Figure 1 presents the paradigm of the Study.
Independent Variables Dependent Variables
Characteristics of the business Business competencies of the
owners and managers in terms business owners and managers
of: in terms of:
Paradai.gTmhAegorefetsheearScthudpayradigm presented shows the relationas.hiLpebaedtewrseheinp tShkeililnsdependent and dependent
variabbl.es.Gender b. Educational Skills
c. Educational attainment c. Interpersonal Skills
This study holds that the independent variables as demographic profiles of the business owner and
managde. rsLwenhgicth oinfcsltuadyeinthbeucshinaerasscteristics of the respondendts. inPrtoefremssionf aalgSe,kiglelsnder, highest educational
attainment, length of stay in business, trainings related to business have bearing on the development of the
depened.enTt ravinariniagbsleRelwatheidchto includes the business comep.eteMncaineasgesruiaclhSkaislls leadership, educational,
interpersoBnuasl,inpersosfessional and managerial skills.
3. Methods of Analysis
This chapter presents the research design, locale of the study, respondents of the study, sampling
technique, the research instruments, the research procedure and the methods of analysis.
3.1 Research Design
This made use of the descriptive correlation research design because the study described an existing
relationship between and among variables and the degree to which two or more of these variables are
related.
The study tried to relate the demographic profile of the business owners and managers in terms of
age, gender, educational attainment, field of specialization and trainings undertaken related to business
with their managerial competencies such as leadership skills, educational skills, interpersonal skills,
professional skills and the managerial skills.
The difference in the perceptions of the two groups of respondents as business owners and
managers were also considered.
3.2 Locale of the Study
The study was conducted in some selected small business enterprises in the Kingdom of Bahrain
through the help of some staff of the Bahrain Chamber of Commerce and Industry.
3.3 Respondents of the Study
The study involved the business owners and managers and selected staff of small business
enterprises of the Kingdom of Bahrain.
3.4 Sampling Procedure
The study employed random samples of business owners and managers of small enterprises as
suggested by the Bahrain Chamber of Commerce and Industry.
In order to gather more reliable data on the managerial competencies of business owners and
managers, the BCCI assisted the researchers in identifying the sample respondents and subjects of the
study.
51
TABLE 1
Distribution of Respondents and subjects of the study
Respondents Frequency Percent
Owners/managers
Staff 10 20
Total
40 80
50 100
3.5 Research Instruments
The study made use of a questionnaire for gathering data. The questionnaire consisted of two parts.
The first part elicited the characteristics of the business owners in terms of age, gender, educational
attainment, length of stay in business, and trainings acquired related to business.
The second part of the questionnaire determined the competencies of the subjects specifically on
their leadership skill, educational skills, interpersonal skills, professional skills and managerial skills.
These are perceived by both the owner respondents and the staff respondents.
The questionnaire was developed by the researchers from their vicarious experiences. They tried
gather as many competencies as possible explained in management books authored by both from Local and
Foreign Nationals that were deemed closely related to how the business owners and managers function as
supervisors in the business.
The questionnaire was then passed to selected research experts in the university and was scrutinized
as to its validity. The questionnaire were administered to respondents with due permission from concerned
authorities.
Informal interviews were also conducted to supplement the data gathered from the questionnaire.
3.6 Data Gathering Procedure
The researchers personally administered the floating of these to the respondents for prompt
retrieval of the questionnaires. The researchers saw to it that every item in the questionnaire was
understood by the respondents for reliability of answers.
3.7 Method of Analysis
In the determination of the characteristics of the respondents of the study, the frequency count and
simple percentage were used. The weighted mean was utilized to determine the business competencies of
the respondents.
The significant relationship between the characteristics and the business competencies of the
business owners were determined through the use of the Person Product Moment of Correlation.
ANOVA was used to determine the significant difference in the perceptions of the two groups of responde
on the business competencies of the respondents.
4. Results and Discussions
This chapter presents the findings, analyses and interpretation of data gathered.
Tables 2-5 present the percent and frequency distribution of the owners/managers in terms
of their age, gender, and educational attainment length of stay in business and trainings in business
and other related trainings.
52
Table 2
Distribution of Subjects According to Age
Age Bracket Frequency Percent (100%)
18-22
23-27 2 20
28-32
33-37 2 20
38-42
1 10
43- above
Total 3 30
1 10
1 10
10 100
Table 2 shows that majority of the owner/managers of the small businesses belong to ages 33-37
years accounting to 30 % of the total subject respondents, followed by ages 18-22 and 23-27 years
respectively.
Only one (1) of the respondents belongs to age bracket 43 above.
This proves that of the randomly selected owner/managers of business, majority are
matured managers who can really handle the operations and management of the undertakings.
Table 3
Distribution of Subjects According to Gender
Gender Frequency Percent
Male
Female 9 90
Total
1 10
10 100%
Table 3 shows that 9 or 90% of the owner / managers are males and only 1 or 10% is female. This
is attributed to the culture that most of the men do the work and business management.
Table 4
Educational Attainment
Levels Frequency Percent
Certificate 7 70
Diploma 1 10
BS Degree 2 20
10 100
Total
The above table shows that 7 or 70% of the owners / managers have finished certificate level, only
2 or 20% finished their BS degrees in business and only 1 or 10% finished the Diploma level.
Trainings Table 5 Percent
Local Trainings Related to Business 80
10
National Frequency 10
International 8 100
1
Total 1
10
Table 5 reveals that 8 0r 80% of the owner / managers had undergone local trainings through the
Bahrain Chamber of Commerce and Industry, a manifestation that the owner / managers are active
members of the organization (BCCI). One or 10% of each owner / managers was able to attend national
and international trainings related to business.
53
Number of Years Table 6 Percent
3 yrs. below Length of Stay in the Business 10
4-6 yrs. 10
7-9 yrs. Frequency 20
10 yrs.-above 1 60
Total 1 100
2
6
10
In table 6, 6 pr 60% of the owners / managers are in business for 10 years and more. Two (2) or
20% have been in business for 7-9 years and only one (1) or 10% of the respondents are in business from
4-6 years and 3 years below.
This means that the owner / managers are really entrepreneurial and are competent in their
business undertakings.
Table 7
Leadership Skills of Owner Managers As Perceived by the Staff and Themselves
A. Leadership Skills of Owner/Manager Owners/Managers Staff
1.encourage and emphasize teamwork & staff W.M. Adj.Value W.M. Adj.Value
participation
2.effectively share decision-making 4.75 SA 3.92 A
responsibilities with staff when necessary
3.develop & disseminate goals & objectives of the 4.50 SA 3.78 A
business.
4.seek relevant input from the staff in the planning 4.50 SA 4.09 A
process.
5.share responsibilities & authority with other 4.50 SA 3.64 A
staff members.
6.delegate tasks in order to assist staff in 4.00 A 3.85 A
improving their skills.
7.provide clear & consistent direction for business 4.50 SA 3.89 A
8.able to inspire and challenge staff.
9.encourage staff initiative and innovation. 4.25 A 4.04 A
OVERALL W.M. 4.50 A 4.04 A
4.50 SA 3.94 A
4.38 A 3.91 A
Table 7 shows that the owner / managers agree that they all exude the different leadership skills,
item 1 being very evident of them. That is they encourage and emphasize teamwork and staff participation.
Items 5 & 8 on the other hand, were only rated 4.00 respectively. They agree that they share
responsibilities and authority with other staff members and are able to inspire and challenge I n their
business.
This implies that the owner / managers choose only those responsibilities which can be shared to
staff and which require a little authority, The staff simply agreed that the owner / managers possess the
enumerated leadership skills.
Implications:
The findings is strengthened by Levines, Teresa, 2006 that a leader demonstrate a clean
understanding of the strategic direction of the enterprise in aligning work and personnel behavior with the
organizations’ vision. She further stated that a leader, even resilient, actively seeks assignments, guidance
and feedback that are necessary in order to prepare for handling current or future objectives.
54
The manager, she said, likewise use information to drive his learning as well as nurturing the
business’ continued success. After careful review of all the corrected data and alternatives, only then the
manager makes timely decision.
Table 8
Educational Skills of Owner Managers As Perceived by the Staff and Themselves
Owners/Managers Staff
Educational Skills of Owner/Manager W.M. Adj.Value W.M. Adj.Value
1.observe & evaluate staff on a regular basis. 4.50 SA 3.56 A
2.initiate improvement efforts based in proven 4.75 SA 3.76 A
methods, technique operations
3.establish & maintain expectations of staff and 4.75 SA 3.68 A
customers.
4.ensure that business operations is directly 4.75 SA 3.95 A
related to goals & objectives.
5.provide systematic & effective supervision to 4.75 SA 3.70 A
continuously improve operations.
6.seek ways to support & strengthen the business 4.50 SA 3.63 A
operations.
7.regularly visit & supervise staff to evaluate 4.75 SA 3.35 A
current business operations
8.actively involved in the development of new 4.75 SA 3.65 A
methods to improve business operations.
9.use appropriate support on staff effectively. 4.75 SA 3.54 A
OVERALL W.M. 4.69 SA 3.64 A
As to the educational skills of the owner / managers, the owners / managers themselves strongly
agree that they all possess these. They all rated themselves 4.75 except on items 1 and 6 with 4.5, that they
observe and evaluate their staff on a regular basis and seek ways to support and strengthen the business
operations.
The staff agreed that the owner / managers exude all educational skills, item 4 rated the highest
mean; the owner / managers ensure that business operation, is directly related to goals and objectives. The
least rated item is 7 where the owner / managers regularly visit and supervise staff to evaluate current
business operations.
Implications
Levines stated that in business organization, an accurate picture of the enterprises’ profitability can
only be achieved through careful considerations of all the details comprising typical business activity. This
examination status with basics: a review of consumer elements of success, and extends all the way to
determination of obstacles to performance in the workplace.
The manager never loses monitoring results, controlling resources and modifies business activity to
better achieve project plan.
Table 9
Interpersonal Skills of Owner Managers As Perceived by the Staff and Themselves
Owners/Managers Staff
C. Interpersonal Skills of Owner/Manager W.M. Adj.Value W.M. Adj.Value
1.counsel staff regarding their personal problems. 4.50 SA 3.72 A
2.work with consuming public to determine their 4.50 SA 3.74 A
expectations.
3.establish good relationship with other 4.50 SA 4.09 A
stakeholders.
4.encourage different stakeholders to participate 4.00 A 3.76 A
55
in some business activities as part of its social 5.00 SA 3.82 A
responsibility.
5.effectively receive feedbacks from stakeholders 4.75 SA 3.87 A
as regards products & services offered by the 4.75 SA 3.89 A
business.
6.work supportively with the government in 4.75 SA 4.09 A
relation to business operations. 4.75 SA 3.94 A
7.use effective techniques in establishing & 4.61 SA 3.88 A
monitoring good relations with stakeholders in the
community.
8.demonstrate concerns and concerns to
stakeholders’ concerns.
9have the ability to listen & appreciate others,
both staff & other stakeholders.
OVERALL W.M.
Table 9 shows that the owner / managers strongly agreed that they possess all interpersonal skills.
Item 5 is rated the highest which states that they effectively receive feedbacks from stakeholders as regards
products and services offered by their businesses.
This figures the basis for improving the quality of the goods and services they offer to consumers.
However, they rated item 4 as the lowest. They just agreed that they encourage the different stakeholders
to participate in some business activities as part of its social responsibility.
The staff simply agree that the owner / managers possess all the interpersonal skills.
Implications
Dauden (2000) explains that some of the characteristics of a leader includes social characteristics
which concern about the ability to enlist cooperation, cooperativism popularity, prestige, sociability,
interpersonal skills, social participation, trust and diplomacy.
Draft (2001) stated that the impact of charismatic leaders is normally from: 1) stating a lofty vision
of an imagined future that employees identify with, 2) shaping a corporate value system for which
everyone stands, 3) trusting subordinates and having their counter trust in return.
Further, he said, interactive leader are concerned with consensus building, inclusiveness,
participation and caring.
Table 10
Professional Skills of Owner Managers As Perceived by the Staff and Themselves
Owners/Managers Staff
D. Professional Skills of Owner/Manager W.M. Adj.Value W.M. Adj.Value
1.behave in appropriate manner 4.50 SA 4.11 A
2.attend professional meetings for businessmen. 4.50 SA 4.20 A
3.keep abreast of current & innovative trends in 4.75 SA 4.10 A
business.
4.participate in activities to improve personal 5.00 SA 3.28 A
knowledge & skills in business.
5.belong to & participate in professional 4.50 SA 4.02 A
organizations directly related to business
management.
6.achieve success & honors in areas relevant to 4.75 SA 3.82 A
business operations.
7.pursue a planned program of professional 4.50 SA 4.10 A
growth.
8.create a favorable impression by dressing & 4.50 SA 4.01 A
56
grooming appropriately a business executive 4.75 SA 3.03 A
9.punctual to work, meetings & appointments with 4.63 SA 3.85 A
staff & other stakeholders
OVERALL W.M.
Table 10 reveals that the owner / managers strongly that they possess all the professional skills
specially that of being participative in activities to improve knowledge and skills in business. The staff
agreed that owners / managers have all the professional skills.
Implications
Draft (2002) stated that charismatic leader raise subordinates’ consciousness about new outcomes
and motivates them to transcend their own interest for the sake of the organization or the department.
