Performance Management

and IHRM

By: Chenoy Ceil

 Chenoy Ceil

Table of Contents

1. Introduction ............................................................................................................................ 3

2. Performance Management ...................................................................................................... 4

3. Performance Appraisal ........................................................................................................... 6

4. Cultural Factors Affecting Performance Management............................................................ 7

5. Conclusion ............................................................................................................................ 11

References ................................................................................................................................ 13

Page | 2
 Chenoy Ceil

1. Introduction

The role of international managers in the world is increasing as companies tend to

expand all over the world. However, with the growth in industries, there is also need of

human resources to manage such industries and global conglomerates. International Human

Resources Management (IHRM) regulates the human resources in international

organizations, including expatriate nationals and host-country nationals. However,

understanding and measuring the performance of expatriate employees under host-country

defined rules often leads to employee discomfort. Under such circumstances, performance

management and performance appraisal plays crucial role in defining the strategic approach

that would lead to organisational success.

According to Armstrong (1998), performance management includes developing the

capabilities of employees through various processes that would ultimately lead to growth of

the organisation. However, measuring performance in international organisations is a difficult

task as the parameters of measurement depends on various cross-cultural factors.

Performance management of expatriate population often focuses on individual performance

rather than concentrating on all the various factors and environment interacting with such

employees.

This study focuses on the paper written by Woods (2003), to understand why

performance appraisal of expatriate managers and employees have failed to truly evaluate the

performance rate of such population. The cross-cultural challenges that managers face in

international environment is often unnoticed and this should not be the case while designing

performance appraisal systems for international managers and employees.

From this paper it can be assessed that performance rating criteria, number of

performance raters and the overall cultural diversity should be taken into consideration by

Human Resources department while designing the performance appraisal for expatriate

Page | 3
 Chenoy Ceil

managers. Research conducted by Woods (2003) and Hempel (2001) showcases why

expatriate managers from foreign nations struggle to perform in host nations. The

employment and firm regulations also differ from one country to another and the same

criteria cannot be utilized to judge all managers operating within different socio-cultural

settings in different countries.

2. Performance Management
Performance management must first take into consideration the definition of

performance. In Western research, performance is often defined in terms of the trait and

characteristics exhibited by persons. However, performance rating in Western culture is

based on the performance and not on the qualities exhibited by the person. It is believed that

the performance of any employee should be optimized to maximize the organizational

outcome (Hempel 2001). However, it is necessary to understand the context in which the

performance is measured. Cross-cultural factors are an important determining factor for

performance evaluation. For example, in West for performance evaluation, employees should

always work towards growth of the company. However, in Chinese companies, human values

and morality plays a critical role in defining employee actions. It is seen, that performance

appraisal in China is often based on upholding family traditions and organizations support

continuation of family control over businesses (Hempel 2001).

Performance management utilizes indicators that measures different dimensions of

corporate performance, such time, cost and quality (Moller 2010). However, performance

management of employees by HRM should take into account the individual values of the

employees as well as the cultural factors that regulate organizational transactions within that

particular country (Budhwar and Sparrow 2002). Performance management aims at

developing the capabilities of individuals and teams within an organisation (Armstrong

Page | 4
 Chenoy Ceil

1998). There must be integration of individual performance and development of the

organisation.

The manager’s performance within a multi-national organisation is of critical

importance because their duty is not only to follow the instructions provided by the company

owners but they also have to manage cultural factors and government regulations that are

specific to particular countries (Fraser 2001). Expatriates working in multinational

companies, away from home, often have to adapt to the cultural changes and environmental

changes (Adler & Bartholomew 1992).

Performance management for multinational companies should follow a divergent

approach where the diverse conditions of expatriate managers with respect to local nationals

should be taken into consideration while evaluating them (Audia and Tams 2002). It has been

seen that if performance appraisal of expatriates are conducted by taking into consideration

the local cultural factors then the overall performance level of managers significantly

increased which in turn increases the overall growth of company (Moller 2010).

It has been found that performance management of expatriates often focuses on

performance appraisal based on the success rate of overseas subsidiary companies in which

the expatriates are posted (Brewster 1991). However, Armstrong (1994) argues that

performance appraisal of managers should focus on the achievements and behaviour of the

managers. The day to day behaviour of managers can significantly alter while working in

foreign nations. These factors should be taken into consideration while designing the

performance evaluation. Finally, the feedback from such reports should be utilized to work

on the performance management and development of managers and employees in host

countries.

