on a lower level, the rewards are also more influenceable, since they are linked to the KPI’s. The attainability of the targets directly influences the attainability of the bonus and indirectly influences the attainability of the salary increase and the extraordinary bonus, because the manager can modify the composite grade. All professionals who find the targets attainable, also find the rewards attainable.

From available documents at Randstad, it is clear that the targets of professionals are not contradictory. Target discrepancy has thus no negative influence on the justice perceptions of professionals.

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20 my successes during the year which are not indicated by the performance measures, otherwise I forget this and thus also forget to tell my manager”.

Five professionals have indicated that the performance appraisal of professionals does not depend only on their own performance. The performance appraisal depends also on market conditions, national agreements, how the manager pictures the professional, and how other professionals of the unit are performing. One professional said: “Last Monday the rewards were distributed. Immediately there was gossiping between colleagues, like: ‘did you hear she got a big bonus, but did not do anything, what a luck’ and: ‘she worked so hard, but she almost received no reward’. That is how it goes around here. I think the factor ‘luck’ for receiving a bonus is huge now, because it depends how the economy in your region develops”. Three other professionals also indicated that market conditions are highly influencing their performance assessment. The following example shows the dependence of the professionals’ appraisal on the managers’ view: “managers are of course not aware of everything that goes around here, since I am not a show-off, the extraordinary bonus is certainly not attainable for me”. This professional has the feeling that her performance appraisal depends for a great deal on the information the manager receives, because it influences how the manager pictures the professional. Another professional indicated that national agreements with clients influence her performance appraisal to a great extent. This example is described in part 4.1.1. The three managers admitted, to varying degrees, that professionals need some luck with the environment and that the increased subjectivity of the performance assessment indeed causes that the assessment is more dependent on how the manager pictures the professional: “the market conditions also play its part. Some professionals have luck with the environment where he or she works and others have bad luck. That’s life, correcting the figures for luck is almost impossible”. The manager of the professional whose targets were not attainable due to national agreements agreed that the targets were greatly depended on these agreements. However, all three managers indicated that professionals still have a huge influence on their performance appraisal. The director of the region said that the environment plays a very little role in the attainability of rewards.

Furthermore, the performance outcome is hard to predict for professionals of market units at Randstad, due to the uncertainty of the environment as explained in part 4.1.1. One professional for example said: especially for market units it is hard to forecast what the demand of flex workers will be for the coming year. You do not have influence on projects for which companies need flex workers that will or will not start”.

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21 also evaluates my behavior and the projects I performed to understand my contribution to the figures”; and “I was nowhere near reaching my targets, but I still received a sufficient grade”.

Due to the significance of the extraordinary bonus, managers and professionals find the distribution of rewards unfair between good rated and extraordinary rated professionals. Professionals get a composite grade between 1 and 10. When you are assessed with a 7, you have not attained your goal. When you are assessed with an 8, you have attained your goals. With a 9 or a 10 you outperformed. To qualify for an extraordinary bonus, professionals need to outperform. Professionals who are assessed with a 7 or 8 are quite evenly rewarded. The difference between an 8 and a 9 is huge in rewards, but the difference between these scores in performance is not seen as huge. A manager even indicated that he finds it sometimes hard to distinguish an eight from a nine. Another manager said “You need to be one of the best performers to really get rewarded. The differences between a professional who scores an 8 and a 9 are huge, since that extraordinary bonus is so significant. Now it feels like professionals only get rewarded when they perform extraordinary. As a manager, I also need my professionals who score an 8 and they are not properly rewarded, the differences are too large”. Two professionals find the distribution of rewards unfair due to the huge the differences in rewards: “I work together with one other colleague for our unit. Last year, she received a bonus of one whole month salary, while I did not. I have the feeling we contributed evenly to the success of our unit and find it unfair that she got rewarded that much extra”.

4.1.3 The influence of the reward system on the goal commitment of professionals and its moderators

All professionals who were asked if they value rewards (7/7) do value them: “the financial rewards are a good appreciation” and “Of course I value financial rewards”. Despite of this appreciation, financial rewards do not increase the goal commitment of almost half of the professionals (4/9), since these professionals indicated that their desirability to attain the goal is not increased by financial rewards or they are not more committed to pursue goals due to financial rewards. Two examples: “I just do my job, strive for my targets and in the end, I will see which reward I receive, I am not working here for extra rewards” and “I do not care about financial incentives, I work for satisfied clients, flex workers and just want to perform well”. An example of the positive influence of financial rewards: “It is obvious that you focus on those indicators on which your rewards are based on”.

Some reasons why the desirability or the commitment of professionals is or is not positively influenced by financial rewards are described next.