Borich (2001) believes that any appraisal system implemented must be comprehensive enough to
evaluate multiple criteria such as procedures to assist in upgrading performance through continuing
department program.
Table 11
Managerial Skills of Owner Managers As Perceived by the Staff and Themselves
Owners/Managers Staff
E. Managerial Skills of Owner/Manager W.M. Adj.Val W.M. Adj.Val
1.efficiently prepare, monitor and implement budget 4.50 SA 3.77 A
requests.
2.demonstrate knowledge of finance & budget. 4.50 SA 3.72 A
3.schedule time & other resources to provide maximum 4.25 A 4.60 SA
utilization & minimum disruption of business activities.
4.account for budget expenditures. 4.25 A 3.74 A
5.ensure that business records are systematically & 4.25 A 4.00 A
accurately maintained.
Total W. M. 4.3 A 3.96 A
On Managerial skills, the owner / managers strongly agree that they efficiently prepare, monitor
and implement budget requests and demonstrate knowledge of finance & budget. However, they just agree
on the 3rd, 4th and last item. Similarly, the staff agrees that the owner / managers exude all the managerial
skills.
Implications
Levines, in The Supervision Magazine, (2004) consider a manager to process keen analytical skills
coupled with a group of the enterprise’s budget. He works diligently current and accurate information
about situations and technology. Further, he said at all times, the manager will use whatever resources are
appropriate to identify minor plan, work, eliminate concerns, resolves problems and make the necessary
adjustments to reach optimum performance.
Table 12
Relationship Between The Competencies and Characteristics/Profile of Owner / Managers
Variable Age Gender Educational Train- Leader-ship Educ’l Inter-personal Profes- Mana-
Attainment ing Skills sional gerial
Age 1.0
Gender .000 1.0
.Educ’l
Attaint. .403 .449 1.0
57
Trngs. -.098 .134 .315 1.0
Related .004 -.416
to Bus. .194 -646* 1.0
Leader-
ship
Educ’l .516* -.024 .179 -.186 .343 1.0
Skills
Inter -.106 .079 .095 -.056 .224 .263 1.0
perso-nal -.109 .007 .231 .197
Skills -.220 .049 .463 .381
Profes- -.172 -.351 .353 1.0
sional
Skills
Mana- -.229 .526* .481 .823* 1.0
Gerial
skils
* Significance level - .05
Table 12 shows the significant relationship between the characteristics / profile and competencies
of the owner / managers.
The results show that at .05 level of significance, the gender as a characteristic / profile of the
owner / managers is negatively related to the leadership skills with a computed value of -.646.
This means that the male owner / managers are perceived to have better leadership skills than the
female.
On the other hand, the age is positively related with the educational skills with.516 computed
correlation, meaning that the more mature the owner / manager, the better are the educational skills that are
exhibited by them. This is because they have gained more trainings or experiences and have enhanced their
educational qualifications.
The table likewise presents positively correlated competencies, namely the professional and managerial
skills with a computed value of .822.
This means that the more professional skills acquired by the owner / managers, the better are their
managerial skills.
In the same table, the result is supported by a research undertaken by Ohio State University which
revealed that gender differences are significant both in the development of leadership and how males and
females lead (Bontol, et al, 1999).
On the other hand, Rahabandse (2005) disputes the report about gender and leadership skills which
hold that women are better team players, are open and mature in the way they handle sensitive issues, and
more concern of their impact in others and are better people managers.
Table 13
Difference in Leadership Skills of Owner / Managers as Perceived by Respondents
Groups N Mean F Value Significant Decision
Owner/Manager 10 59.75 5.094 .008 Reject Ho
Staff 40 54.40
* Significance level at .05
Statistically, the Table above shows that the significance value of .008 is less than the significant
value of .05, thus the null hypothesis is rejected. This means that the leadership skills of owner /managers
have significant difference as perceived by their staff and themselves.
Specifically, the perceptions of the owner / manager respondents yielded the highest mean which
shows that they rated themselves higher on leadership skills than the staff respondents.
58
Table 14
Post Hoc Analysis of Significant Differences
Respondents Mean Difference Significant Decision
Owner / Manager Reject Ho
7.18 .008
and Staff
The Post Hoc Analysis shows that the significance value of .008 is less than the significance level
of .05 thus the null hypothesis is rejected. The mean difference of 7.18 confirms a significant difference on
the perceptions of the owner / managers and staff in the leadership skills of the owner / managers.
Table 15
Difference on Educational Skills as Perceived by the Respondents
Groups N Mean Value(F) Significant Decision
Owner / 10 50.05 7.947 .001 Reject Ho
Manager
Staff 40 57.42
* Significant Level at .05
Above table shows that at .05 level of significance, the computed value is .001 which is less than
the former. This rejects the null hypothesis.
This means that there is significant difference on the perceptions of the two groups of respondents
on the educational skills of the owner / managers.
The owner managers rated themselves highest compared to the staff respondents.
Table 16
Post Hoc Comparison Difference
Groups Mean Significant Decision
Owner / Manager 7.3660 .000 Reject Ho
and Staff
The Post Hoc Comparison with a mean of 7.36 reveals that there is significant difference on the
perceptions of the educational skills of the owner / managers as perceived by the staff and themselves.
The owner managers perceived themselves to have high educational skills than how their staff
perceived them to be.
Table 17
Difference on Interpersonal Skills of Owner / Manager as Perceived by Respondents
Groups N Mean Value (F) Significant Decision
1.101 .337 Accept Ho
Owner 10 50.25
/Manager
Staff 40 49.26
* Significant at .05 level
As revealed in the table, the null hypothesis is accepted since the significance value of F-test is .337
is greater than the significance level of .05. This connotes that there is no significant difference on the
perceptions of the owner / managers and staff on the international skills of the latter.
This means that the owner / managers are perceived to be able to relate well with their staff and the
consuming public.
59
Table 18
Difference on Professional Skills of the Owner / Manager as perceived by the Respondents.
Groups N Mean Value (F) Significant Decision
Owner / 10 64.50 1.231 .297 Accept Ho
Manager
Staff 40 61.11
* Significant at .05 level
As revealed in the table, the null hypothesis is accepted since the significance value of F-test which
is .297 is greater than the significance level of .05. This means that the staff and the owner / managers have
the same perceptions on the professional skills of the owner / managers.
Table 19
Difference on Managerial Skills of Owner / Manager as perceived by the Respondents
Groups N Mean Value (F) Significant Decision
Owner / 10 26.75 2.621 .078 Accept Ho
Manager
Staff 40 25.47
* Significant at .05 level
The table shows that when the respondents are grouped into two, that is, the staff and the owner /
managers themselves, their perceptions do not vary as to the managerial skills of the latter.
This decision is based on the significance value of F-test which is .078 and is greater than the
significance level of .05
Dunhan (2000) stated that one of the key to being an effective manager is the ability to lead.
While the leader is measured by how much influence he has in stimulating people to strive towards
an objective, the manager is measured by how much he has attained an objective, not just using people but
also the use of materials, machines, money and methods. Hence, the leader is a good manager because he
can cause and direct people to serve towards an objective, however, he can also be the lousiest manager if
he is inefficient in the use of other resources.
5. Summary of Findings, Conclusions and Recommendations
5.1 Summary of Findings
5.1.1 Characteristics / Profile of the Business Owners / Managers:
1. The owner / managers of the small businesses in the Kingdom of Bahrain are relatively young; there are
9 males and 1 female owners / managers. Some finished their BS degrees and some finished the secondary
education. In table 6, 6 pr 60% of the owners / managers are in business for 10 years and more. Two (2) or
20% have been in business for 7-9 years and only one (1) or 10% of the respondents are in business from
4-6 years and 3 years below.
This means that the owner / managers are really entrepreneurial and are competent in their business
undertakings.
2. The owner / managers are perceived to possess the different competencies like the leadership skills,
educational skills, interpersonal skills, professional skills and the managerial skills.
3. The subjects / respondents vary in their perceptions of the competencies of the owner / managers.
4. The data shows that the male owner / managers exhibit better managerial and leadership skills than their
female counterpart. The data likewise suggest that the relatively older owner / managers, exhibit better
educational skills than the younger ones.
5.1.2 Perceptions on Leadership Skills or Owners / Managers
The two groups of respondents agree that the leadership skills are possessed by the owner /
managers. The owner / manager respondents noted themselves higher in this skill than that of their staff.
60
Perceptions on the Educational Skills of Owner / Manager
All other educational skills are agreed by the respondents to be evident in the performance of the
owner / manager functions.
The very evident educational skills of the owner / manager are: 1) provide for organizing,
collecting and analyzing of data to be used to identify business needs, 2) provide systematic and effective
supervision to improve business operations and assure that business management is related to established
goals and objectives.
5.1.3 Perceptions on the Interpersonal Skills of Owner / Managers
The owner / managers manifested all interpersonal skills are perceived by themselves and their
staff.
Among the notable interpersonal skills which were rated the highest are: 1) establish good working
relationships with staff and community and also using effective techniques in maintaining good relations
specifically with customers, 2) counsel staff regarding personal problems by listening and appreciating
them.
5.1.4 Perceptions on the Professional Skills of Owners / Managers
Generally, the respondents perceived that all professional skills are possessed by the owner /
managers.
However, the following professional skills were noted to be very evident:
1) Attend professional meetings for businessmen, 2) keep abreast of current and innovative trends
in business, 3) belong to and participate in professional organizations directly related to
business management.
5.1.5 Perceptions in the Managerial Skills of Owner / Managers
Of the managerial skills, the following are very evident to the owners / manager: 1) efficiently
prepare, monitor and implement budget requests, 2) demonstrate knowledge of finance and budget and 3)
schedule time and space to provide maximum utilization and minimum disruption of business activities.
Relationship Between and Among the Characteristics / Profile and Competencies of Owners / Managers:
Among all the characteristics / profile of the owners / managers such as age, gender, educational
attainment and trainings acquired related to business, which were tested as to their relationship to the
competencies, the gender is negatively related to the leadership skills. This implies that men have better
leadership skills than women in business.
On the other hand, the profile age and educational skills are positively related.
This means that the older the owner / managers the better their educational skills. Two of the
competencies of the owner / managers namely the managerial; and professional skills resulted to a positive
correlation which means that the more professional skills acquired by the owner / managers, the better are
their managerial skills.
5.1.6 Difference on the Competencies of Owners / Managers
Among the competencies of the owner / managers, the leadership skills and educational skills
reveal to have significant differences as perceived by the staff and themselves, while the interpersonal
skills and managerial skills bear no significant differences.
5.1.7 Post Hoc Analysis of Significant Difference
The post hoc analysis reveals that there is significant difference on the perceptions of the staff and
owner / managers on their leadership skills.
5.1.8 Post Hoc Comparison of Significant Difference
The post hoc comparison reveals that there is significant difference of the educational skills of
owner / managers as perceived by themselves and their staff.
61
5.2 Conclusions
1. The owner / managers of the small businesses in the Kingdom of Bahrain are relatively young; there are
9 males and 1 female owners / managers. Some finished their BS degrees and some finished the secondary
education. In table 6, 6 pr 60% of the owners / managers are in business for 10 years and more. Two (2) or
20% have been in business for 7-9 years and only one (1) or 10% of the respondents are in business from
4-6 years and 3 years below.
This means that the owner / managers are really entrepreneurial and are competent in their business
undertakings.
2. The owners / manager are perceived to possess the different competencies like the leadership skills,
educational skills, interpersonal skills, professional skills and the managerial skills.
3. The subjects / respondents vary in their perceptions of the competencies of the owner / manager.
4. The data shows that the male owner / managers exhibit better managerial and leadership skills than their
female counterpart. The data likewise suggest that the relatively older owner / managers, exhibit better
educational skills that the younger ones.
5.3 Recommendations
Based from the findings and conclusions of the study, the researchers recommend the following:
1. The owner / managers should pursue their BS degrees to further strengthen their educational skills as
well as professional skills.
2. Capability building for the other skills. Like the leadership, interpersonal and managerial should
likewise be undertaken.
3 .Further researches should be conducted to rule out the factor that contributes to the varying responses of
the subjects and respondents.
ACKNOWLEDGEMENT
Foremost, I would like to thank the Arab Open University Bahrain for continuously nurturing my
desire to conduct research, no matter how simple these maybe, kind to mention the following
Supervisors:
Dr. Adnan, the Program Coordinator of the College of Business Studies, Dr. Habil Ogalo Slade, the
GCC for some third (3rd) level business subjects, Dr. Dananeer Jalal, the BCC for some third (3rd)
third level subjects and Dr. Ahmed Omar, also a BCC for some first level and third (3rd) level
business subjects.
The owner-managers of selected small and medium enterprises in the Kingdom of Bahrain, their
staff and others in these establishments who in one way or the other contributed to the
accomplishment of this simple research.
The staff of Bahrain Chamber of Commerce and Industry who furnished me with some relevant
sources of information to support the research.
My family for the encouragement to do every task I am interested with, my friends and my
colleagues, thank you very much.
And above all to my GOD for the everlasting Guidance and Protection for all my undertakings.
THE RESEARCHER
BIBLIOGRAPHY
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Bonich, Randalls B. Management. London: Allyn and Baun, 2000.
Cooper, Annabel. Leadership Through Strategic Planning, London: International
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Draft , R. Organization and Management. New York: Dell Publishing, 2004.