Page | 5
 Chenoy Ceil

3. Performance Appraisal
Performance appraisal is a form of measurement of performance. It is utilized to

understand how well employees are doing their work and the kind of motivation that is

required for optimal performance (Stone 2002). Understanding managerial performance

appraisal is key to the success of an organisation, although overall team performance also

plays a major role in deciding the success or failure rate of multinational organisations (Black

et al. 1999).

Research conducted by Woods (2003) suggests that expatriate managerial

performance appraisal is task oriented and it fails to take into account the contextual issues

such as cultural, social and economic considerations prevalent in the subsidiary country.

There is clearly no universal performance criteria to rate managerial performance universally

through different nations. For expatriate managers to operate effectively in global companies,

they have to adopt either an ethnocentric approach or integrative approach. While in

ethnocentric approach, the parent company dictates the IHRM practises in the host country

according to the prevalent rules and regulations in the parent country, but in the adaptive

integrative approach, the IHRM policies are open to adopting and localising the HRM

practices of the host country (Harvey et al. 2001).

Understanding performance evaluation according to the changes in the HRM

practices within different multinational companies presents several challenges. However,

research suggests that adoption of divergent approach is the best method of performance

management as it fair to both host country nationals and expatriates working together in

multinational companies (Audia and Tams 2002).

Research conducted by Black et al. (1992) identifies that invalid performance criteria,

rater incompetence and rater bias are the three most critical factors that create challenges in

designing international performance appraisal. Multinational companies need to operate in

several nations where the languages are different, the culture is different and in fact the

Page | 6
 Chenoy Ceil

business practices are also different. For example, in China, business organisations try to

maintain the hereditary structure in businesses and keep the family running the same business

while in Western culture, businesses operate in a democratic structure.

One of the most prominent performance appraisal system that has been utilized in

several multinational setting is the 360 degree evaluation that has been made popular by

Black and others (Woods 2003). However, the system may create bias when the performance

rater is aligned to a particular national culture. Woods (2002) suggest that performance

appraisal should be conducted by multiple raters to avoid any occurrence of bias. Research

conducted by Dawkins et al. (1995) showcases that Australian expatriate managers working

in Asian businesses have often be found to be lacking in understanding of the business and

cultural practices of Asian conglomerates. Performance evaluation of Australian managers

has revealed that most managers were even unwilling to adapt the local culture of Asian

businesses which significantly impacted the overall growth of the Australian companies

operating in Asia. However Woods (2003) research also showcases that Singaporean

expatriate managers working in Australia often perform better than their Australian counter-

parts in China because they receive a lot of support from their home country. Performance

appraisal should always take into account all these different factors to better manage the

performance of employees and managers operating at a global level.

4. Cultural Factors Affecting Performance Management

Performance management in multinational companies should follow the divergent

approach and adopt the cultural diversity and economic practices prevalent in the host

country to effectively measure expatriate managerial performance. It has been found that

cultural factors can significantly alter the performance of a managers when made to work in

diverse situations. Performance appraisal should create a unique criteria for the expatriate

Page | 7
 Chenoy Ceil

managers to take into account their relation with cross-cultural activities, relationship with

parent nation and adaptability in diversified global environment (Audia and Tams 2002).

Research conducted by Woods (2003) also showcases that Asian nations often allow

subordinates to negotiate the performance appraisal criteria and the parent company engages

in continued discussion with their expatriate managers working abroad. However, Australian

expatriate managers are often left out of sight out of mind to operate in diverse cultural

settings without any backing or help from their parent Australian company (Woods 2003).

This again shows how cultural factors significantly define the performance of managers.

Different nations have different cultural values and it is the adaptability and cross-

cultural interpersonal skills that defines the performance of an expatriate manager (Moller

2010). However, modern research suggests that individual performance evaluation may not

always correctly help in improving performance management because individuals have to

work in a team setting. In 2002, research conducted by Suutari and Tahavanainen (2002)

suggested that Finnish expatriate engineers were found to be more effective when they

followed team goals rather than focusing on improving their individual performance.

Managers can perform effectively when they integrate the local culture and work as a team

with host country nationals.

