NATIONAL VALUES, PERFORMANCE APPRAISAL PRACTICES, AND

ORGANIZATIONAL PERFORMANCE: A STUDY ACROSS 21 COUNTRIES

HILLA PERETZ
Department of Industrial Engineering and Management
Ort Braude College, Israel
Snunit 5 St., P.O.Box 78, Karmiel 21982, Israel

YITZHAK FRIED
Whitman School of Management, Syracuse University

This study was funded by a grant from the SHRM Foundation. However, the interpretations,
conclusions and recommendations are those of the authors and do not necessarily represent
the view of the SHRM Foundation.

Best Paper Proceedings, Academy of Management, August 2008

ABSTRACT

Using two independent databases, this study explored: (a) the influence of national values on
performance appraisal (PA) practices adopted by organizations; and (b) the interactive effects of
national values and PA practices on organizational performance indicators. Data from 5,991
organizations in 21 countries were obtained for this study. Results showed that national values
explained PA strategies, confirming the study hypotheses. In addition, our hypothesized
interaction effects between national values and PA programs on organizational outcomes were
supported. The results have strong implications for organizations operating in different societies
concerning how to maximize the fit between particular cultures and PA practices in order to
enhance organizational performance.

INTRODUCTION

Performance appraisal (PA) has long been a key human resource practice in the US and as such
has been extensively analyzed and investigated (e.g., Fried, Levi, Ben-David, Tiegs, & Avital,
2000; Mero, Guidice, & Anna, 2006; Murphy & Cleveland, 1995). However, relatively little
research has been conducted on the role of PA in the global economy (e.g., Aycan, 2005).
The purpose of the present study is twofold: to investigate (a) the influence of national values on
PA practices; and (b) the interactive effects of national values and PA practices on organizational
performance indicators (i.e., absenteeism, turnover, levels of productivity and innovation, service
quality). In analyzing these two issues we will control for the effects of key organizational
characteristics (size, technological level, sector, service, and globalization level).
The importance of understanding the contribution of culture to PA has increased with the trend
toward globalization. Global organizations benefit from employees who come from different
backgrounds.. At the same time, a diverse workforce requires more emphasis on strategies that
establish employees' common ground on key issues, and assist them in dealing with the diversity of
backgrounds.
Values at a national level are the means by which behaviors and beliefs of members of the larger
society can be coherently interpreted. Researchers have made several attempts to define and
classify national values (e.g., Hofstede, 1980; Schwartz, 1999). Common themes in most of these
definitions and classifications are that cultural values are typically shared by members of society,
are passed from older to younger members, and shape a collective perception of the world (Adler,
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2002). Applying this characterization to organizational theory, researchers have proposed that
managerial practices can be predicted by various national values (Aycan, 2005; Fischer, Ferreira,
Assmar, Redford & Harb, 2005).

Performance Appraisal

Individual-based performance appraisal (PA) has been used extensively in the US for a variety
of purposes, including employee feedback and development and administrative decisions such as
merit raises, promotion, and termination. A primary purpose of PA has been to provide meaningful
feedback to employees so that they can improve their performance. PA is thus consistent with the
equity principle, under which individuals are rewarded according to their job performance.
However, increased globalization and multinational operations have raised timely and interesting
questions about the degree to which companies located in countries with other cultures tend to
implement formal PA programs, the characteristics of these programs, and the effects of these
programs on performance-related outcomes.
The current research is aimed at remedying this gap in the research literature. We examine the
interactive effects of PA practices and societal cultures on organizational performance outcomes.
Exploring these effects should enable us to build a typology of the characteristics of PA systems
and their effects across different cultural characteristics.
Numerous studies have established the impact of cultural values on managerial behavior and
actions. Within the theoretical framework offered by Hofstede (1980) and Project GLOBE (e.g.,
House et al., 2004), societal values, often described as national values, have a strong impact on
organizations that overrides other organizational (e.g., size, sector) and environmental (e.g.,
market) influences. In our study, we draw on this theoretical framework to examine four widely-
studied cultural values at the national level: power distance, individualism/collectivism, uncertainty
avoidance, and future orientation (Hofstede, 1980; House et al., 2004). Empirical studies have
shown that these national values predict organizational processes and managerial practices
(Hofstede & Peterson, 2000).

Power distance. Is the degree to which members of a collective expect power to be distributed
equally (House et al, 2004). In high power distance societies, hierarchy is rigidly adhered to and
privileges are distributed unequally. In such societies, higher-level members are expected to
preserve their relative advantage in status and power. Thus, in such societies, it is expected that
organizations will typically design PA systems in which employees but not managers are evaluated.
Moreover, in such societies it can be expected that managers rather than peers will be the dominant
source in evaluating the employees, subordinates, or clients (cf. Aycan, 2005). In contrast, in
societies low in power distance, one can expect that organizations will be more inclined to establish
PA systems in which employees at all ranks are evaluated, and in which multiple sources of
evaluation (e.g., managers, peers, subordinates, and clients) will be used (cf. Aycan, 2005). The
360-degree system that has become widespread in recent years is the prototypical system using
multiple and diverse groups of raters.