Dacslen, Gary. Leadership. London: Scott Forseman and Company, 2008, 2009.
Drucker, Peter. Management. New Jersey: Prentice Hall, Inc., 1998.
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Heinz, Ralph. Modern Management. (3rd edition), New York: Free Press, 2005.
Jawer, Mentin. Management of People. McGrawHills Company: 1995.
Peter, William. Great Leader for Great Government, New York: Haughton, Millan
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Unpublished Materials
Balton, E. “The Leadership Styles of Today’s Leader.” Research Paper,
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Huplin, Peter. “Leadership Styles in Selected Firms.” Research Paper,
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Magazines and Newsletters
Levisen, Tevera, Supervision Magazine, September, 2009
Levisen, Tevera, Supervision Magazine, January, 2010
Levisen, Tevera, Supervision Magazine, January-March, 2011
63
IMPACT OF FINANCIAL CRISIS ON ORGANISATIONAL BEHAVIOUR & JOB
SATISFACTION: HOW CAN CORPORATE LEADERSHIP ASSIST?
EVANGELIA FRAGOULI, University of Dundee
ABSTRACT
Job satisfaction is a very important work-related attitude that affects employees and their commitment and
performance on their job. A number of scholars have investigated the influence of the current global
financial crisis on employee satisfaction. Under the present circumstances, employees feel more
pessimistic, anxious and threatened in their professional environment. Researchers have attempted to
identify the possible ways leaders can help in order to boost their employees’ satisfaction. The present
work investigates the role of financial crisis on job satisfaction and the role of corporate leadership on
organisational behaviour. It is a qualitative study based on critical literature review. The study illustrates
that the high unemployment rates have pushed individuals to accept part-time and less well paying posts
which incur feelings of dissatisfaction, employees feel less happy and more pessimistic for their
diminishing job prospects. It concludes that through a shift in the leadership style employed by senior
management employees, positive results can be brought in such a crisis period. Concepts such as
transformational leadership, authentic leadership and a more flexibility-oriented organisational culture are
being further discussed in relation to their effect on job satisfaction.
Key words: Job satisfaction, financial crisis, transformational leadership, authentic leadership
1. INTRODUCTION
The economic crisis began in 2008 with analyst comparing it to the great depression of the 1930s which
brought business leaders into survival mode and organizations wishing to remain in business had to
remain in credit, with enough revenue on hand to meet short-term demands and enough capital available to
meet future obligations. This meant tough decision had to be made (e.g pay cuts) which affected the
organizational behaviour with regard to job satisfaction. The crisis revealed itself globally when US
investors lost assurance in secured mortgage, leading to a liquidity crisis. The immediate reaction was
substantial capital injection from the American Federal Reserve, Bank of England and European Central
Bank (Şerbănică et al., 2009, pp. 44-59) cited in (Mihaela 2012).The domino effect of the crisis was
manifested by the collapse of numerous bourses leading to bankruptcy of many banks, lenders , insurance
companies and organizations wishing to remain in business had to remain in credit, with enough revenue
on hand to meet short-term demands and enough capital available to meet future obligations. This was the
case for profit and not-for profit organizations and over this period, leaders found out how dependent their
operations are on how well others manage their finances and they also came to the conclusion that their
organizations may not be organized as well as they thought which resulted in them making tough choices
in a number of areas including product quality and production; property and plant management; acquisition
and expansion; and personnel. Though the crisis originated in the USA due to the bursting of the boom in
the housing sector, it spilled over to other countries so how did this scandal become a crisis, the source of
the problems was identified as poor risk controls, too much leverage, and blindness to the bubble-like
conditions in the housing market but really these were signs of a much bigger problem which was the
gradual but ultimately complete collapse of ethical behaviour across the financial industry (Grey Court
2008).
To give broader explanation to what we mean by collapse of ethical behaviour let’s take an in-depth look
at the financial industry. Financial firms, much more than other firms, live and die on trust because of the
nature of their business, but unethical behaviour in the financial industry eventually became so widespread
that trust was lost and so no one was willing to do business with anyone in the industry and this caused the
failure of the weakest, most leveraged, least-trusted firms which led business to dry up for firms that were
strong but were distrusted by the public (Grey Court 2008). Another behaviour that indicated the decay of
ethics in the financial industry was the disappearance of any sense of fiduciary responsibility to the
financial industry’s customers.so long as financial firms felt a sense of responsibility to their clients, there
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were serious limits on how bad their behaviour could become, but once they relied that their customers
could be treated badly and the only consequence was that profits went up the industry went straight to hell
.This attitude of neglecting customers was not without consequence as it caused customers to walk away
from the financial industry in gigantic numbers and this meant that the financial industry was doomed
(Grey Court 2008) .
The economic slowdown also brought the spectrum of downsizing and lay-offs which led to adverse
changes in work characteristics, decreased job control, high job insecurity, increased physical demands and
the general health of employees (Kivimaki et al. 2001) and this had a negative effect on the commitment of
employees.
It is important to understand the impact of the recession on the employees as it has a direct effect on
employee morale and well-being, which may have important consequences for Companies as they rely on
employees to produce and deliver high-quality products and services. The bottom line is that perhaps more
than any other single issue financial matters directly impact an organization’s ability to function. Work-
related attitudes seem to have interested a large number of researchers who have stressed the importance of
employees’ job satisfaction for the success and sustainability of the organisation. Various scholars have
tried to define the concept of job satisfaction (Spector, 1997; Kaliski, 2007; Armstrong, 2008) which refers
to the feelings, positive or negative, related to the tasks undertaken at work, developed by the individual.
Satisfied personnel usually lead to organizational success, whereas dissatisfied employees seem to be a
drawback for leaders’ vision for the future.
The question raised in this study refers to the negative effects of the financial crisis on employees’
satisfaction and how leadership can assist to the negative feelings they have due to the current poor
economic conditions. The study indicated that employees feel less happy and more pessimistic for their
diminishing job prospects. The high unemployment rates have pushed individuals to accept part-time and
less well paying posts which incur feelings of dissatisfaction. To add to that, limitations with regard to
promotion opportunities and the threat of losing the job act as factors that detach the employee from
innovative thinking and positive attitude towards their job. Hussein et al. (2011) argue that when rewards
and other satisfaction factors are absent, the individual displays lowered interest in their job which leads to
lower performance and commitment to it. As it derives through the literature, stress and anxiety also
increase the chance of employees displaying symptoms of anxiety, depression and hence lower
productivity.
A number of ways that can mitigate this problem are being discussed in this study. A shift in leadership
style employed by the leader towards a more transformational or authentic approach seem to be in the right
path to enhance employees’ satisfaction from their working environment. Moreover, a more flexibility-
oriented organisational structure would be appropriate for promoting a more supportive and innovative
context in the company.
2. A BRIEF REVIEW OF THE CONCEPT OF JOB SATISFACTION
Job satisfaction has received a lot of attention from scholars during the years but it seems that no
conclusive and widely accepted definition has been introduced (Aziri, 2011). One definition that appears to
be usually cited in the literature is that job satisfaction concerns the feeling of an employee for their job
and different aspects of it; whether they like their job or not (Spector, 1997). Kaliski’s definition focuses
on the joy the individual gets from doing their job and the enthusiasm they show about it, while at the same
time stresses the importance of rewards, such as recognition or promotion, to the fulfilling sentiment one
receives (Kaliski, 2007). Positive feelings mean that the employee is satisfied by doing their job, whereas
negative feeling imply dissatisfaction (Armstrong, 2008). The above definitions indicate that job
satisfaction is a multi-fold concept that is perceived differently by different individuals (Mullins, 2005).
According to Galup et al. (2008) satisfaction of the employees plays a vital role in the success of the
organisation. In other words, a successful company usually has satisfied employees and vice versa.
Research has shown that the main drivers for job satisfaction are “achievements, recognition, responsibility
and the work itself” (Kok and Muula, 2013, p.5) as well as job security, flexibility and leadership (Voon et
al., 2011). The presence of these drivers from senior management towards the employees guarantees a
positive work-related attitude. However, other factors such as working conditions and salary, can affect
negatively the employees’ satisfaction. In problematic situations (e.g. during the financial crisis) the staff
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availability is low and the workload of individuals much larger, which result in lower job satisfaction.
Cooper-Hakim and Viswesvaran (2005) consider two components of job satisfaction; extrinsic and
intrinsic. Extrinsic satisfaction refers to external aspects of the job, affected by external circumstances, like
“remuneration, management policies, physical conditions, or job security” (p.414). On the other hand,
intrinsic satisfaction derives from the job itself and refers to the feeling the individual gets from the nature
of their work (Hirschfield, 2000).
3. INFLUENCE OF CRISIS ON ORGANIZATIONAL BEHAVIOUR
People are often described as an organization’s most valuable resource it is perceived that is by the actions
of people that the organization’s mission is realized as they effect operations (skipper 2009). Staffs are
often one area first affected during financial crisis Layoffs, reduction in force and downsizing are some of
the issues employees face during financial crisis. All this activates will obviously have a huge impact on
the employees or staff of an organization so in order to understand this impact that is where the study of
job satisfaction comes in but the first question one needs to answer is what is job satisfaction? Job
satisfaction is regarded as a bi-dimensional concept consisting of intrinsic and extrinsic satisfaction
dimensions. Intrinsic sources of satisfaction are related to individual characteristics such as the ability to
use initiative, relations with supervisors and the work that the person actually performs, whereas extrinsic
sources of satisfaction are Situational and depend on the environment (for example, pay, promotion and
job security) and are essentially the financial and other material rewards or advantages of a job (Rose,
2001) cited in (European Foundation for the Improvement of Living and Working Conditions 2013).
Theorists (Sousa-Poza and Sousa-Poza, 2000) suggest that job satisfaction depends on the balance between
factors like education, working time and effort which are inputs into the organization and factors like
wages, fringe benefits, status, working conditions which are seen as output of the job. It is believed that if
the work–role outputs increase relative to work–role inputs then job satisfaction will increase. By the
annual Society for Human Resource Management (SHRM) 2014 an employee job satisfaction and
engagement survey is carried so as to identify and understand factors important to overall employee job
satisfaction from the perspectives of both employees and HR professionals. Compensation/pay, job
security, opportunities to use skills and abilities, benefits, relationship with management and work
conditions employees’ top five very important job satisfaction contributors.
Compensation/Pay
Compensation/pay was rated as “very important” by 60% of employees in 2013, this is not surprising as
many firms have responded to the economic crisis by reducing employee numbers, introducing short-time
working, and cutting pay and benefits. In the survey conducted by the WSI Institute in Germany 11% of
employees indicated that they had suffered cuts in their regular monthly income, together with reductions
in other benefits, such as Christmas and holiday payments, allowances and premium pay. In Austria,
information on wages and job satisfaction during the crisis is available (Arbeitsklima Index) but this was
cited in the (European Foundation for the Improvement of Living and Working Conditions 2013).The
report shows that Austrian employees were less satisfied with their income in 2010 than they were in 2000:
65% reported being ‘(very) satisfied’ with their income in 2000 while 58% were ‘(very) satisfied’ in
2010.Employees were then asked how likely they were to stay with their current company if they were
offered more money, with the same benefits, at another company and the result was that almost six out of
10 employees indicated that they would be very likely to leave their current position if they received an
offer of a 30% salary increase and the same benefits package from another company
Job security and opportunities to use skills/abilities
In a period of recession it would not be surprising for employees to have greater concerns about their job
security which was proven by the Society for Human Resources Management (SHRM) 2014 survey,
because it rated second (59% each) along with opportunities, to use abilities among the factors reported as
“very important” to job satisfaction . In a survey carried out in Germany by the WSI Institute it was
discovered that more than a third (38%) of respondents stated that the economic situation of their
employing organisation had deteriorated between the beginning of 2009 and the time at which they
responded to the survey. The result was not a surprise because the case was also dire for the US economy
where the crises began, according to SHRM Labour Market outlook, seven out of 10 human resource
professionals were anticipating deeper job cuts in the U.S. labour force in the first quarter of 2009.
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According to a SHRM poll conducted in early 2009, 30% of employees believe that in six months their
jobs would be moderately or significantly at risk.
It is generally thought that employees feel good about their jobs when they are using their skills and
abilities and contributing to the organization. In the SHRM survey of 2009 employees were asked how
certain factors have affected their sense of job security during the current economic climate and the result
they got was that one -half of employees (47%) indicated that their professional abilities/skills and the
importance of their job (role) to their organization’s overall success increased their sense of job security.
Relationship with management
The relationship with immediate supervisor or management rated (54%) in the survey Van Rooy et al
(2008) cited in ( Klappe 2013) are one of the first authors who analyse employee engagement in relation to
the financial crisis. They concluded that employee engagement programs are often among the first
programs to be postponed or removed during times of financial crisis, because companies are forced to
reduce their costs, but they also reach the conclusion that this action of cutting out employee engagement
was short-sighted and actually the worst thing to do.One of the few researchers who clearly studied
employee engagement was the Marchington and Kynighou (2012). They examine the relationship between
the financial crisis and employee engagement by reviewing annual reports of companies. In their analysis,
they found examples of large international companies that had to downsize as a consequence of the
financial crisis, and yet to maintain or increase the engagement of their employees. Some of the examples
are:
• Marks and Spencer: There was a plan to fire over 60.000 staff but was amended in 2009, and 1.000 jobs
were actually cut and employee engagement levels increased in 2009.