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22 increased subjectivity in the reward distribution procedure: “Now that my manager can adapt the figures, the appraisal better reflects my performance, so I have more influence on attaining rewards”. One other professional also found financial rewards more desirable due to the increased influenceability of the performance appraisal. Second, the attainability of rewards is described. The extraordinary bonus is the only financial reward that is seen as not attainable by some professionals and does not motivate them to pursue their goals: “I am not motivated to strive for my targets due to the extraordinary bonus, since this bonus is unattainable”. From documents it is clear that 97% of the professionals receive a bonus. 100% of the professionals who are not at the end of their scale receive a salary increase. These rates indicate the easy attainability of these financial rewards. The professionals who are at the end of their scale find the reward distribution unfair, since they are not able to grow in salary without shifting to another position. Third, the significance of rewards is described. Professionals only complained about the insignificant amount of the salary increase that can be earned: “It is well known that the salary increase at Randstad is highly insignificant and far from motivating to strive for”. Two professionals indicated that they get motivated by the significance of the bonus: “the bonus is a considerable amount which I find desirable”. Three professionals indicated that their desirability to attain their goals is increased by the extraordinary bonus.

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23 are quite some professionals who ask questions about the reward structure, which shows the dissension of how important the professionals find the understandability of the reward system. This dissension was also noticeable during the interviews with the professionals. Some do not take the effort to understand the reward system, they will see after the assessment which rewards follow from their grades. Others are busy unraveling the reward system. The professionals who are unaware of how rewards are determined do know their targets and know they will be rewarded based on them. Consequently, they know that it is important to strive for the goals to attain financial rewards.

Most professionals (8/9) believe that the manager treated them fairly in establishing the rewards, especially due to the high frequency of performance feedback, due to the comprehensive arguments during the appraisal, and because the manager takes into account the circumstances of professionals. During the interviews, professionals were asked to which extent the interactive, procedural or distributive injustice caused any demotivation to strive for their goals. There was no professional who indicated that any of these injustice perceptions caused less motivation to strive for goals, which means that injustice perceptions did not decrease goal commitment.

4.2 Analysis of the results

This part is divided in two sections. First, the empirical findings are compared to what can be found in the literature regarding performance management. Second, a comparison is made between the empirical findings and the contingency theory.

4.2.1 Performance management

In the next four paragraphs, the results of the different components of performance management at the case company will be discussed in light of theory.

4.2.1.1 Objectives, strategies and plans

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24 4.2.1.2 Target setting

Merchant and Van der Stede (2011) state that employees must know which targets are desired and that they should be able to influence the targets, before targets can effectively influence behavior. Targets are known to professionals and most of them have influence in attaining their targets. Why not every professional has influence in attaining their targets is explained in part 4.2.2.3.

Sue-Chan and Ong (2002) and Lozano & Stephens (2010) found goal commitment significantly higher for participatively-set goals than for assigned goals. The intension of the renewed PMS at Randstad was that professionals would have influence on the selection of the KPI’s. However, the management team of RUB NW has decided that all professionals of market units in the region are assessed on the same KPI’s, thus professionals did not have a choice. Some professionals said their motivation to strive for goals would have been higher when they had influence on selecting them. Others indicated that the assigned KPI’s are motivating, therefore they did not mind that the KPI’s were selected for them. When the imposed KPI’s would not have been motivating for these professionals, it can be expected that they would have been more goal committed when they had influence on selecting the KPI’s. Professionals did participate in setting the height of the targets. This is seen as motivating by the most professionals. Practice thus suggests that participation in setting targets significantly increases goal commitment, unless the assigned KPI’s are already motivating.

According to theory, goal commitment can be increased by challenging targets. When targets are set at Randstad, they are ambitious but attainable. This level of difficulty is found most motivating to strive for according to the professionals. Targets are not too difficult due to the influence professionals have in setting the height of their targets. Since the managers at Randstad approve the targets and make sure that the targets are challenging, they prevent that targets are easy attainable, which is also positive for motivation purposes. The relation between target difficulty and goal commitment is significantly positive at Randstad. Targets can become unattainable or easy attainable during the year. This is further explained in 4.2.2.3.

4.2.1.3 Feedback

Stansfield & Longenecker (2004) state that graphic feedback is more effective than verbal feedback. The professionals at Randstad are indeed highly motivated by the dashboard, because it clearly shows how professionals are performing on their targets. The dashboard makes professionals more serious towards their targets, therefore it significantly contributes to goal commitment.

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25 Due to the frequency of graphical and verbal feedback, feedback is timely. The timeliness of feedback increases the effectiveness of feedback, which corresponds with the findings of Pulakos (2004) and Steelman et al. (2004).

