Strategic Analysis of Performance Management and Reward Systems at State Trading Organization Assessment

Assignment

Part 1

Introduction

Managing people effectively has become increasingly complex due to globalization, workforce diversity, technological change, and evolving employee expectations. Within this context, Human Resource Management (HRM) plays a critical role in shaping employee behavior, performance, and organizational outcomes. Among HR practices, performance management and rewards and compensation are widely recognized as key mechanisms through which organizations align individual contribution with organizational objectives (Armstrong and Taylor, 2023).

This investigation examines two interrelated HRM problem areas within

State Trading Organization Plc (STO):

1. Performance Management
2. Rewards and Compensation

These issues are selected because weaknesses in performance evaluation directly affect reward allocation, perceptions of fairness, and employee motivation. In particular, ineffective performance management at STO has a cascading impact on rewards and compensation, indicating a lack of horizontal fit between HR practices.

The central problems addressed include STO’s reliance on annual performance appraisals, inconsistent evaluation across geographically dispersed locations, and limited use of performance-linked financial and non-financial rewards. These challenges are significant within STO’s context as a large state-owned enterprise operating across Malé and regional island branches, where HR policies are centrally designed but locally implemented.

The report adopts a critical, theory-informed approach, applying established HRM frameworks including the Ability–Motivation–Opportunity (AMO) model, Equity Theory, Expectancy Theory, Procedural Justice theory, Continuous Performance Management, and the Total Rewards Framework to analyze these issues and develop evidence-based recommendations.

Analytical Approach and Use of Theory

This investigation is grounded in the principle that effective HRM analysis must move beyond description to demonstrate critical engagement with theory and empirical research (Paauwe, 2009). Accordingly, the analysis integrates three elements throughout: relevant academic literature, HR practice at STO, and critical evaluation to identify misalignments and improvement opportunities.

The report is structured around two HR problems. For each problem, the discussion follows a consistent sequence: identification of the issue, critical application of theory and empirical research, application to STO’s practice, implications for employees and organizational performance, and evidence-based recommendations. This structure ensures clear alignment with the assessment criteria, particularly the requirement to demonstrate application of theory to practice rather than theoretical description alone.

Organizational Context (Analytical Overview)

State Trading Organization Plc (STO) is a large state-owned enterprise in the Maldives, employing over 2,000 staff across Malé and multiple regional island branches. While HR policies are centrally designed, implementation particularly performance appraisal and reward decisions is largely delegated to line managers.

This structure is significant because HRM research shows that devolving HR responsibilities to line managers often results in variability in practice, especially where managerial capability and contextual pressures differ (Purcell and Hutchinson, 2007). At STO, geographical dispersion limits HR oversight in regional branches, while close-knit island communities create social pressures that discourage performance differentiation.

Part 2

Problem 1: Performance Management

Issue Identification: Performance Management at STO:

Performance management is intended to align individual performance with organizational objectives through systematic goal setting, monitoring, feedback, and evaluation. At STO, performance management is primarily conducted through annual performance appraisals, which represent the dominant mechanism for assessing employee contribution.

While annual appraisals offer administrative simplicity, they present significant limitations in practice. Performance is assessed retrospectively over a twelve-month period, making evaluations vulnerable to memory limitations, subjective judgement, and contextual bias. These weaknesses are particularly problematic in STO’s operational context, which includes a geographically dispersed workforce, varied job roles, and differing levels of managerial oversight.

The performance management problem at STO can be summarized as follows:

• Performance evaluations are conducted infrequently, limiting accuracy and developmental value.
• Appraisal outcomes vary significantly across locations, particularly between Malé-based operations and regional island branches.
• Evaluation outcomes are influenced by social and cultural pressures rather than objective performance evidence.

These issues indicate that STO’s performance management system does not consistently fulfil its core functions of performance differentiation, feedback provision, or developmental support.

Limitations of Annual Performance Appraisal Systems

A substantial body of HRM research has challenged the effectiveness of traditional annual appraisal systems. DeNisi and Murphy (2017) argue that annual appraisals often fail to improve performance because they focus on retrospective judgement rather than continuous development.

