CHAPTER ONE: GENERAL INTRODUCTION
1.1 Introduction
The basic aim of every organization, whether it is public or private is to achieve itsobjectives and goals successfully. Human resources are nowadays seen as the primarysource available to help companies achieve these goals and to create a sustainablecompetitive advantage. Therefore, it is very crucial to make sure that the humanresources are performing at the highest possible level. Performance appraisal isconsidered the most powerful instruments that make employees very effective at workand help organization to achieve the success goals (Singh, V.K., Kochar, B. &Yuksel，2010). It is also a key element in organizations and can be one of the greatest tools usedto record employee production. Due to its benefits in enhancing employees' productivity,performance appraisal becomes an essential responsibility of any organization and theresearch on performance appraisal has become far more interesting. As a result, severalresearches have been conducted in this area that showed the relationship betweenemployees' performance appraisal and its effect on the employees' satisfaction andproductivity (Alvi，Surani &Hirani,2013). However, performance appraisal is not onlyconsidered to have a positive influence on performance of employees in an organizationbut also may have a negative impact if it is poorly designed or implemented. In the caseof organizations in Eritrea, however little research has been made if any on this topic.The present study therefore focuses on how employees，performance appraisal in thefinancial institutions of Eritrea is practiced and its effect on the employees' satisfactionas well as their productivity. Thus，the current researcher believes that this study will addat least partly to the literature.
……….
1.2 Background of the Study
Eritrea, officially the state of Eritrea is located in North-East of Africa. With itscapital city Asmara, Eritrea is bordered by the Sudan to the north and west，to the southby Ethiopia and Djibouti and to the eastern and northeastern with Red sea. It has totalarea of approximately 117,600 km2 (45,406 sq mi) and includes the Dahlak Arhcipelagoand several of the Hanish Islands. Eritrea is a multi-ethnic country, with nine recognizedethnic groups and it has a population of around six million.' Eritrea is one of the Africannations that were colonized by Western countries. Western control was imposed onEritrea for about 60 years: Italy from 1890 to 1941, Great Britain from 1942 to 1952.Federation with Ethiopia was imposed on Eritrea from 1952 to 1961，finally it wascolonized by Ethiopia which led to 30 years of blood war, from 1961 to 1991(GOE，1996).
………..
CHAPTER TWO: LITERATURE REVIEW
2.1 Overview & Definitions of Performance Appraisal
The term performance appraisal sometimes called as performance review, employeeappraisal, performance evaluation，employee evaluation, employee rating，meritevaluation or personnel rating, and refers to the process by which an individual's workperformance is assessed over time (Ahmad & Bujang, 2013). It is the formal process inwhich organizations evaluate employee performance based on some already set standardsor goal. Performance goals setting help subordinates to know the performance levelwhich the organization or supervisor expects from them. Traditionally, it was consideredas a formal annual review that brings social interactions between managers andemployees to make plans through a discussion on previous job performance and futuredevelopment needs (Chen& Eldridge，2010). In most cases performance appraisalprovides an annual review and evaluation of an individual's job performance. Althoughthe appraisal forms may be completed semiannually or annually, the job of performanceappraisal should be continuous，and it requires effective communication on both part ofthe supervisor and the subordinate.
………….