4.2.1.4 Reward system

According to Merchant and Van der Stede (2011), there are two conditions to which rewards need to comply to be motivating. First, people need to value the rewards. Second, people need to understand both which rewards can be attained and how those rewards can be attained. In the case of Randstad, the professionals do value the rewards. They also have knowledge about which rewards can be earned, but almost half of the professionals are unaware how the different rewards are determined. However, this unawareness did not have a significant negative effect on goal commitment. Professionals are aware on which performance measures they are assessed and focus on those measures. When they perform well on those performance measures, they know this will positively influence their rewards. According to theory, bonuses based on individual performance are more effective than bonuses based on group or organizational level, since employees want to be in control of their variable pay (Burke & Hsieh, 2005). Now that rewards are more closely related to individual performance and thus more influenceable, some professionals indicated that this is positive for their committed to pursue their goals and others indicated this does not affect their motivation to strive for goals. The relation between the influenceability of rewards and goal commitment is not found significantly positive.

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26 extraordinary bonus due to its unattainability, are not demotivated by this reward. The difference between theory and practice regarding the demotivating influence of an unattainable all or nothing bonus is caused by the standard fixed payment that professionals receive. The extraordinary bonus is seen as an extra, if they do not receive it, that is unfortunate, but they do receive their base salary to which they are used to.

Locke & Latham (2013) indicated that the extent and impact of rewards on goal commitment depends on the rewards received. This is also true at Randstad, where the different characteristics of the different rewards influence goal commitment differently. Overall, just over half of the professionals’ goal commitment is increased by rewards.

4.2.2 The contingency theory

In the following three paragraphs, the results of the three contextual factors are discussed.

4.2.2.1 Type of people

Professionals are more likely to find it unfair how performance is measured. According to De Bruijn (2006), this has four reasons. First, the performance appraisal of professionals depends not only on their own performance. Second, the outcome of the performance that professionals can deliver is hard to predict. Third, professionals have to deal with conflicting performance criteria. Fourth, the performance measures do not reflect the complexity of the profession. These conditions can negatively impact the justice perceptions of professionals.

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27 KPI’s do not reflect the performance of the professional due to special circumstances. Competences are subjective, but because interactional justice is high, professionals find that their rating on competences also is a good reflection of their behavior. Since the performance review is a good reflection the performance of professionals, this factor does not negatively impact the justice perceptions of professionals significantly.

The distributive justice at Randstad is low due to the significance of the extraordinary bonus. The difference in rewards between good and excellent performers is seen as too high by both managers and some professionals. According to De Bruijn (2006), low justice perceptions can cause professionals to have disregard to the PMS and the goals which negatively influences goal commitment. At Randstad, the perceived distributive injustice does not decrease goal commitment significantly, because the extraordinary bonus is seen as an extra. Professionals do not feel demotivated when they cannot attain it. Interactional justice was high at Randstad, therefore it did not have a significant negative impact on goal commitment. Not all professionals find the procedure fair of how managers rate them. However, this did not cause professionals to have disregard for the PMS, which can be clearly seen from the importance professionals attach to informing their managers thoroughly how they are contributing to the results of their unit. It is unfortunately not clear from the findings why the feelings of procedural injustice of professionals does not lead to disregard for the PMS.

4.2.2.2 Organizational culture

De Bruijn (2006) indicated that a PMS can have its desired effect in The Netherlands, where this research takes place, because of the consensus-based culture in which people strive for compromises. Performance information should not be used statically, but in combination with interaction and dialogue to understand the story behind the figures. This will cause professionals to view the performance measurement to be more fair (De Bruijn, 2010). Managers at Randstad have the possibility to modify the composite grade for special circumstances. Managers often get notified of these special circumstances by interaction and dialogue with the professionals. Due to this modification, figures are not used statically and consequently, professionals feel that their performance review is now significantly more fair, which thus corresponds with theory.

Management style is an important aspect of organizational culture. De Waal (2004) indicated that the commitment of subordinates can be dependent on the accountability of their manager. Professionals at Randstad indeed indicated that the accountability of the manager can be important in enlarging the motivational effects of goals, because managers find it important that their subordinates perform and the professionals want to please their manager. However, this relation is not found significant.

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28 De Waal (2004) states that the desirability to attain a goal increases when managers steer their subordinates towards their goals.

De Waal (2004) also states that subordinates can learn from critical feedback from their manager. Learning makes professionals more confident that goals can be attained and thus increases goal commitment. This relationship is also significantly found in practice.