• Shell: After the crises shell underwent a major restructuring of the business in 2009 so as to engage more
directly with employees. This included frequent letters from the CEO, webcasts, publications and face-to-
face gatherings. However, the Shell People Survey showed a decline from 78% to 71% in employee
engagement scores between 2009 and 2010.
Benefits
The overall benefits package score 53%, this is not surprising as employee benefits are used by
organizations to recruit and retain top talent. In times of economic recession, when organizations might not
be able to give employees pay raises and bonuses, benefits become one of the many tools employers use to
increase loyalty, productivity and job satisfaction.
Employers that have been confronted by the current economic crises are taking actions to help them
weather the economic storm while continuing to achieve their business goals. In doing so, some employers
have either reduced, frozen or completely removed employee benefits. In SHRM US survey of 2009 17%
of companies that indicated they have reduced employee benefits as a way to cut cost, 78% reported that
they have reduced health care coverage for employees. Benefits aids for employees can include a wide
array of perks; however, the ones employee view as primary importance health care, paid time off,
retirement and family-friendly benefits.
Workplace Conditions
The work conditions with 51% rounded up the top five factors that contribute to job satisfaction. Working
conditions have worsened during the economic crisis and when Workplace managers were asked about
the extent to which their workplace had been adversely affected by the recession in the Work Place
Employment Relations UK survey the result was varied. One fifth (19%) said that the recession had
affected their workplace ‘A great deal’, while one quarter (24%) said that it had affected them ‘Quite a lot’.
A further 27% said that it had affected them ‘A moderate amount’ and one in six (18%) said that it had
only affected them ‘A little’. The remaining 11% said that the recession had ‘No adverse effect’ on their
workplace. The economic crises as stated earlier comes with pay cuts and downsizing which means staff
may have to work more for lesser pay, in the WSI Institute Germany survey carried out Three-quarters
(76%) of respondents in organisations highly affected by the crisis reported that pressures to perform had
increased; 75% stated that the workplace atmosphere had depreciated; and 66% felt that opportunities for
promotion had become more limited. In whole the survey a large number of respondents (65%) stated that
they were under greater pressure to perform, and 57% stated that the work- place atmosphere had
worsened when it was done for every company in Germany.
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4. EFFECT OF CRISIS ON JOB SATISFACTION
The literature shows that the financial crisis that hit many nations around the world and the austerity plans
introduced in order to cope with it have had a negative impact on employee work-related attitudes. The
tough measures on behalf of the government, through lowering public expenditure, subsidies and social
benefits, as well as the inevitably high unemployment rates have caused changes in employees’
organisational behaviour (Ghellab and Papadakis, 2011). Several surveys conducted around the world have
shown similar findings; individuals’ wellbeing and happiness, but also job satisfaction, job motivation and
job security levels are decreasing drastically (Bell and Blanchflower, 2011; Seršic and Sverco, 2000; Mehri
at al., 2011; Lee et al., 2011). The financial crisis is perceived as a threat imposed by the current
environment on employees in various sectors and countries.
Lower happiness levels, pessimism and dissatisfaction
Bell and Blanchflower (2011) argue that employees from Southern Europe (especially Greece, Portugal
and Spain) are noticeably less happy due to the recession. Their research focuses mainly on the wellbeing
levels and job attitudes of employed and unemployed people and their expectations toward the future.
People become less optimistic with time and their expectation is that the crisis situation will worsen and
job prospects will diminish. They argue that employees in Europe become more and more dissatisfied with
their surroundings and professional environment. However, further research indicates that this is not a
strictly European phenomenon but rather a global one. Lee et al. (2011) demonstrate in their study that the
high unemployment rates in Asia and more particularly in Taiwan are affecting labour’s feelings as well as
direction. The financial crisis has led many people to seek part-time employment and hence obtain lower
monthly income due to the fact that temporary workers are less well-paid that they would be in a
permanent position. Their research indicates that the low availability of working hours and low wages are
worsening the feeling of dissatisfaction that employees get form their job. Therefore, there is a positive
correlation of monthly income and job satisfaction level.
Deterioration of professional competencies and fewer job prospects
Under these circumstances, the focus of the employed individual deviates from the norm, as he or she
believes that the crisis situation is posing limitations to his or hers competencies. As everyday uncertainty
prevails, individuals fear that they may have overlooked or not satisfied part of their duties (Leonardelli et
al., 2007). It is also obvious that in turbulent times opportunities for professional acceleration worsen and
employees focus more on trying to maintain their current job than on become more innovative and
entrepreneurial (Filippetti and Archibugi, 2011). In line with these beliefs, Lanaj et al. (2012) indicate that
when a crisis event forces employees to focus on maintaining their post rather than on other future positive
outcomes, such as the probability of being promoted, there is a negative correlation with their job
satisfaction.
Absence of factors that improve job satisfaction
Furthermore, Hussain at al. (2011) consider three factors that boost job satisfaction and performance;
motivation, expectations and rewards. However, the presence and the degree of their presence in
employees’ professional lives are being squeezed due to the recession. The economic downturn of the
latest years and the trend of companies to invest more in developing countries have left them with less
funding which results in downsizing their personnel. The employees’ spirit is also lower due to the
financial situation and uncertainty, facts that make them dissatisfied with their working status. They lose
interest in their job and become more and more demotivated (Hussein et al., 2011). These negative feelings
result in lower performance and lower esteem of the individual about their job (Etemadi, 2004). The
adverse effect of the financial crisis on moods and overall feelings can be found in Markovits et al. work
(2013) that underpins the fact that even those employees who remain in a company after a layoff period are
very likely to show lower commitment due to fact that they identify with their colleagues who have been
fired.
Job stress, depression and lower productivity
Lastly, the increasing uncertainty caused by the job crisis is also causing feelings of stress to employees,
especially in women (Witkin, 2001). Research has underlined the strong correlation of job stress and job
satisfaction (Cremlin and Biosir, 2009). This form of increased and continuous anxiety can lead individual
employees to depression and lower productivity (Pliezer at al., 2007). Another cause for job-related stress
is the fact that employees have more complex tasks to address. This happens especially due to the fact that
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their companies downsize and they are given a heavier workload on top of their past job requirements
(Wanan et al., 2003). Brockner et al. (1993) also argue that in general, stress levels rise pursuant a layoff
period. On the other hand, this stress could also act as a motivation and increasing commitment to work for
the particular company, as the employees, despite having lower job satisfaction, they feel that they are
‘stuck’ with the company because they do not have alternative opportunities (Markovits, 2013). It appears
that the individual is trying to balance out the gains and losses that arise from staying in or leaving the
company as such a sacrifice may be too costly for them. In any case, their satisfaction decreases due to
stressful feelings and the idea that they cannot take advantage of other occasional opportunities (conversely
to the situation prior the crisis). However, apart from the feeling of organisational commitment out of
necessity, the literature shows that the financial crisis does not present any significant effect on the
employee’s morale about staying in the organisation out of feelings of loyalty. These feelings are
developed as social values outside the company and before the individual joins an organisation (Markovits,
2013).
5. HOW LEADERSHIP CAN COUNTERACT THE LOW JOB SATISFACTION LEVELS?
Several studies have shown that the past leadership practices are not sufficient in the current financial
environment. The downturn that has been affecting the economy since 2007-2008 has put a lot of pressure
on leaders who need to adopt a new kind of mindset in order to mitigate the negative effects of the crisis
and to satisfy their human force (Elo, 2009).
5.1 Change of leadership style – The transformational leader as a motivation role model
Leadership style is studied to be a vital factor influencing employees’ job satisfaction. When leaders adopt
the appropriate leadership style, they can affect employees’ feelings and beliefs as well as their
commitment and performance (Voon et al., 2010). Timothy and Ronald (2004) have indicated that
different leadership styles affect the workplace in different ways. More specifically, the transformational
style of leadership affects positively satisfaction in the organizational environment (Felfe and Schyns,
2006). In his way towards a common outcome along with his followers (Northouse, 2010), the
transformational leader acts as a role figure that has gained the respect of his followers/ employees. This
particular concept of leadership is crucial in turbulent times, such as the current global financial crisis,
when institutional reform is inevitable. Such times call for a leadership behaviour that will aid develop
motivation and commitment from the side of the employees (Leithwood and Jantzi, 2000). In line with
Leithwood and Jantzi, Litz and Litz (2009) argue that this type of leadership will help go through a fast
paced and highly internationalized world, where economic downturns are bound to be global. This change
has to be embraced by the leader who, by so doing, will inspire trust and feelings of deep respect to the
employees (Brown, 2009).
The work of many scholars has shown that the transformational leader focuses on introducing changes in
the organizational environment and trying to motivate and engage his followers while, at the same time, is
trying to cover their needs (Alsaeedi and Male, 2013). According to Franco et al. (2002), motivation in the
professional environment is the eagerness of the individual to put effort in achieving goals that are
common to them and the organisation. When motivation improves, so does the employees’ performance
(Kok and Muula, 2013) and positive feelings are induced for their job. In order to satisfy employees, an
effective leader should attempt to turn the chaotic situation into a “productive zone of disequilibrium”
(Heifetz et al., 2009, p.5).
In addition, a keen leader will be able to initiate innovative and entrepreneurial thinking, focusing on the
need on employees to identify with the organisational goals and success. Employees need to feel that they
are part of the organisation and that their ideas and values are accepted, something that makes them more
willing to maintain their position in a company (Markovits et al., 2013). This way of thinking reflects on
the cognitive need of the individual to belong in a team (Vandenberghe, 2009).
5.2 Change of leadership style – The authentic leader as a genuine and transparent role model
Another form of leadership style that has positive impact on employees is authentic leadership. An
authentic leader is an individual who acts in his workplace the same way as he acts elsewhere; in other
words he is genuine (George et al., 2007). This type of leader is self-aware of his strengths and weaknesses
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and draws his leadership techniques from his own experiences and internal values (Avolio et al., 2004). He
is also open to his followers about his thoughts and communicates effectively in order to motivate and
empower them by being transparent and ethical at the same time (Avolio et al., 2004; Caldwell et al.,
2008). To add to that, the authentic leader uses his intrinsic morale in order to inspire his followers and
align their goals and achievements to those of his company. These competencies are argued to have a
positive relation to employees’ performance (Peterson et al., 2012) and job satisfaction (Bamford et al.,
2012) because they have a role model to look up to.
5.3 Shift to a more flexible organizational culture
Furthermore, another concept that appears in the literature to be very important for the improvement of job
satisfaction is organisational culture. The current, increasingly competitive environment calls for
companies to invest in and develop their own organisational identity (Azanzaa and Moriano, 2013). An
organisation’s culture can change due to the circumstances and the leader is the person who can initiate
such change successfully in order to enhance organisational performance. McKinnon et al. (2003) and
Silverthorne (2004) argue that employees are more likely to be satisfied and happy in a more flexibility-
oriented environment. This environment is more supportive towards the development of employees and by
also promoting innovation, it creates better opportunities for the organisation in the competitive economy.
Such a company is more appealing for employees who would rather work in this context than in a more
control-based, hierarchical one (Azanzaa and Moriano, 2013). This is also studyed by Brown (2009) who
argues that in poor economic conditions, it very important that a company has the ability to maintain its
human capital. Employees with higher level of satisfaction will remain at their jobs and will be willing to
work harder and be more loyal to the company. Especially through rewards, as it is backed by Voon et al.’s
research (2011), employees get more satisfaction from their working conditions. Moreover, an
environment that promotes openness and high values acts as a motivation for higher performance and
commitment (Wolf, 2009). When the leader empowers his followers and communicates his vision for the
future by encompassing them in his decisions, he promotes creativity and he sets the foundations for
adaptability to the harsh economic situations (Henri, 2006).
6. CONCLUSION
The overall aim of the present work is to underline the relationship between economic conditions and job
satisfaction. The consequences of the current financial crisis on work-related attitudes of employees were
discussed in the first part and were found to be severe and potentially dangerous for the organization. It is
obvious from the above that financial crisis affects employees and organization negatively and research
have indicated that employees who are satisfied with their jobs are more likely to stay with their
employers. Pacelli et al (2008) cited in (Chung et al 2010) also found a link between income security,
measured as wages, and perceived job insecurity of individuals. One can argue that there is a positive side
to the crisis’s at least for the organization, In Norway for example the financial crisis and economic
uncertainty led to more than a third of employees to be more loyal to their employers than ever before.
This finding was revealed in the 2010 edition of a global workplace survey called the Kelly Global
Workforce Index the survey revealed that 35% of Norwegian workers believed the financial crisis had
made them more loyal to their employers.
The impact of the financial crisis on employees cannot be tied into one neat bow as what constitute as job
satisfaction has been known to be different for everyone, Erlinghagen discovered that individuals that
classify their household financial situation as bad also fear for job loss, even when other individual
characteristics are taken into account (Erlinghagen, 2008). He explains this relationship through by telling
us the gravity of the situation for these individuals losing their job, therefore impacting how they see a job
insecurity. Similarly, Anderson and Pontusson (2007) more or less echoed the same sentiment, but job
satisfaction could also depend on their age, gender and the sector they work for. According to the Kelly
global workforce The impact of economic uncertainty was greatest among older workers (aged 48–65
years), among whom 38% said they had become more loyal compared with 36% of those aged 18–19 years
and 33% of those aged 30–47 years.