Future orientation. Is the degree to which individuals engage in future-oriented behaviors such
as planning, investing in the future, and delaying gratification (House et al., 2004). Future
orientation in HRM means investment and development to prepare the workforce to meet future
organizational needs. This suggests that organizations embedded in future-oriented societies are
more likely, relative to organizations embedded in present or less future-oriented societies, to adopt
PA systems which focus on human resource planning, identification of training and development
needs, and the organization of work.
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Individualism/collectivism. Refers to the degree to which societies value individual rights and
opportunities versus group success and individual loyalty to the group. In collectivistic societies
individuals are expected to subordinate themselves to the group’s goals and success. Therefore,
organizations in collectivist societies are likely to avoid individual-based PA systems because of
their potentially adverse effect on the group, unit, or organizational collective solidarity and morale
(e.g. Vallance, 1999). In contrast, in individualistic societies, organizations are more likely to
establish individual-based PA systems to evaluate their employees’ performance. Moreover, in
accord with individualistic values, these PA systems are likely to serve as the basis for policies
such as merit raises and individual career development paths that differentiate among employees
according to their performance. (cf. Aycan, 2005). In contrast, organizations embedded in
collectivistic societies are likely to design and implement PA systems for purposes that generally
benefit all employees, including human resource planning or identification of needs for training and
development.

Uncertainty avoidance. Is defined as the extent to which a society, organization, or group relies
on social norms, rules, and procedures to alleviate the unpredictability of future events (House et al,
2004). Organizations embedded in societies characterized by high, as compared to low, uncertainty
avoidance are more likely to develop formal HRM practices including PA.

National values, Performance Appraisal and Organizational Outcomes

The above discussion suggests that the level of fit (consistency) between societal values and the
adopted PA systems will affect organizational performance. Overall, we expect that if
organizations adopt PA systems according to the culture they are embedded in, the results will be
increased performance indicators (less turnover and absenteeism, higher productivity, innovation,
and service quality). Conversely, if organizations adopt PA systems that deviate from the dominant
societal culture, the results will be decreases in these performance indicators. Our expectation is
based on the model of culture fit, or MCF, (Aycan, 2005), which was proposed by Kanungo and his
associates (Kanungo and Jaeger, 1990). The MCF suggests that national culture affects
organizational culture, which in turn, affects human resource practices (Aycan, 2005). Thus, if
employees are exposed to an HR activity that does not fit the national culture they will tend to
respond negatively (Aycan, 2005; Aycan et al., 2000). When the negative reactions are combined
across all employees, they are expected to contribute to negative outcomes in the organization such
as high levels of absenteeism and turnover and lower levels of productivity.

METHOD

Study Sample. The study sample consisted of 5,991 organizations from 21 countries: Australia,
Austria, Canada, Denmark, Germany, Greece, Hungary, Ireland, Israel, Italy, Finland, The
Netherlands, New Zealand, Philippines, Portugal, Slovenia, Sweden, Switzerland, Turkey, the
U.S.A., and the U.K. Data for the study were obtained from the CRANET database of international
HRM of 2004 (for organizational level measures), and the GLOBE (Global Leadership and
Organizational Behavior Effectiveness) 2004 database (for national level cultural values).
Variables and Measures. Five indices of performance appraisal were used. Organizational use
of formal individual-based PA system (presence/absence of a formal evaluation system to evaluate
individual employees); Percentage of evaluated employees; 360-degree performance appraisal
(information on multiple sources of evaluation e.g., managers, peers, subordinates, and clients);
Personal focus of evaluation (merit compensation and personal career development) Organizational
focus of evaluation (human resource planning, identification of development needs, and the
organization of work).
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Five performance measures were also obtained from the CRANET database: Turnover;
Absenteeism; Level of Service quality; Level of productivity and Rate of innovation
To measure cultural values, data for four values were obtained from the GLOBE database
(House et al, 2004): power distance, future orientation, uncertainty avoidance, and collectivism (see
definitions above). Countries were assigned scores for each value. Finally, five organizational
background characteristics were measured as covariates: Sector (industry / service); Technology
level (Low-/medium-/ hi-tech); Service (products/services); Organizational Size (based on
percentage: small / medium / large); Level of globalization (local/global arena). We also included
one national covariate: Gross National Income (GNI) using the World Bank database.