One of the most widely documented weaknesses of annual appraisals is recency bias, whereby recent performance disproportionately influences overall ratings (Aguinis, 2019). At STO, this bias is particularly problematic for employees who experience legitimate periods of absence due to health or personal responsibilities. Even when such employees perform strongly for most of the year, their appraisal outcomes may be negatively affected if absences occur close to the evaluation period.

Brief Summary of Assessment Requirements

The assessment required students to conduct a critical, theory-informed analysis of Human Resource Management (HRM) practices within a real organizational context. The focus was on identifying, analyzing, and addressing two interrelated HRM problem areas Performance Management and Rewards and Compensation within State Trading Organization Plc (STO).

Key Assessment Pointers

• Demonstrate understanding of HRM challenges in a complex organizational environment
• Critically analyze HR practices using established HRM theories and models
• Apply theory to practice rather than provide descriptive discussion
• Examine organizational context and its influence on HR implementation
• Identify weaknesses, implications, and misalignments in HR systems
• Develop evidence-based recommendations grounded in academic literature

The assessment was structured into two main parts:

• Part 1: Introduction, analytical approach, theoretical grounding, and organizational context
• Part 2: In-depth analysis of HR problems, beginning with Performance Management

Academic Mentor’s Step-by-Step Approach

The academic mentor guided the student through a systematic and structured process, ensuring alignment with assessment criteria and learning outcomes.

Step 1: Understanding the Assessment Objective

The mentor first clarified that the task required critical analysis, not mere description. Emphasis was placed on:

• Linking HR theory with real organizational practice
• Demonstrating evaluative thinking supported by academic sources

This helped the student understand the importance of analytical depth and theoretical application.

Step 2: Selecting the Organizational Context and HR Issues

The mentor guided the student to:

• Choose State Trading Organization Plc (STO) as a suitable case due to its size, public ownership, and geographical dispersion
• Identify Performance Management and Rewards and Compensation as interconnected HR problems

The mentor explained the concept of horizontal fit, highlighting how weaknesses in performance evaluation directly affect reward fairness and employee motivation.

Step 3: Developing a Strong Introduction

The mentor assisted in structuring the introduction to:

• Establish the complexity of modern HRM (globalization, diversity, technology)
• Position performance management and rewards as critical HR levers
• Clearly state the central problems faced by STO

Relevant academic sources (e.g., Armstrong and Taylor, 2023) were integrated to strengthen academic credibility.

Step 4: Applying an Analytical and Theory-Informed Framework

The mentor guided the student to adopt a consistent analytical structure, ensuring that each HR problem was examined through:

• Issue identification
• Application of relevant theories (AMO Model, Equity Theory, Expectancy Theory, Procedural Justice, Continuous Performance Management, Total Rewards Framework)
• Comparison between theory and STO’s current practices
• Evaluation of employee and organizational implications
• Development of evidence-based recommendations

This ensured alignment with the requirement to demonstrate theory-to-practice application.

Step 5: Analyzing Organizational Context

The mentor emphasized the importance of context by:

• Examining STO’s centralized HR policy design and decentralized implementation
• Highlighting challenges arising from geographical dispersion and line manager discretion
• Linking contextual factors to inconsistencies in performance appraisal outcomes

Supporting literature (e.g., Purcell and Hutchinson, 2007) was used to strengthen critical analysis.

Step 6: Deep-Dive into Performance Management Issues

For Problem 1: Performance Management, the mentor guided the student to:

• Critically assess reliance on annual performance appraisals
• Identify key limitations such as infrequent evaluations, recency bias, subjectivity, and social pressures
• Apply empirical research (e.g., DeNisi and Murphy, Aguinis) to explain why traditional appraisal systems are ineffective

This approach demonstrated analytical rigor and scholarly engagement.

Outcome Achieved

Through guided mentorship, the student successfully produced:

• A well-structured, critically informed HRM analysis
• Clear identification of systemic HR issues within STO
• Strong integration of academic theory with organizational practice
• Logical progression from problem identification to implications and recommendations

Learning Objectives Covered

The assessment and mentoring process enabled the student to achieve key learning outcomes, including:

• Critical evaluation of HRM practices
• Application of HR theories to real-world organizational problems
• Understanding of performance management limitations in complex contexts
• Analysis of organizational structure and contextual influences on HR outcomes
• Development of evidence-based, theory-driven recommendations
• Enhanced academic writing and analytical skills

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