The above result is not surprising because with the significant drop in the stock market in late 2008, many
older workers may need to continue working past retirement age because their retirement benefits are no
71
longer what they expected which means S defined benefit pensions are not likely to be available to
Generation X employees by the time they leave the workforce, according to many predictions, hence this
group will feel the need to be loyal more at the time of crisis’s and their level of job satisfaction will be
easier met than those of the young bracket. Historically most downturns have hit the least skilled the
hardest, as employers hold on to workers with unique skills who would be expensive to replace but given
that low-skilled and low-paid employees are mostly of the younger generation they will or have
experienced a greater decline in income and more job insecurity which means their level of job satisfaction
will be lower and harder to meet. Age and skill is not only the determinant of how economic recession
will affect employee gender also play a role, the Cyprus Gender Equality Observatory (CGEO) reported
that within a specific wage group, men feel more insecure than women. The sector one works for, also
determines how employees have been affected by the financial crisis according to the WSI Institute survey
most marked deterioration, measured in terms of employee responses, was in the metalworking industry,
where this was indicated by 65% of respondents, 28% in financial services., chemicals (53%) especially
hard hit. The reduction measures used include leaving vacancies unfilled, allowing fixed-term contracts
to expire, and terminating the use of agency employees which meant that employees that were contract
staff or temps were out of jobs and not likely to get a new one which entails that their job satisfaction will
be low.
This study suggests some ways that can solve the problem of low satisfaction levels. At first, leaders have
to change their style of empowering employees in order to motivate them. Two leadership styles have
arisen to be more effective in boosting job satisfaction; transformational and authentic leadership. The
former promotes motivation and entrepreneurial thinking that make employees feel that they are part of the
organization. The latter focuses on the values, transparency and authenticity of the leader who inspires
morality and respect to his followers. The last concept that is introduced in this study is a more flexibility-
oriented organizational structure which promotes a more supportive and innovative environment for
employees to work in. Such employees, literature shows, are going to be more satisfied by their
professional environment.
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75
FINANCIAL EFFECTIVENESS OF MUNICIPALITIES IN GREECE AND THE USE OF
MODERN FINANCIAL TOOLS
CHRISTOS L. PALLIS, Hellenic Open University
PETROS L. PALLIS, University of Piraeus
Abstract
Municipalities are autonomous economic and administrative entities, with common actions and
responsibilities. The primary aim of this survey is to investigate and observe phenomena and views related
to issues concerning Greek municipalities, such as the financial problems they face and which is the
funding scheme they prefer.
The entire sample of municipalities in Greece has been separated into categories, based on the
effectiveness of financial management and financial performance into effective and ineffective ones. In
this study, we investigated the existence of differences between the characteristics of these two categories.
The main objective is to investigate the views of Mayors in each Municipality as regards the influence of
financial effectiveness on: (a) which is the most important source of finance, (b) which is the most
important financial instrument and (c) which is the financing instrument that would prefer to use.
Key words: Municipalities, Financial Effectiveness, Funding, Financial Tools, Empirical Investigation,
Greece
1. Introduction
Municipalities are autonomous economic and administrative entities, with common actions and
responsibilities. On the other hand, all municipalities are quite different considering specific
characteristics, such as geographic, demographic and economic. The aim of this research is to separate the
entire sample of municipalities in Greece into categories, based on the effectiveness of financial
management and financial performance into effective and ineffective ones.
In this study, we investigated the views of Mayors in each Municipality as regards the influence of
financial effectiveness on: (a) which is the most important source of finance, (b) which is the most
important financial instrument and (c) which is the financing instrument that would prefer to use.
The following chapter will present the methodology used, including a description of the sampling and data
collection process, determination of the population, specification of the scope of the sample, definition of
the sampling unit, etc. The third chapter will present the results of the methodology used, and the results
of data analysis. Finally, the fourth chapter will set out the overall conclusions of the research.
2. Methodology
This chapter presents the research methodology adopted in conducting this empirical project. More
specifically, it includes: (a) the definition of population and the study sample, (b) the data collecting
method, (c) the response to the survey and the characteristics of Municipalities participating, and (d) the
process whereby the research tool used to collect data was created (structured questionnaire) and its
analytical presentation. The process of choosing the sample and collecting data is complex and includes six
stages (Stathakopoulos, 2001): Definition of population, Determination of the sampling frame, Definition
of sampling unit, Determination of sample size, Implementation. From this process the total number of
respondents that will participate in the survey emerges.
The first and most important step in the primary data collection process is to define characteristics on the
basis of which the population to be examined will be defined (Churchill and Iacobucci, 2002). The full
definition of the population requires the inclusion of four basic parameters: the item, the sampling unit, the
extent of the sampling and the time (Parasuraman et al., 2004). The item and sampling unit in this survey
are defined as the Municipalities of Greece, the extent of sampling concerned the whole of the Greek state
and the time it was conducted was from 10 June 2010 up to 30 September 2010. Communities in Greece
were excluded from the population in the survey due to their small size and different needs in relation to
the Municipalities. So in the end, the survey population was defined as being the 914 Greek Municipalities
throughout the state, as recorded in the inventory of the National Statistical Service (2001).
77
The next step, after defining the population to be examined, is to locate a sampling frame which must be
composed of the fullest and most accurate inventory possible of members of the population to be examined
(Churchill and Iacobucci, 2002). The sampling frame used in this survey was the most recent inventory of
the National Statistical Service (2001) which includes the census of the population of Greece based on
geographical Districts, Prefectures, Municipalities and Communities.
The sampling units were defined as being the Greek Municipalities. As regards the respondents from
whom survey data was collected, the «key informant method» was used, meaning the person in the survey
unit (Municipality of Greece) who had the greatest knowledge of the subject of the survey. This method
reduces to a satisfactory degree any concerns regarding the reliability of answers given by respondents, as
the respondent chosen in each unit is the best available person with knowledge of the data that must be
collected through the survey (Kumar, Stern and Anderson, 1993). In this survey the key informant was
chosen to be the Mayor in each Municipality examined.
Sampling methods considerably affect the possibility of generalizing the results. In order that the results
emerging in the sample might be generalized throughout the total population, a probability sample must be
used (Kinnear and Taylor, 1996) in which each unit in the sample has an equal chance of being selected
from the population. The safest way of producing a probability sample is the population census and the
definition of the total census as a sample in the survey (Stathakopoulos, 2001). This method was followed
in this survey, ensuring the generalization of results.
As a result of the census method, the size of the sample coincides with the size of the population in the 914
municipalities recorded in the inventory of the National Statistical Service (2001). With reference to
conducting the survey, the two following sub-paragraphs explain the method of contact with the
respondents and the reasons they were finally chosen, as well as the results of the method. Completion and
collection of questionnaires was carried out during the period from 10 June 2010 to 30 September 2010 in
one phase with the use of self-completion questionnaires. The sample in the survey (which coincides with
the population in the survey) is characterized by considerable heterogeneity, as it has been specified that it
will be all the Municipalities in Greece.
3. Research Results and Data Analysis
The method of collecting data that was used, in the end brought about the collection of questionnaires from
299 Municipalities out of the total of 914 that had been specified as the sample population. This result
provides a response percentage of 33% which is considered quite satisfactory, on the basis of the method
adopted (Kinnear and Taylor, 1996). As described in table 1 (Pallis and Pallis, 2013), the 299
Municipalities that responded to the survey represent the total population as there was good stratification
and representation from all Prefectures in Greece with fairly satisfactory response percentages in each
Prefecture. The Greek Municipalities that finally answered the questionnaire represent all the
Municipalities in Greece as there was no Prefecture in which the individual response percentage was not
satisfactory. Out of the 299 questionnaires collected, 41 were excluded from the analyses due to a large
number of answers to questions that would have reduced the statistical reliability of the findings.
Additionally in these 41 excluded questionnaires, cases were observed in which the respondents
misinterpreted the hierarchical questions. In the end out of the 299 questionnaires 258 exploitable ones
were taken into account in the survey (87%), a number which is statistically acceptable (eg. Kohli and
Jaworski, 1990, Narver and Slater 1990, Ruekert, 1992).
Table 1. Respondents per Prefecture
Geographical Prefectu Municipalities Total Number of Respo Municip Total Respo
Municipalities nse alities Populati nse
Districts res Participation
48 50% Participa on of 42%
(number) 26 35% tion Municip 58%
12
Attica Athens 24 (populati alities
9 78 on)
Eastern 2.664.776
Attica 5 1.111.093
Western 365.731
212.327
42% 115.702 150.847 77%
Attica 9 16 56% 319.164 540.540 59%
Piraeus 47 102 1.758.286 3.721.894
7 29 46,07 47,24
Subtotal % 75.881 224.429 %
7 18 24%
Rest of Central Greece Etoloakar 9 25 33,81
5 11 %
and Euboea nania 9 23
4 12
Subtotal Boeotia 41 118 39% 68.524 125.681 54,52
Peloponnese Euboea 6 14 31.968 212.993 %
Evrytania 7 22 36% 12.542 32.053
Subtotal Fthiotida 7 21 42.466 177.631 15,01
Ionian Islands Fokida 5 22 45% 15.190 48.284 %
6 15 246.571 821.071
Subtotal Argolida 9 20 39% 52.326 104.323 39,13
Epirus Arcadia 6 29 28.055 101.444 %
Achaia 46 143 33% 27.611 321.389
Subtotal Ilia 2 6 7.849 193.288 23,91
Thessaly Corinthia 4 13 34,74 87.142 154.624 %
Laconia 4 8 % 32.404 97.966
Messinia 2 6 43% 72.767 175.213 31,46
12 33 308.154 1.148.247 %
Zakinthos 2 13 32% 16.475 39.015
Corfu 2 8 18.279 110.317 30,03
Cefalonia 10 28 33% 14.448 38.435 %
Lefkada 2 8 23% 4.444 21.843
16 57 40% 53.646 209.610 50,16
Arta 6 20 9.126 75.634 %
Thesproti 9 28 45% 9.527 43.071
a 8 22 25.967 165.500 27,66
Ioannina 21% 14.385 58.304 %
Preveza 79 59.005 342.509
32,16 32.286 127.774 8,59%
Karditsa % 173.782 272.966
Larissa 33% 22.214 202.632 4,06%
Magnesia
31% 56,36
%
50%
33,08
33% %
36,36 41,53
% %
15%
26,84
25% %
36% 42,23
%
25%
16,57
28,07 %
%
30% 37,59
%
32%
20,35
36% %
25,59
%
12,07
%
22,12
%
15,69
%
24,67
%
17,23
%
25,27
%
63,66
%
10,96
%
Subtotal Trikala 7 23 30% 64.352 134.963 47,68
Macedonia 30 93 292.634 738.335 %
Grevena 4 8 32,25 17.273 35.255
Subtotal Drama 2 8 % 11.215 103.545 39,63
Thrace Imathia 4 12 50% 52.620 143.618 %
Subtotal Thessalo 14 45 263.496 1.057.825
Aegean niki 4 11 25% 89.436 145.054 48,99
Kavala 2 12 52.063 %
Subtotal Kastoria 4 11 33% 6.117 88.654
Crete Kilkis 6 16 35.481 152.138 10,83
Subtotal Kozani 3 11 31% 75.182 145.797 %
Pella 3 13 51.276 129.846
Pieria 5 22 36% 21.074 197.774 36,64
Serres 2 8 88.768 51.770 %
Florina 3 14 17% 17.267 104.894
Chalkidik 56 191 14.166 2.408.233 24,91
i 4 13 36% 743.371 149.354 %
2 7 26.207 97.525
Evros 4 9 38% 52.270 104.854 61,66
Xanthi 10 29 62.770 351.733 %
Rodopi 7 25 27% 141.247 189.152
8 20 89.869 106.836 11,75
Dodecane 4 17 23% 35.824 108.747 %
se 2 8 23.231 43.595
Cyclades 2 10 23% 14.622 53.408 40,02
Lesvos 23 80 2.920 501.738 %
Samos 7 26 25% 166.466 292.489
Chios 3 8 171.971 74.613 49,42
4 11 21% 45.683 82.956 %
Iraklio 4 23 10.456 149.703
Lassithi 18 68 29,31 22.400 599.761 35,17
Rethymn % 250.510 %
on 80 31%
Chania 16,23
29% %
44% 44,88
%
34,48
% 33,35
28% %
40% 13,51
%
24%
30,87
25% %
20% 17,55
28,75 %
% 53,60
27% %
38% 59,86
%
36%
40,16
17% %
26,47 47,51
% %
33,53
%
21,36
%
33,54
%
5,47%
33,18
%
58,80
%
61,23
%
12,60
%
14,96
%
41,77
%
Total 299 914 32,71 4.019.890 10.843.13 37,07
% 1%
Source: Pallis and Pallis, 2013
3.1 Division of sample into categories depending on financial performance
This section of analysis aims to divide the entire sample into categories, based on financial management
efficiency (efficient - inefficient municipalities). (Pallis and Pallis, 2014) Cluster analysis was used to
separate the sample in groups. (Pallis and Pallis, 2014) This statistical analysis is a widely used method in
various scientific fields, including biology, IT and marketing (Kinnear and Taylor, 1996). The aim is to
explore the possibility of dividing the sample into clusters based on one or more characteristics (variables)
(Kinnear and Taylor, 1996).