Most professionals were satisfied with the supportiveness of their manager. One professional who was not satisfied said that she is more likely to abandon her goal due to the lack of explanation how to attain her goals. This reveals the importance of the supportive role of the manager and the specificity of feedback for goal commitment. Theory also indicates that support of the manager and the specificity of feedback are important for the goal commitment of professionals due to the confidence a manager can give by explaining how goals can be attained. The results of this research did not give a clear view whether the supportiveness of the manager and the specificity of feedback he/she provides has a significant enlarging influence on motivational effects of the PMS.

De Waal (2004) explains that managers can also increase the goal commitment of subordinates by communicating the direction of the organization and provide an inspiring vision. In 4.2.1.1, it is explained that the communication of the objectives of the renewed PMS did not contribute to goal commitment. Managers were not successful in explaining its objectives and consequently they did not contribute to the goal commitment of professionals by communicating the direction of the organization. Neither were managers contributing to influence the goal commitment of professionals by creating understandability of the reward system. More than half of the professionals are unaware how rewards are determined. Managers do discuss the results to be achieved often during the year, which ensures that professionals know for which targets they need to strive. Therefore, the manager does positively influence the relationship between knowledge of targets and goal commitment significantly.

4.2.2.3 External environment

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29 uncertain environment caused easy attainable targets. However, they did indicate that too easy targets would be less motivating to strive for. Moreover, performance evaluations are with the new PMS more subjective. Therefore, the unattainability of targets due to environmental circumstances matters less to professionals, because they know that their manager takes into account these circumstances. Subjectivity thus diminishes the negative effect of unattainable targets on goal commitment. This corresponds with the literature, since the Bruijn (2006) indicates that subjectivity diminishes the disadvantages of the use of performance management for professionals.

4.3 Discussion

As a result of the comparison between the theory and the empirical findings, some interesting points for discussion emerged.

Sue-Chan and Ong (2002) and Lozano & Stephens (2010) both found that goal commitment is significantly higher for participatively-set goals than for assigned goals. At Randstad, professionals could not participate in selecting the KPI’s, they were assigned to them. However, several professionals indicated that they would not be more goal committed when they could have participated in selecting the KPI’s. They argued that their assigned targets reflect their performance and they feel that they have influence on attaining them, which is motivating to them. Locke & Latham (2013) indicated that literature is investigating the relationship between whether goals are assigned or are participatively-set and goal commitment for a long time, but that it is still unclear when participatively-set goals actually increase goal commitment. From this research it appears that participatively-set goals do not have to be more motivating for professionals than assigned goals, when the assigned goals are reflecting the performance and when professionals have influence on attaining them.

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30 The extraordinary bonus, which is a significant but very difficult to reach all-or-nothing bonus, did not demotivate professionals at Randstad. Locke & Latham (2002) have indicated that goal commitment can decrease in the case that bonuses are only paid when goals are attained and when those goals are too difficult to reach. From literature it is not clear in which situations the unattainable all-or-nothing bonus decreases goal commitment. The results of this research suggest that professionals at Randstad are not demotivated by the hard to attain all-or-nothing bonus, because they do get a standard fixed payment and see the bonus as an extra. It could be that national differences in incentive compensation play a role here, just as Jansen, Merchant & Van der Stede (2009) found. Dutch professionals are more used to a standard pay in contrast to US professionals and see incentive pay as an extra. The value that professionals attach to a bonus is smaller in The Netherlands than in the US which could explain why Dutch professionals are not demotivated by a significant unattainable all-or-nothing bonus.

4.4 Summary of findings and recommendations

In this part, the main findings of this research are described and the research question is answered. The main recommendations are also given in this section.

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31 because of the uncertain environment, which causes targets to become easy attainable or unattainable. This negatively influences goal commitment. However, this relation was not found significant.

As a result of this research, there are two main recommendations for Randstad to increase the goal commitment of professionals with the use of performance management. First, flexibility of target setting could increase goal commitment. When the environment in which the professional operates changes and influences the attainability of targets, the motivational influence of targets decreases. Targets become too difficult or easy and therefore, less challenging. The flexibility of managers to adapt the targets that are set at the beginning of the year would increase the goal commitment of professionals, since managers then can make sure that targets are challenging all through the year and challenging targets positively influence goal commitment significantly. Second, the extraordinary bonus is only motivating for a selected amount of professionals. Goal commitment could be increased by modifying the reward structure so that rewards are not only motivating for professionals who deem themselves as potential to perform extraordinary, but when the reward is also motivating for performers who do deem themselves as potential to reach targets.

5. Conclusion

This chapter describes the contribution to the literature, the limitations of this research and some opportunities for future research.

5.1 Contribution to the literature and limitations of this research

Increasing goal commitment using performance management: a case study of a Dutch HR-services multinational