2.2 The Purpose and Uses of Performance Appraisal
Firms may engage in the performance appraisal process for many reasons as theinformation aroused from the appraisal process is used for multiple purposes. However，researchers and experts in performance appraisal have suggested two broad uses as theadministrative or evaluative and developmental uses of appraisal in organizations(Boswell & Boudreau, 2000) .Thus, Performance Appraisal systems are used for twomain purposes: For administrative purposes PA serves in areas such as reward allocation like salaryincreases，bonuses and assignment decisions such as promotions，transfers, demotions(Dargham，2008). Traditionally，most reward and recognition programs were not clearand often given in response to a manager's perception of when an employee performedexceptionally well. Since there were no set standards by which performance could bemeasured, it could have meant anything from having a good attitude, assisting anotherdepartment, or being consistently punctual (Roberts, 2005).The process was firmly linkedto material outcomes. That is，if an employee's performance was found to be less than theideal, a cut in pay would follow. On the other hand, if their performance was better thanthe expectation of the supervisor，an increase in salary will follow. Nowadays, manyorganizations use appraisal results to determine the reward outcomes. They identify thebetter performing employees and give them the available merit pay increases, bonusesand promotions. PA therefore plays a key role in making decision about salary increase.Normally, salary increase of an employee depends upon on how he or she is performingin his or her job. To know how the employees are performing, there should be continuousevaluation of their performance either formally or informally. Thus, it discloses how wellan employee is performing and how much he should be compensated (Khan, 2013).
………..
CHAPTER THREE: METHODOLOGY......... 25
3.2 Target Population......... 25
3.3 Methods of Data Collection......... 25
3.3.1 Questionnaire Method.........25
3.3.2 Interview .........26
3.4 Sampling Techniques and Sample Size......... 26
3.5 Data Management......... 26
3.6 Data Analysis .........27
CHAPTER FOUR: RESULTS AND DISCUSSIONS.........28
4.1 Performance Appraisal in the Financial Institutions of Eritrea .........28
4.1.1 Basic Demographic Data of the Respondents .........28
4.1.2 The Existence of Performance Appraisal and Its Frequency......... 30
4.2 Employees Satisfaction with the Appraisal Process .........36
4.3 Employees' PA, Potential Identification and its link with Reward......... 37
4.4 The Impact of Enqjloyees Dissatis&ction with PA on Productivity......... 40
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS .........42
5.1 Conclusions .........42
5.2 Managerial Implications......... 43
5.3 Problems and Limitations of the Study......... 44
CHAPTER FOUR: RESULTS AND DISCUSSIONS
4.1 Performance Appraisal in the Financial Institutions of Eritrea
All respondents were workers in the financial institutions of Eritrea, banks and thenational insurance company. Overall, 3% are with Msc/MA; 42 percent of respondentswere educated to bachelor degree level，with 28 percent having achieved a diploma, 13%Certificate and the remaining 13% are high school graduates. Thus, well educated workforces are in the institutions. When they are well trained and encouraged they couldachieve the goals even they can exceed. Concerning their work experience, 9.2% have worked for less than one year, 35%have worked 1 to 5 years, 15.8% between 6-9 years,12.5% have worked between 10-14years, 16.7% have worked between 15-19 years, 5% worked for 20-24 year and 5.8%have worked 25 and above years. Thus, majority of the respondents have worked for 1-5years.
………..
Conclusions
The aim of this research has been to review the employees' performance appraisal inthe financial institutions of Eritrea. An effort was made to assess the appraisal system andhow it is practiced in the institutions. The main questions of concern for this researchwere to find out if the system is well executed，and if the employees were satisfied withthe way it is executed and finally how this affects their productivity. To achieve theobjectives of this study and to answer the research questions, an interview with themanagement of the institutions was conducted and questionnaires were given toemployees. Despite the difference in frequency of appraisal and methods of appraisalsystems used, most of the institutions actually conduct performance appraisal for theiremployees. Generally performance appraisals of all types are effective if they areconducted properly, and better still if the appraisal process is clearly explained to theemployees. The answers from the management of the institutions show that theirPerformance Appraisal System meets the purpose of performance appraisals, such as,reward allocation employees' salary increase, bonus, promotion or demotions and givingperformance feedback. However what is placed in theory and what is applied in practiceare totally different. The findings in this research reveal that although PA is commonpractice in most of the institutions which implies that performance appraisal has becomean indispensable activity in the organizations. However it has some weakness andpractical knowledge and ability to implement good and effective PA is lacking. Thefollowing statistics from the respondents give us a good summary on how PA is practicedin the financial institutions of Eritrea.
…………
Reference (omitted)