In this research, three variables were used for the creation of clusters, which are: a municipality’s
borrowing capacity, flexibility in non-investing costs, and flexibility in investment costs. These three
variables were considered to be the key dimensions of efficiency in financial management; therefore, their
use is illustrative of efficiency. (Pallis and Pallis, 2014) The observations that resulted from sampling can
indeed be divided into two groups on the basis of the three questions above. The first cluster includes 110
municipalities, while the second one includes 146 municipalities. The value for the first cluster centers
(central observation) was 3 for all three variables, while the value for the second cluster centers was 2 for
all three variables. Considering that the potential answers to the questions used ranged from 1: very good
to 4: poor, the first cluster can be named “Municipalities with inefficient financial management” and the
second cluster can be named “Municipalities with efficient financial management”. (Pallis and Pallis,
2014)
3.2 Descriptive measures of variables for municipalities with ineffective financial management
Table 2. The Most Important Source of Funding
Source of Funding Frequency Percentage %
State subsidies 33 30
Own revenue from state taxes and business activity 20 18
Revenue yield from direct taxation 29 26
Revenue yield from indirect taxation 12 11
European funds 17 15
Total 111 100
Figure 1. The Most ImportaΚnύρtιαSΠoηγuή ΧrρcηeματoοδfότFησuηςnding
30%
25%
20%
15%
10%
5%
0%
Κρατικές επιχορηγήσεις Ιδία έσοδα από τέλη και Απόδοση εσόδων άμεσης Απόδοση εσόδων Ευρωπαϊκά ταμεία
The outcome of the analysis clearly indicates that the most important source of finance for municipalitiesεπιχειρηματική δράση
φορολογίας έμμεσης φορολογίας
with ineffective financial management are, for the majority of mayors, state subsidies (30% percent). A
smaller percentage of mayors consider alternative sources to be more important. Specifically: 26% of the
sample consider revenue from direct taxation to be most important, 18% own revenues from levies and
their own business enterprise initiatives, and 15% give top ranking to European programs. The source of
81
finance characterized as the most important by the smallest number of mayors in this category of
municipality, that is, 11%, was the revenues derived from indirect taxation.
Table 3. Financial Instruments that Municipalities Use Frequency Percentage %
18 17%
Financial Instrument 43 40%
Local taxes 5 5%
European programs 18 17%
Bank loans 7 7%
State loans 8 7%
Leasing 8 7%
PPP 107 100%
Utilization of real estate assets
Total
Figure 2. Financial Instruments that MΧρuηnμiαcτiοpδaοlτiιtκiάesΕρUγsαeλεία
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
The vast majority of mayors (40%) in municipalities with ineffective financial management replied to this
question by stating that their most important financial instrument is European program funding. Responses
giving top ranking to local taxation and lending from government bodies were fewer, though worth noting,
given that 17% of mayors in charge of municipalities in this category ranked these sources as most
important. All other forms of financing were judged to be the most fundamental by a much smaller
percentage of respondents. It is worth noting that the three forms of borrowing were ranked as the most
important instruments by 29% of mayors in this category, a significantly higher percentage than the
corresponding percentage of the overall sample (21%). Diminished financial capacity is probably the
reason that these municipalities rely to a greater extent on loan financing.
ΕυρωπαϊΤκοάπικπήροφγορράομλμοαγίταα
ΔανεισμόςΤαρπαόπκεζριακτόιςκοδύαςνεφιοσρμεόίςς
Χρηματοδοτική μίσθωση
ΣΔΙΤ
Αξιοποίηση περιουσίας
Table 4. Financial Instruments that Municipalities Prefer to Use
Financial Instrument Frequency Percentage %
15%
Local taxes 16 61%
6%
European programs 66 3%
1%
Bank loans 6 2%
6%
State loans 3 6%
100%
Leasing 1
PPP 2
Utilization of real estate assets 7
Municipal bond issue 7
Total 108
82
Figure 3. Financial Instruments that MuΧnρiηcμipαaτοliδtοieτιsκάPΕreρfγeαrλεtίoα Use
70%
60%
50%
40%
30%
20%
10%
0%
ΔανεισμΕόυΧςρρΤηαωρμππααόατϊΤπκκεοοζράδιπιοακκττπόιιήρςκκοοήφδγύοαμρςίρνάσεοφιμθλοσμοωρμαγείτσόίαηςας
ΈκδοσηΑξιδοημποοίτιηκσώηνποεμριοολυόΣγσίΔΙωανΤς
As observed in the previous table, European programs are the financing instrument which the vast majority
of mayors (61%) of municipalities with ineffective financial management would prefer to use. 15% of
mayors would prefer local taxation to all the other instruments, 6% bank borrowing, 3% exploitation of
assets and issue of municipal bonds, 3% borrowing from government bodies, 2% public & private
partnerships (PPPs) and only 1 mayor (1%) favored leasing. These results are not very different from the
corresponding results for the overall sample. This fact gives an indication that for the specific variable the
factor effective financial management is a differentiating parameter.
3.3 Descriptive measures of variables for municipalities with effective financial management
Table 5. The Most Important Source of Funding
Source of Funding Frequency Percentage %
State subsidies 40 28%
Own revenue from state taxes and business activity 35 24%
Revenue yield from direct taxation 35 24%
Revenue yield from indirect taxation 16 11%
European funds 17 12%
Total 143 100%
Figure 4. The Most Important SourceΠoηfγFέςunΧdρinηgματοδότησης
30%
25%
20%
15%
10%
5%
0%
According to the outcomes of the analysis, the source of finance judged to be most important by the
majority of mayors in municipalities with effective financial management, i.e. 28%, is state subsidies.
Fewer Mayors in this category consider own revenues from levies and business activities (24%), or
collection of revenue from direct taxation (24%) as being the most significant sources. Lastly, the sources
of finance which were characterized as the most important by fewer mayors in this category of
municipality are European programs (12%), and revenues from indirect taxation at 11%.
Ίδια έσοΑδΑπαπόόαδδοποσόσητηέελεσησόόκδδαιωΚωνρεναέπτιμάιχκμμεέιεεςρσσηεηηςςμπιαφχφτιοοοκρρρήοηογλλδοοήργγάσίίεσιααςςςη
Ευρωπαϊκά προγράμματα
83
Table 6. Financial Instruments that Municipalities Use Frequency Percentage %
Financial Instrument 32 24%
Local taxes 66 49%
European programs 6 4%
Bank loans 6 4%
State loans 8 6%
Leasing 6 4%
PPP 12 9%
Utilization of real estate assets 136 100%
Total
Figure 5. Financial InstrumΧeρnημtsοτtοhδaοtτMικάuΕnρiγcαipλεaίαlities Use
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
ΕυρωπαϊΤκοάπικπήροφγορράομλμοαγίταα Τραπεζικός δενεισμός Χρηματοδοτική μίσθωση ΣΔΙΤ
από κρατικούς φορείς Αξιοποίηση περουσίας
In response to this question, the majority of mayors (49%) in municipalities with effective financial
management said that their most important financial instrument was European program funding. AΔανεισμός
significantly large number of participants in this category (24%) ranked local taxation first. All other forms
of financing were judged to be the most fundamental by a much smaller percentage of respondents. The
differences between the percentages of the two groups of municipalities for all three forms of borrowing
(borrowing from government agencies, bank borrowing, leasing) is of particular interest. The sum of the
three percentages for the first group of municipalities is 29%, whereas for the second group it is 14%.
Table 7. Financial Instruments that Municipalities Prefer to Use
Financial Instrument Frequency Percentage %
8%
Local taxes 12 63%
7%
European programs 90 0%
2%
Bank loans 10 4%
State loans 0 11%
5%
Leasing 3
100%
PPP 6
Utilization of real estate assets 16
Municipal bond issue 7
Total 144
84
ΔανεισμΕόυΧςρρΤηαωρμππααόατϊΤπκκοοερζάδπιιοακκττπιιόήρκκςοοήφδγύοεμρςίρνάσεοφιμθλοσμοωρμαγείτσόίαηςαςFigure 6. Financial Instruments that MΧuρnημicαiτpοδaοliτtιiκeάsΕPργrαeλfeείrαto UseΣΔΙΤ
περουσίας
70% ομολόγων
60% Αξιοποίηση
Έκδοση δημοτικών
50%
40%
30%
20%
10%
0%
With regard to the previous question, the results indicate that the financing instrument which the vast
majority of mayors (63%) of municipalities with effective financial management would prefer is European
program funding. Moreover, 11% of mayors in this category would prefer to use the exploitation of
municipal assets, 7% bank borrowing, 8% local taxation, whereas other financing instruments were ranked
first by only a very small percentage of the respondents.
4. Conclusions
This research attempted to divide the entire sample into categories, based on the efficiency of financial
management (efficient - inefficient municipalities). Cluster analysis was used to separate the sample in
groups. Three variables were used to create the clusters in this research: a municipality’s borrowing
capacity, flexibility in non-investing costs, and flexibility in investing costs. As shown, the municipalities
were divided into two clusters, based on the three questions above. The first cluster includes 110
municipalities (Municipalities with inefficient financial management) and the second cluster includes 146
(Municipalities with efficient financial management).
In this study, we investigated the existence of differences between the characteristics of these two
categories. The main objective is to investigate the three mentioned questions regarding the use of modern
financial tools by Greek municipalities.
The outcome of the analysis clearly indicates that the most important source of finance for municipalities
with effective and ineffective financial management are, for the majority of mayors, state subsidies (28%
& 30% percent respectively). Responses to the specific question are not differentiated between the two
groups of municipalities. Therefore the sources from which financial resources are drawn do not affect the
effectiveness of financial management.
On the other hand, the vast majority of mayors (40%) in municipalities with ineffective financial
management replied to the question by stating that their most important financial instrument is European
program funding. In response to the same question, the majority of mayors (49%) in municipalities with
effective financial management said that their most important financial instrument was European program
funding. The differences between the percentages of the two groups of municipalities for all three forms of
borrowing (borrowing from government agencies, bank borrowing, leasing) is of particular interest. The
sum of the three percentages for the first group of municipalities is 29%, whereas for the second group it is
14%. Therefore, the observation made in the corresponding section of the previous chapter, namely that
municipalities with ineffective financial management rely to a greater extent on loan financing, which, in
turn, makes their financial situation more difficult, is confirmed.
As observed from the answers of the third question, European programs are the financing instrument which
the vast majority of mayors (61%) of municipalities with ineffective financial management would prefer to
use. These results are not very different from the corresponding results for the overall sample. This fact
gives an indication that for the specific variable the factor effective financial management is a
differentiating parameter. With regard to the same question, the results indicate that the financing
instrument which the vast majority of mayors (63%) of municipalities with effective financial management
85
would prefer is European program funding. The results are slightly different from those of the first
category, but the differences are small. Thus, it can theorized that municipal financial performance does
not affect the extent to which mayors may wish to use any particular financial instrument.
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86
HUMAN CAPITAL AND PERFORMANCE APPRAISAL IN THE PUBLIC SECTOR: AN
EMPIRICAL INVESTIGATION FROM EMPLOYEES’ AND SENIOR MANAGERS’
PERSPECTIVE
DESPOINA ISYCHOU, Hellenic Open University
PANOS CHOUNTALAS, Hellenic Open University
ANASTASIOS MAGOUTAS, Hellenic Open University
IRENE FAFALIOU, University of Piraeus
Abstract
Human capital is often considered as one of the most fundamental requirements for high organizational
performance, whereas key driver for the achievement of higher levels of employees' productivity is
considered the employment of a suitable performance appraisal system. Based on this perspective, we
assume that every organization needs to establish an effective appraisal system which will be sufficient to
facilitate employees’ continuous development. This is especially relevant for public sector organizations
that in some countries implement fundamentally flawed performance appraisal systems. On the verge of
the transition from the bureaucratic to the new public management model, the organizational units of the
public sector seem to have an excellent opportunity to redesign their key processes, including human
capital appraisal forms. This paper explores the context and role of a few critical human capital practices,
which are mainly related to employees’ self-evaluation and performance appraisal, and are currently
implemented in the Greek public sector. To attain our goal, an empirical investigation was conducted via a
questionnaire survey to specifically determine whether self-evaluation and appraisal problems exist, in
particular in terms of objectivity, consistency, adequacy, and credibility. The questionnaires were
addressed both to employees and senior managers. The empirical results obtained, highlight some core
problems that the public sector faces, with regard to existing self-evaluation systems and appraisal
practices. These, among others, include the following: a lack of objectivity both in employees’ self-
evaluation and in their appraisals assessed by the senior managers; inconsistencies between the way the
public servants perceive the range and quality of their merits and those included in their job description;
mistrust and lack of reliability on employees’ evaluation reports and selection criteria. Finally, some policy
reformations are proposed to cope with these problems.
Keywords: public sector; performance appraisal system; employees' self-evaluation.
1. INTRODUCTION
Traditional public administration, still being applied in Greece, is a centralized, hierarchical model of
public services. Administrative rules are determined by the central government and implemented by all
public organizations, the latter having relatively little potential for choosing strategies at a local level (Bach
and Della Rocca, 2000). In this context, organizational success in the public sector presents as a major
challenge. It seems that superior organizational performance is only accomplished when employees try
hard enough to exceed themselves on behalf of the organization (Guest, 1997; Purcell, 1999; Armstrong,
2006). In other words, results can only be achieved due to the responsible work of employees (Pfeffer and
Veiga, 1999).