Performance management of expatriates not only involves performance appraisal but

also performance evaluation and utilization of the same for the development of the

organisation. It has often been found that most performance appraisal criteria or methods has

been criticised for lacking in important considerations. The survey of 209 expatriate Chinese

managers by Entrekin and Chung in 2001 showcased that most managers wanted multi-

source evaluation so as to avoid rater bias. However, in Chinese culture, rating by

subordinates of higher managers is often seen as disrespectful as it is against their

Page | 8
 Chenoy Ceil

paternalistic culture. These cultural differences should also be taken into account while

evaluating the performance of expatriate managers working in foreign nations.

Another important factor that significantly impacts performance management is

employee compensation (Moller 2010). It has been found that when expatriates work with

host employees and receive different compensation compared to host employees and

managers, a sense of discomfort often arises within the organisation that may lead to poor

performance (Moller 2010). Commitment of employees and their motivation is dependent on

the compensation system and multinational companies often fail to bring uniformity in the

compensation system of host and foreign expatriate employees.

Compensation varies in countries where expatriate managers are sent to work. It has

been found that employee compensation can be significantly impacted based on the host

country’s standard of living (Nazir, Shah and Zaman 2014). Expatriate performance is

directly related with expatriate performance and if their expectations are not met by the

employer then there can be significant change in the performance. Further, companies and

IHRM must consider several factors that can create a positive impact on employee

performance. It has been found that if the company is willing to pay for the housing of the

expatriate managers then it can significantly improve the relationship of the company with

their employees (Nazir, Shah and Zaman 2014). This in turn will boost the performance of

the expatriate managers. However, if such considerations are not taken into account as pay

rate significantly differs from one country to another and also depends on the prevalent

exchange rate of money then it will definitely impact the performance of the expatriate

managers (Nazir, Shah and Zaman 2014).

There are significant other considerations too when expatriate managers are forced to

leave their country and relocate for work. Employees not only look at the overall pay but also

consider if the multinational organization would provide transportation costs, education

Page | 9
 Chenoy Ceil

allowance for their children, and tax equalization benefits (Nazir, Shah and Zaman 2014).

HRM must design global reward programs for expatriate managers to avoid disparities

between home country employees and expatriate employees. There must be a sense of

organizational justice to significantly boost performance management. Appraisal of expatriate

managers should be considerate of these factors to design appraisal forms that taken into

factor the relevant details.

Culture plays an important role in determining what kind of compensation is suitable

for the employees. For example, in China, employees are treated equally and often their

compensation rate is similar. However, if an expatriate worker comes from Australia to work

in China then that person’s expectations are more according to the standard of wage prevalent

in Australia. However, the Chinese counterpart would be providing less amount of wage and

this would create dissatisfaction and lowered performance. Again, research indicates that

Chinese workers are prone to blame their own problems upon externalities and this is why

sometimes their performance may not be optimum (Hempel 2001). Cultural changes can

significantly impact performance for expatriate managers because the Western values are

different from the Eastern values. Given the differences in culture between Western and other

countries, expatriate managers should not be evaluated under the same guidelines that is

applicable for others. It is believed that due to difference in culture, expatriate managers have

differences in their cognitive constructs and they perform differently under given situations

(Hempel 2001).

All the above cross-cultural factors significantly impacts the employee performance

appraisal and it is advised that specific factors must be taken into account while designing the

performance appraisals.

Page | 10
 Chenoy Ceil

5. Conclusion
In conclusion, it can be said that multinational companies need to come up with

unique performance evaluation systems that takes into consideration several factors that are

relevant to the environment and business setting within which the expatriates operate.

Expatriation will continue to increase in future due to globalisation and the importance of

managers with global and cross-cultural knowledge will significantly increase. However,

performance evaluation of expatriate managers should not be limited to certain universal

standards as there are several considerations that impact the performance of an individual in a

foreign setting.

Performance evaluation is utilized by some companies to understand how to develop

performance management of employees while in other organisations, performance evaluation

is utilized to identify the low performers and dismiss them from the organisation. In spite of

different utilization, performance evaluation and performance management would continue to

be utilized by IHRM practices to better manage multinational organisations.

