Performance Evaluation Using Accounting Information

Topics: Management, Income statement, Management accounting Pages: 12 (3119 words) Published: April 18, 2013
What is performance evaluation?
o Performance evaluations are formal review processes designed to encourage the informal day-to-day practice of performance management, while providing a framework in support of merit pay adjustments, promotion and employment decisions. Evaluating staff performance and helping employees develop their skills are important duties associated with performance management. Performance management begins with supervisors and employees collaboratively setting goals and standards, clearly communicating performance expectations and evaluating the results during the performance evaluation process. o

o A performance appraisal is a systematic and periodic process that assesses an individual employee’s job performance and productivity in relation to certain pre-established criteria and organizational objectives. o

o Performance evaluation tools are quantitatively and qualitatively based. They utilize a scoring system that assesses numerical data relative to productivity, as well as characteristic data that measures the quality of the employee's work. The indicators on performance evaluations include items such as business ethics, innovation, motivation, job knowledge, skills and expertise, communication, teamwork, work quality, professionalism, task management and project completion.

Benefits of performance evaluation:

• Facilitation of communication: communication in organizations is considered an essential function of worker motivation. It has been proposed that feedback from performance evaluation aid in minimizing employees’ perceptions of uncertainty. Fundamentally, feedback and management-employee communication can serve as a guide in job performance. • Enhancement of employee focus through promoting trust: behaviors, thoughts, and/or issues may distract employees from their work, and trust issues may be among these distracting factors. Such factors that consume psychological energy can lower job performance and cause workers to lose sight of organizational goals. Properly constructed and utilized performance evaluation has the ability to lower distracting factors and encourage trust within the organization. • Goal setting and desired performance reinforcement: organizations find it efficient to match individual worker’s goals and performance with organizational goals. Performance evaluation provides room for discussion in the collaboration of these individual and organizational goals. Collaboration can also be advantageous by resulting in employee acceptance and satisfaction of appraisal results. • Performance improvement: well constructed performance evaluation can be valuable tools for communication with employees as pertaining to how their job performance stands with organizational expectations. “At the organizational level, numerous studies have reported positive relationships between human resource management (HRM) practices and performance improvement at both the individual and organizational levels. • Determination of training needs: “Employee training and development are crucial components in helping an organization achieve strategic initiatives”. It has been argued that for performance to truly be effective, post-appraisal opportunities for training and development in problem areas, as determined by the appraisal, must be offered. Performance can especially be instrumental for identifying training needs of new employees. Finally, performance can help in the establishment and supervision of employees’ career goals.

The Role of Accounting Information in Performance evaluation

Accounting information consists of all data that a company records from operating activities and reports to the public at the end of a month or quarter. Accounting information is important for investors, analysts and regulators, management, employees, creditor and debtor. This information is also critical for a firm's management because...

References: El-Shishimi, H. and Drury C. (2001) : Divisional Performance Measuring in UK companies, paper presented to the annual Congress of the European Accounting Association, Athens
Esptein, M and Ray, M. J (1997):Eniromental Management to improve corporate profitability, Journal of cost management , November-December, pp 26-34
Kaplan R. S and Norton D.P (2001) “ Transforming the balance scorecard from performance measurement to strategic management : part 2’, Accounting Horizons March, pp87
Kaplan, S. E., and J. T. Mackey. 1992. An Examination of the association between organizational design factors and the use of accounting information for managerial performance evaluation. Journal of Management Accounting Research (4): 116-130.
Performance Evaluation uses accounting information, limitation reconsidered
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