Thus, organizational success strongly depends on people’s knowledge, skills, and abilities. As Schuler and
Macmillan (1984) claim, organizations that can acquire and use valuable and scarce resources, including
human, have an advantage in meeting this challenge. Collins & Clark (2003) argue that there is a powerful
link between how people are managed and organizational performance. Thus, the choice of appropriate
human capital practices and their subsequent effective implementation can only make a substantial impact
on any organizational performance.
Human capital practices like employee selection procedures, performance appraisals, rewards and benefits,
employee training, and development, often have a direct effect on organizational productivity and
performance. Schuler and Macmillan (1984) contribute to this aspect, supporting that effective human
87
capital management results in an increasing ability to attract and retain qualified employees. Having the
right employees motivated to over-perform would result in greater profitability, lower employee turnover,
higher product quality, lower production costs, and a more accurate implementation of organizational
strategy. Human capital practices are the primary choice of any organization to influence and shape the
skills, attitudes, and behavior of employees in order to do their work and, thus, achieve organizational
goals (Collins and Clark, 2003; Martinsons, 1995). In this direction, the redefinition of human capital,
especially in the public sector, can lead to the successful response of local governments to the new
organizational reality and enhance the effectiveness of both the services provided to people and the growth
of the local community.
The main purpose of this paper is to explore the context and role of a few critical human capital practices,
mostly related to employees' self-evaluation and performance appraisal in the public sector. To attain our
goal, an empirical investigation was conducted via a questionnaire survey to specifically determine
whether self-evaluation and appraisal problems are present, in particular in terms of objectivity,
consistency, adequacy, and credibility. The issue at hand was examined from both employees' and senior
managers' perspective.
The remainder of this paper is organized as follows: Sections 2 and 3 provide a brief review on human
capital and performance appraisal literature respectively; Section 4 outlines the research methodology;
Section 5 presents the research results; and Section 6 summarizes the main conclusions of the study.
2. HUMAN CAPITAL
Human capital is one of the major components of the intellectual capital (i.e. the intangible assets and
resources of an organization), others being customer capital, structural capital, and innovation capital
(Edvinsson and Malone, 1997; Roos et al., 1997; Sveiby, 1997; Stewart, 1997; Chen et al., 2004; Tseng
and Goo, 2005). Human capital is represented by the company’s employees’ individual knowledge asset
(Bontis et al., 2000) and has long been argued as a critical resource in most firms (Pfeffer, 1995). Human
capital has been thoroughly defined by Edvinsson and Malone (1997) as the combined knowledge, skill,
creativity and individual capability of the employees, used for the duty accomplishment, as people are
those resources that can learn, change, innovate, and provide creativity in such a way that, if properly
motivated, are able to ensure competitive advantage and survival of the organization.
Human capital attributes such as education, experience and skills, especially when they are characteristics
of top senior officers, are suggested by research that affect firm outcomes (Pennings et al., 1998;
Finkelstein & Hambrick, 1996; Huselid, 1995; Wright et al., 1995). In this context, two classifications of
knowledge are proposed: articulable and tacit (Polanyi, 1967; Lane & Lubatkin, 1998). Articulable
knowledge can be systematically coded in a way that enables this knowledge to be written and easily
transferred (Liebeskind, 1996). Tacit knowledge, on the other hand, cannot be easily transferred (Teece et
al., 1997). Most of the times, tacit knowledge is embedded in uncodified routines and the social context
within the organization is set (Liebeskind, 1996). Tacit knowledge may include the individual skills and
the collaborative working relationships within the organization (Szulanski, 1996; Nelson & Winter, 1982).
Maister (1993) supports that tacit knowledge is integral to professional skills. This makes it unique, and
difficult to imitate (Mowery et al., 1996). The probability of creating strategic value through tacit
knowledge is much higher (Lane & Lubatkin, 1998). The educational degree that an employee may
possess is a value that holds throughout his/her professional career (D’Aveni & Kesner, 1993). The
development of managerial skills such as leadership, decision making, allocation of resources, the ability
to resolve conflicts and process information, in addition to making relationships with subordinates, peers,
superiors and clients are really individual skills and, although they can be taught, they cannot be
transferred (Harris & Helfat, 1997; Mintzberg, 1973). Recent scholars have argued in favor of the
importance of human capital contribution on organization's outcomes (Lepak & Snell, 1999; Sherer, 1995;
Pfeffer, 1995; Barney & Zajac, 1994). According to the results, an organization's strategy is strongly
88
affected by the human capital that the organization owns, but this relationship is more complex than
originally assumed (for an in depth discussion, see Hitt et al., 2001).
3. PERFORMANCE APPRAISAL
Performance management, according to Mullins (1999), refers to a continuous judgment on employees’
behavior and performance. It is essential for employees to know exactly what is expected of them, and the
way their performance is to be measured. A well-designed appraisal system enables a reliable evaluation,
highlighting the potentials, identifying the training and development needs, the financial rewards, and
career progression. An effective appraisal scheme can offer the opportunity of future performance
amplification.
It has become widely accepted that the evaluation of human resources is a necessary condition for the
Public Administration’s effective function. Through continuous evaluation, the management is able to
collect those data necessary for defining priorities, formulating the necessary policies, adopting specific
proposals and, then, taking corrective actions to continuously upgrade the quality of work produced, and
the potentials of administration.
The application of advanced administrative theories (i.e. New Public Management, Public Governance
etc.) and best management practices demarcate the transition from the bureaucratic public administration to
an effective, flexible and extrovert public management (Boyle, 2006). In order to make the upcoming
administrative change possible, it has become clear that it would be extremely useful to implement an
effective system of measurement and management of performance (Pidd, 2012). However it should be
noted that the actions of the public sector cannot be attributed solely to monetary terms, due to its
multidimensional mission (social, political, economic development and other). Therefore, the recording
and analysis of administrative efficiency is necessary, aiming at the continuous improvement of the
existing level of service and the employees' skills (Behn, 2003).
Each human resources evaluation system should be based on a carefully designed scorecard system and
performance management through specific targets (Kreitner, 2009). Under this administrative viewpoint,
which is based on the core principles of management science, the evaluation of public sector employees
should be determined by one or more realistic and workable objectives and performance measurement.
Also closely related to performance appraisal are the issues of employee selection and rewards. Huselid
(1995) notes that when recruitment procedures are successfully joined with a reliable selection regime,
they can provide a substantial influence over all employees. Armstrong (2006) supports that reward and
benefits management is about rewarding people fairly and equitably in consistence to the value of the
organization so as to assist the organization to achieve its strategic goals. Both employee selection and
rewards are enabled by an effective appraisal system.
4. RESEARCH METHOD
This section provides a comprehensive view of how this study was carried out. Research method and
measures used for the questionnaires’ development are presented. The data analysis of the respondent
population is also described.
The main purpose of this paper is to identify existing problems in employees’ self-evaluation and
performance appraisal practices as they are currently implemented in the Greek public sector. The research
method that was decided to be used for the analysis of this study is empirical investigation through
questionnaire survey. Questionnaires assist in gathering information for further analyses as all respondents
face the same standardized questions and format. This kind of measurement is accurate and guarantees the
collection of comparable data. A combination of the descriptive research method (to accurately portray the
characteristics of relevant groups) and the statistical hypothesis testing was used.
89
Two questionnaires were developed, in order to obtain information of the public sector’s serving
personnel’s point of view on human capital, performance appraisal, and the reactions to the current
Evaluation Law enforced in the Greek public sector. The first questionnaire was addressed to employees,
and the focus was put on self-evaluation questions. The second questionnaire, with the exact same
questions, was addressed to senior managers. However, the focus for senior managers was put on
evaluating their subordinates.
The questionnaires consist of the following three parts:
1. Demographics (i.e. gender, age, level of education, previous working experience in the Local
Authorities and/or the private sector);
2. Human capital attributes evaluation;
3. Performance appraisal and Evaluation Law enforcement.
In order to gather the information needed for the human capital attributes evaluation, Standard
Questionnaire Intellectual Capital (Bontis, 1998) was used on: (i) self-evaluation of certain characteristics
from the employees’ point of view (i.e. how they evaluated their own skills, abilities, knowledge, and
efficiencies), and (ii) appraisal of the same characteristics from the senior managers’ point of view (i.e.
how they evaluated the same traits of their subordinates). This approach allows for direct comparison
between self-evaluation and third‐party appraisal scores. This measure consists of 12 items, and in the
present study the Cronbach's alpha coefficient was very high (>0.86). The rest of the questions, regarding
the existence of inadequate serving personnel, the existing evaluation problems, as well as the reactions to
the current Evaluation Law, were common across the two questionnaires and chosen after literature review
and extensive discussions with the Local Authorities serving personnel.
The main part of the questionnaire consists of structured questions giving the respondent multiple choice
selections, mainly by a 5-point scale. Also, unstructured open-ended questions were used in order for the
respondents to answer in their own words, ideas, standpoints or opinions. The questions were developed on
the basis of clarity and easy understanding. A pre-test was used to both categories of respondents.
Data were gathered through questionnaires, which were electronically distributed to Local Authorities in
the region of Central Macedonia, Greece. A total of 182 questionnaires from employees and 83 from senior
managers were gathered. However, 4 questionnaires from employees were eliminated, due to their poor
completion. The majority of the respondents were women (61%), as they appeared more willing to
participate in the research than men. The overwhelming majority of the employees (86%) and senior
managers (95%) were between the ages of 35–54 years. In addition, a relatively large number of the
participants held a master or a PhD (19% of employees; 35% of senior managers) and a bachelor degree
(48% of employees; 62% of senior managers). Another fact worth mentioned is that almost 40% of
employees and 20% of senior managers had over 5 years of experience in the private sector.
5. RESULTS
This section presents the results of the empirical survey as follows:
Comparison between self-evaluation and third-party appraisal scores
Employees' demographic factors effect on their self-evaluation scores
Senior managers' demographic factors effect on the appraisal scores given to their employees
Matching between personal merits and job description
Employees' role in appraisal processes
Evaluating the evaluation reports
Evaluating the criteria for selecting or positioning personnel
Evaluating the current Evaluation Law
90
5.1 Comparison between self-evaluation and third‐party appraisal scores
One part of both questionnaires deals with human capital, as it is self-evaluated by employees in contrast to
their supervisors’ appraisal. More specifically, employees were asked to evaluate the prevalence of 12
items (obtained from the Standard Questionnaire Intellectual Capital) by representing their own skills and
abilities on a 5-point scale. Senior managers responded to the same items, evaluating the traits of their
employees. The following research hypothesis was formulated, in order to examine the possible gap
between self-evaluation and third‐party appraisal scores:
H1 (accepted) Human capital attributes are not equally evaluated by employees
(self-evaluation) and senior managers (evaluation of employees).
The above hypothesis was examined for employees (n=178, m=4.06) and senior managers (n=83, m=3.62)
using the independent samples t-test. The test results in the rejection of the null hypothesis at a 99% level
of significance (t=6.219; p<0.01). This means that employees evaluate their skills and abilities much
higher than these characteristics are evaluated by their senior managers.
This result confirmed a gap between employees' self-evaluation and the way these traits are evaluated by
senior managers. This could originate from employees’ inability to evaluate their skills clearly, thus
thinking higher of theirselves. It could be also possible that senior managers do not evaluate their
subordinates properly. Either reasoning leads to the fact of an objectivity and consistency problem between
self-evaluation and third-party appraisal.
As shown in Figure 1, most of the individual items examined present significant gaps, the highest of which
are found on:
Share knowledge, experience and information
Respond positively to the needs of colleagues
Carry out organizational tasks successfully
On the contrary, no significant gaps are present on:
Participation on training programs
Skills and abilities have positive effect on department
The responses on the comparison between self-evaluation and third‐party appraisal scores are shown in
Figure 1. Statistical differences are also provided for each individual item and in total (independent
samples t-test).
91
Figure 1: Employees' self-evaluation and senior managers' appraisal of employees
5.2 Employees' demographic factors effect on their self-evaluation scores
Next, we examine some research hypotheses regarding the employees' demographic factors that possibly
affect their self-evaluation scores.
H2.1 (not accepted) Employees' gender affects their self-evaluation scores.
To test this hypothesis, independent samples t-test was used. The test does not result in the rejection of the
null hypothesis (t=0.410; p>0.05). The meaning of this result is that men do not differ from women in their
self-evaluation scores. Men appear to evaluate themselves higher than women (t=2.860; p<0.01) only on
the "Suggest sufficient changes" item.
H2.2 (not accepted) Employees' age affects their self-evaluation scores.
To test this hypothesis, one-way ANOVA was used. The test does not result in the rejection of the null
hypothesis (F=1.599; p>0.05). The meaning of this result is that older employees do not differ from
younger ones in their self-evaluation scores. Older employees seem to evaluate themselves higher than
younger ones (F=2.945; p<0.05) only on the "Put priorities effectively" item.
92
H2.3 (accepted) Employees' educational level affects their self-evaluation scores.