RESULTS

We investigated the cross-level effects of the country-level variables (cultural values) on

organizational PA practices and outcomes while controlling for the effects of the covariates..
Because of the nested structure of the data (organizations within countries) we used multilevel
analysis (HLM – Hierarchical Linear Modeling) for modeling the structure of the data (Bryk &
Raudenbush, 1992). We used the Maximum Likelihood method to estimate the values of the
regression coefficients, and the intercept and slope variance

Phase one

We examined the relationship between national values (country-level variables) and PA

indicators while controlling for the covariates. All independent variables (organizational
background characteristics, GNI and national values) were entered into the same equation.
However, background variables and GNI were entered first into the equation as controls, with the
purpose of detecting the unique effect of national values, above and beyond the effects of
organizational characteristics and economic strength.
The results supported our hypotheses pertaining to societal values and PA: power distance was
negatively related to 360 degree PA (β=-.16**); future orientation was positively related to the
percentage of evaluated employees (β=.10**); collectivism was positively related to organizational
purpose of PA (β=.17**); and uncertainty avoidance was positively related to the existence of
formal PA programs (β=.48**). In addition, we also found two other associations that we did not
hypothesize: future orientation was positively related to the existence of formal PA programs
(β=.55**), and collectivism was positively related to 360 degree PA (β=.11**).

Phase two

In the second phase of the analysis, organizational performance variables were included. Our
purpose was to investigate the interactive effect of national values and PA systems on
organizational performance.
The results generally supported our hypotheses on the interactions between national values and
PA indicators, in that the interactions were significant with respect to most of the five performance
measures. For example, the results indicate that in lower power distance societies (as opposed to
higher distance power societies) organizations tended to have lower absenteeism (β=-.07**) and
increased innovation and productivity rates (β=.06* and .05* respectively), if they adopted 360
degree PA, than if they did not. The interactions of future orientation with proportion of evaluated
employees and the organizational-development purpose of PA on absenteeism (β=-.05* and -.10**
respectively), productivity (β=.04* and .05* correspondently) and innovation levels (β=.04*) were
also significant. In societies characterized by high uncertainty avoidance, organizations that
implemented formal PA system tended to have lower absenteeism and turnover (β=-.09**), and
 5

higher innovation (β=.05*), than did organizations that did not implement such systems. In
addition, we found a positive interaction effect of future orientation and proportion of evaluated
employees on service quality (β=.04*). The results further supported the interactive effects of
collectivism and individual-based purpose of PA on absenteeism and turnover (β=.05* and .04*
respectively), and innovation (β=-.04*). The pattern of the interactions supported our hypothesis,
by indicating that in collectivistic societies, organizations that adopted PA systems with a high
focus on individual outcomes (individual merit raises and career development) tended to report
higher levels of absenteeism and turnover and lower levels of innovation, relative to organizations
that adopted PA systems with a low focus on individual outcomes.
In addition, we found several main effects for both national variables and PA variables on
organizational performance variables. Power distance was negatively related to service quality,
innovation and productivity; uncertainty avoidance was positively related to service quality and
negatively to absenteeism and turnover; collectivism was related positively to productivity and
innovation and negatively to turnover; and future orientation was related to all outcomes-
negatively to absenteeism and turnover and positively to service quality, innovation and
productivity. With regard to PA variables, 360-degree PA was negatively related to absenteeism
and positively related to service quality and innovation; organization based PA was negatively
related to absenteeism and positively related to service quality, productivity and innovation; the
existence of formal PA systems was negatively related to absenteeism; and percentage of evaluated
employees was negatively related to absenteeism and positively related to service quality,
productivity and innovation.

DISCUSSION

This study focused on two complementary issues: (a) the contribution of national values to PA
practices adopted by organizations embedded in the particular national culture; and (b) the
interaction effects of national values and these PA practices on key five indicators of
organizational performance. Results generally supported our hypotheses regarding these two
issues.
The results support the notion that the effect of PA practices is contingent on particular societal
values. The theoretical and practical contribution of these results is very extensive, particularly
given the significant growth in the global economy. From a theoretical point of view, the results
can serve as a basis for building a useful typology of cross-cultural PA. This typology can help us
to understand the effect of national values on the conduct of individual-based PA systems, and on
organizational outcomes. From a practical standpoint, the study has important implications for
organizational performance and competitiveness. Because of increased globalization and the
extensiveness of international business operations, corporations would likely benefit from research
findings concerning the adaptation of PA programs to different cultures and under different
organizational conditions, and their relative effects on important organizational outcomes.
One of the main strengths of the present study is the independence of its data sources. While
the organizational-level data on training practices and policy has been obtained from the CRANET
study, the country-level data on cultural values has been obtained from the GLOBE study. The
consistent theory-based relationships revealed in this study, in datasets drawn from such different
sources, significantly strengthens the conclusions that can be drawn.
Another contribution of the study is the multi-level analysis that was used. Most previous
studies have focused on organizational effects (e.g., Brown, 2005), but few have looked at the
interaction between variables at the organizational level and national level, taking into account the
nested structure of the data: organizations within countries in this case.
The knowledge derived from the present study about cultural effects is applicable to studies
concerning cross-cultural organizational processes, such as globalization, outsourcing, and
 6

expatriate behavior. Kim (1999) stated that globalization implies accepting that cultural diversity
in management composition and style contributes to the competitive advantage of the firm. On
the basis of our present study, we argue that globalization also implies acceptance of, and attention
to, both organizational and national diversity. Recognition and acceptance of such value
differences should contribute to the successful operation of multi-national firms.

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