From this research study it is advised that performance evaluation criteria should be

broadened to take into account the individual family attributes of the managers, job

characteristics and complexity, degree of cultural difference between home and host country,

business practices prevalent in host country and the manger’s previous exposure to cross-

cultural setting (Woods 2003). Evaluation of performance should also take into account the

compensation package of expatriate managers and the organizational justice that is provided

to host country employees and expatriate employees. A global rewards program must be

introduced to effectively boost performance of employees. Performance management of

employees does not only imply appraisal of employees to eliminate ill-performing employees

but also to provide rewards to those who are performing well so that it motivates them to

improve the overall performance of the organization.

Page | 11
 Chenoy Ceil

In fact, there might be several other factors that can be taken into consideration while

designing the performance appraisal. However, the key to improving performance

management is to conduct performance appraisal with multiple raters to avoid any form of

discrimination. Some of the best practices for performance appraisals in global companies is

to utilize multiple raters who will take into account the different stakeholders, global setting

and cultural differences. Not only higher level officials should be allowed to evaluate the

performance but also lower level workers and co-workers must be given an opportunity to

rate the performance of the manager.

Performance management in global companies can only improve if the expatriates are

happy with the performance evaluation and performance appraisal method. Expatriate

managers are often concerned about the appraisal method because there is no clear

methodology for the same. It has been found that managers often fail to perform in foreign

states because they are so closely connected with home country values and business practices

that they fail to adapt to the new country.

In essence, it can be said that performance appraisal of managers in global industries

is not really developed and suffers from several faults because most countries follow different

set of rules and regulations. For all these reasons, it is best advisable for multinational

companies to work on their performance appraisal forms so that they can develop something

that is not biased or unjustly towards expatriate managers.

To improve performance management of employees and managers, the company must

develop a performance evaluation method that does not seem biased or untrustworthy.

Besides, the organisation must work upon evaluating the overall performance appraisal and

utilizing the results obtained from such tests for performance management practices.

Page | 12
 Chenoy Ceil

References

Adler, N. and Bartholomew, S. (1992) ‘Managing Globally Competent People’, Academy of

Management Executive, 6(3), 52-65.

Armstrong, M. (1994) Performance Management. London: Kogan Page.

Audia, P.G. and Tams, S. (2002) Goal Setting, Performance Appraisal, and Feedback Across

Cultures. In M.J. Gannon, Newman, K.L. (ed.), The Blackwell Handbook of Cross-Cultural

Mnagaement (pp. 142-154). Oxford: Blackwell.

Black, J.S., Gregersen, H.B. and Mendenhall, M.E. (1992) Global Assignment: Successfully

Expatriating and Repatriating International Managers. San Francisco: Jossey-Bass.

Black, J., Gregersen, H., Mendenhall, M. and Stroh, L. (1999) Globalizing People Through

International Assignments. Reading: Addison-Wesley.

Budhwar, P.S. and Sparrow, P.R. (2002) ‘An integrative framework for understanding croos-

national human resource management practices’, Human Resource Management Review, 12,

377-403.

Dawkins, P., Savery, L. and Mazzarol, T. (1995) ‘Enterprising nation: renewing Australia’s

managers to meet the challenges of the Asia-Pacific century: customer views of Australian

management’, Asian-Pacific Viewpoints, AGPS, Canberra.

Fraser, C. (2001) ‘Perceptual Polarization of Managerial Performance from a Human

Resource Management Perspective’, International Journal of Human Resource Management,

12(2), 1-14.

Harvey, M., Speier, C. and Novecevic, M. (2001) ‘A Theory Based Framework for Strategic

Global Human Resource Staffing Policies and Practices’, International Journal of Human

Resource Management, 12(6), 898-915.

Hempel, P.S. (2001) ‘Differences between Chinese and Western Managerial Views of

Performance’, Personnel Review, 30(2), 203-226.

Page | 13
 Chenoy Ceil

Möller, K. (2010) Performance measurement. In C. Scholz (Ed.), Vahlens großes

Personallexikon (pp. 845). München: Vahlen.

Nazir, T., Shah, S.F. and Zaman, K. (2014) ‘Review of Literature on Expatriate

Compensation and its Implication for Offshore Workforce,’ Iranian Journal of Management

Studies, 7(2), 203-221.

Suutari, V. and Tahvanainen, M. (2002) ‘The Antecedents of Performance Management

Among Finnish Expatriates’, International Journal of Human Resource Management, 13(1),

55-75.

Page | 14