To test this hypothesis, one-way ANOVA was used. The test results in the rejection of the null hypothesis
at a 95% level of significance (F=3.040; p<0.05). The meaning of this result is that employees of lower
educational level generally evaluated their own traits higher than employees of higher educational level.
Thus, well-educated employees might be stricter to themselves on self-evaluation. This applies to most
individual items. However, it is interesting to note that the well-educated employees appear to evaluate two
individual items higher than employees of lower educational level, namely:
Skills and abilities have a positive effect on the department (F=3.481; p<0.05).
Participation in training programs (F=3.649; p<0.05).
H2.4 (accepted) Employees' previous experience in the Local Authorities affects
their self-evaluation scores.
To test this hypothesis, one-way ANOVA was used. The test results in the rejection of the null hypothesis
at a 95% level of significance (F=3.145; p<0.05). The meaning of this result is that employees with more
previous experience in Local Authorities evaluated their own traits higher than employees with less
experience. Thus, it seems that the longer they serve, the higher is the self-evaluation score recorded. This
is particularly evident on two individual items:
Suggest sufficient changes (F=4.823; p<0.01)
Knowledge of the procedures (F=7.118; p<0.01)
H2.5 (not accepted) Employees' previous experience in the private sector affects their
self-evaluation scores.
To test this hypothesis, one-way ANOVA was used. The test does not result in the rejection of the null
hypothesis (F=0.387; p>0.05). The meaning of this result is that employees with more previous experience
in the private sector do not generally differ in their self-evaluation scores from employees with less or no
experience in the private sector. However, the former seem to evaluate their "Skills and abilities (that) have
positive effect on department" lower (F=3.155; p<0.05) than the latter. This is an interesting result,
requiring further investigation in future research.
The abovementioned results are summarized on Table 1.
Table 1: Employees' demographic factors effect on their self-evaluation scores
H Demographic Factor Test ΗA
acceptance
H2.1 Gender Ind. samples t-test ○
H2.2 Age One-way ANOVA ○
H2.3 Educational level One-way ANOVA ●
H2.4 Previous experience in Local Authorities One-way ANOVA ●
H2.5 Previous experience in private sector One-way ANOVA ○
●: HA accepted (p<0.05); ○: HA not accepted (p>0.05)
5.3 Senior managers' demographic factors effect on the appraisal scores given to their employees
Next, we examine some research hypotheses regarding the senior managers' demographic factors that
possibly affect the appraisal scores given to their employees.
93
H3.1 (not accepted) Senior managers' gender affects the appraisal scores given to
their employees.
To test this hypothesis, independent samples t-test was used. The test does not result in the rejection of the
null hypothesis (t=−0.213; p>0.05). The meaning of this result is that men do not differ from women in the
appraisal scores given to their employees. Men appear stricter than women (t=2.860; p<0.01) only on the
"Competence development at ideal level" item.
H3.2 (not accepted) Senior managers' age affects the appraisal scores given to their
employees.
To test this hypothesis, one-way ANOVA was used. The test does not result in the rejection of the null
hypothesis (F=1.973; p>0.05). The meaning of this result is that older senior managers do not differ from
younger ones in the appraisal scores given to their employees.
H3.3 (not accepted) Senior managers' educational level affects the appraisal scores
given to their employees.
To test this hypothesis, one-way ANOVA was used. The test does not result in the rejection of the null
hypothesis (F=1.125; p>0.05). The meaning of this result is that senior managers of lower educational
level do not differ from senior managers of higher educational level in the appraisal scores given to their
employees. Well-educated senior managers appear stricter than senior managers of lower educational level
(F=2.945; p<0.05) only on the "Share knowledge, experience and information" item.
H3.4 (not accepted) Senior managers' previous experience in Local Authorities affects
the appraisal scores given to their employees.
To test this hypothesis, one-way ANOVA was used. The test does not result in the rejection of the null
hypothesis (F=0.171; p>0.05). The meaning of this result is that senior managers with more previous
experience in Local Authorities do not differ from senior managers with less experience, in the appraisal
scores given to their employees. The less experienced senior managers appear stricter than the more
experienced ones (F=3.012; p<0.05) only on the "Feel proud of department’s efficiency" item.
H3.5 (accepted) Senior managers' previous experience in the private sector
affects the appraisal scores given to their employees.
To test this hypothesis, one-way ANOVA was used. The test results in the rejection of the null hypothesis
at a 95% level of significance (F=3.458; p<0.05). The meaning of this result is that senior managers with
more previous experience in the private sector appear stricter than senior managers with less or no
experience in the private sector. This is particularly evident on two individual items:
Cope with the duties, obligations (F=4.346; p<0.01)
Participation in training programs (F=4.275; p<0.01)
The abovementioned results are summarized on Table 2.
94
Table 2: Senior managers' demographic factors effect on the appraisal scores given to their employees
H Demographic Factor Test ΗA
acceptance
H3.1 Gender Ind. samples t-test ○
H3.2 Age One-way ANOVA ○
H3.3 Educational level One-way ANOVA ○
H3.4 Previous experience in Local Authorities One-way ANOVA ○
H3.5 Previous experience in private sector One-way ANOVA ●
●: HA accepted (p<0.05); ○: HA not accepted (p>0.05)
5.4 Matching between personal merits and job description
A part of the survey was focused on employees’ perceptions of how they evaluate their own merits in
relation to those required by their job description. The following research hypothesis was formulated, in
order to examine this matching:
H4 (accepted) The matching between personal merits and those required by job
description is not equally perceived by employees and senior
managers.
The results showed that over 50% of the employees consider their merits as higher or much higher in
comparison with their job description requirements. On the contrary, most senior managers think that their
job description matches their merits. Thus, the gap between employees' merits and those required by their
job description is larger than the senior managers'. This difference is significant at the 99% level
(t=−2.702; p<0.01).
As far as the demographic factors that possibly affect this gap are concerned, the following can be obtained
from the research results: the employees' gap is larger for men (t=−4.617; p<0.01), well-educated
(F=6.207; p<0.01), less experienced in the Local Authorities (F=3.127; p<0.05), and more experienced in
the private sector (F=3.127; p<0.05). Age (F=1.400; p>0.05) does not seem to affect the gap. The senior
managers' gap does not seem to be affected by any of the demographic factors.
5.5 Employees' role in appraisal processes
The role of employees is also examined, in terms of their participation in the evaluation of their (i) senior
manager and (ii) colleagues. Two research hypotheses were formulated respectively, as presented below.
H5.1 (not accepted) The participation of employees in the appraisal of their senior
manager is not equally perceived by employees and senior
managers.
The above hypothesis was examined for employees (n=177, m=4.42) and senior managers (n=83, m=4.33)
using the independent samples t-test. The test does not result in the rejection of the null hypothesis
(t=0.942; p>0.05). This means that both employees and senior managers strongly agree that the former
should participate in the appraisal of the latter.
H5.2 (not accepted) The participation of employees in the appraisal of their
colleagues is not equally perceived by employees and senior
95
managers.
The above hypothesis was examined for employees (n=178, m=3.58) and senior managers (n=81, m=3.67)
using the independent samples t-test. The test does not result in the rejection of the null hypothesis
(t=−0.492; p>0.05). This means that both employees and senior managers agree that the former should
participate in the appraisal of their colleagues.
5.6 Evaluating the evaluation reports
The value of evaluation reports currently in use by the Greek public sector is also addressed in the survey.
Figure 2 presents the perceptions of employees and senior managers on the information the reports actually
show.
Figure 2: The information actually shown by evaluation reports
Firstly, it is obvious that the reports fail to meet their main objective, i.e. to evaluate employees'
performance, as both employees and senior managers agree (t=0.757; p>0.05). Employees mostly believe
these reports actually show the supervisors' favoritism to certain employees. On the other hand, senior
managers mostly believe the reports are indicative of their good intention to avoid conflicts with
employees. In either case, it is a common belief that the evaluation reports, as used to date, are of very
limited practical use.
5.7 Evaluating the criteria for selecting or positioning personnel
The perceptions of employees and senior managers on the actual criteria used in the Greek public sector
for selecting or positioning personnel are presented in Figure 3.
96
Figure 3: The actual criteria used for selecting or positioning personnel
The survey results indicate that decisions on selecting and positioning public sector personnel are mostly
based on meritocratic criteria. This belief is more profound among senior managers than employees,
regarding skills and academic qualifications (t=−3.881; p<0.01), and service board points awarded
(t=−3.753; p<0.01).
However, favoritism also plays a significant role in the decision, especially from the employees'
perspective, as they may feel that they are held back due to injustice. On the other hand, it is obvious that
senior managers do not share this belief, probably because they have already been selected for a higher
rank. The differences in their answers are indicative of their perceptions:
Political favoritism (t=3.078; p<0.01)
Mayor's environment favoritism (t=2.508; p<0.05)
In-department favoritism (t=3.753; p<0.01)
5.8 Evaluating the current Evaluation Law
The perceptions of employees and senior managers on the actual role of the current Evaluation Law
enforced in the Greek public sector are presented in Figure 4.
97
Figure 4: The actual role of the existing Evaluation Law
Both employees and senior managers unanimously stated that the current Evaluation Law does not lead to
a better utilization of the existing personnel as it should. On the contrary, it seems that its actual role is
anything but an effective appraisal system. Thus, the fear of redundancy due to the application of the
Evaluation Law is pervasive in the public sector, especially for older (F=3.682; p<0.05) and female
employees (t=−2.995; p<0.01). Under these circumstances, its failure is certain.
6. CONCLUSIONS AND DISCUSSION
Today, it is evident, particularly in traditional public administration, that when mismanagement in
employee appraisal appears, a lack in achieving goals also emerges. It is something of a hindrance,
undermining performance and demotivating individuals. The findings of this paper provide an interesting
insight into the role of some critical human capital practices, mostly related to employee self-evaluation
and performance appraisal, in the public sector and particularly in Local Authorities. Both employees and
senior managers' perceptions were examined separately, or in comparison with each other.
A first significant finding is the differences emerged regarding the assessment of human capital attributes,
between employees evaluating themselves and senior managers evaluating their subordinates. More
specifically, employees seem to evaluate their own skills, abilities, knowledge, and efficiencies much
higher than their senior managers would evaluate them. This result confirmed an evident gap between
employees' self-evaluation and their appraisals assessed by the senior managers. This could originate from
employees’ inability to evaluate their own characteristics objectively, thus thinking higher of theirselves.
More specifically, employees of lower levels of education evaluate their own skills higher than others. The
same applies to employees serving longer time in Local Authorities. Another possibility is that senior
managers do not appreciate their subordinates objectively. Senior managers evaluation of their
subordinates' traits seem to be particularly influenced by their previous experience in the private sector,
since those with over 5 years of experience seem to be stricter than the rest. Either reasoning leads to the
conclusion that a problem of appraisal exists, in terms of consistency and objectivity.
Regarding the issue of self-evaluation of qualifications in relation to present job description, the senior
managers answered that their merits are roughly equivalent to the needs of their position. However, the
employees appear rather disappointed, since their job description did not come close to their perceived
qualifications. This gap was greater for men, employees of higher educational level, and employees with
some private sector experience. The latter feel that their abilities were rather wasted on a public sector job
position, most certainly in comparison with their private sector experience.
98
In the crucial issue of whether subordinates opinion should be taken into consideration during their senior
manager’s appraisal, the answers were shaped positively from both sides. Thus, both employees and senior
managers strongly believe that when senior managers are to be evaluated, the opinion of their subordinates
should count as well. The evaluation among co-workers was also rated positively but in a lower degree.
In an effort to examine the serving personnel’s viewpoint on the evaluation reports already used in the
public sector, it seems that these reports do not actually show the performance of each employee.
Employees tend to believe that these reports show the supervisor’s favoritism. The senior managers regard
the reports' results as more indicative of their intention not to come into ruptures with their subordinates.
The answers on the criteria in use for selecting or positioning personnel in Local Authorities varied among
the responders. Senior managers consider the selection processes as quite fair, based on academic
qualifications, skills, previous working experience, and award points of the Service Board. On the other
hand, employees seem more skeptical, since they believe that the selection processes are also frequently
based on political criteria, such as favoritism from the Mayor’s environment. On the basis of the latter
results, it can be stated that a serious credibility problem in Local Authorities selection processes exists.
Additionally, in an effort to examine whether the current, enforced by the Greek government, Evaluation
Law addresses possible challenges in appraisal processes adequately, the results showed that both
employees and senior managers share quite the same opinion: the Law enforcement is definitely not about
solving the existing problems and rather aims to create a pool staff for redundancy. Factors affecting these
answers were age and gender (i.e. the fear of the Evaluation Law enforcement is higher to the older
employees and women).
Overall, this paper highlighted a number of critical issues the Greek public sector is confronted with,
regarding the existing evaluation and appraisal practices. The abovementioned issues seem not to be
addressed by the existing Evaluation Law, thus a lot more needs to be done in this field in the future. First,
the government should ensure that the appraisal system to be implemented is objective, useful, feasible,
reliable and intelligible, so as to be generally accepted by the public sector employees. It should also be
conducted by appropriately trained and experienced personnel. Furthermore, it should be based on specific
objectives and aim at the collective and individual improvement rather than in punishment and
redundancy. Finally, it should be noted that the appraisal system should not be seen in a fragmented way
but as a part of a wider upgrade of the public sector management system, as a whole. All the above issues
could be practically addressed in future research.
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