ANQ Congress 2012 Hong Kong CONSTRUCTING PERFORMANCE APPRAISAL CRITERIA BASED ON SPENCER COMPETENCIES IN SMALL-SIZED SERVICE COMPANIES Ronald Sukwadi 1 ' 2 and Ching-Chow Yang 1 1 Department of Industrial and System Engineering, Chung Yuan Christian University 200, Chung Pei Rd., Chung Li 32032, Taiwan Email: chinchow@cycu.edu.tw 2 Department of Industrial Engineering, Atma Jaya Catholic University Jalan Jenderal Sudirman 51 , Jakarta 12930, Indonesia Email: ronaldmanutd@yahoo.com; ronald.sukwadi@atmajaya.ac. id Abstract: Performance appraisal has been put in the most important place in human resource management, as well as in the strategic management. Performance appraisal is a process used by the industries to evaluate th eir employees' efficiency and productivity; it is also used to plan the employees' promotion program, salary policy, layoffs decisions, etc. In such an evaluation process the appraisers adopt some key criteria to employees' performances. In this paper we develop the core appraisal criteria based on Spencer competencies for workers in small-sized service companies. As there are dependencies among criteria, analytical hierarchy process (AHP) is used for comparing the evaluation criteria under consideration and determining perceptions of the importance of various criteria. The proposed appraisal criteria could be considered as a reference for the industries and any organizations. In this study, we conduct the empirical study for small cleaning service companies. Keywords: performance appraisal, competencies, Spencer, AHP, small-sized service company 1. Introduction Nowadays, facing many rapid changes and challenges in the ever-increasing global competitive pressures, companies should develop strategies that let them be more efficient (Fisher et a!., 2006; Andres et al. , 2010). Central to emerging perspectives on strategies is the role of the companies' human resource management in creating and sustaining superior performance through human and social capital (Wright et al., 2001; Buller and McEvoy, 20 12). Therefore, one of strategic efforts of companies has to be headed for the development of human resource by adapting performance appraisal systems (Murphy and Cleveland, 1995; Wright and McMahan, 2011). When managing the human resources of an organization, appraising the performance of employees for their positions is a central task (Lowenberg and Conrad, 1998; Fletcher, 2001), because the employees' productivity, efficiency, and their contribution to the company can be evaluated (Levy and Williams, 2004; Ligon et al., 2012). A key responsibility of companies' management is to help their employees improve job performance on an ongoing basis (Aguinis et al., 2011). Companies or organizations carry out this responsibility by implementing performance appraisal systems that are designed to align performance at the individual, unit, and organizational levels (Buchner, 2007; Wright and McMahan, 2011). Performance appraisal, in nature, is to check and evaluate members' contribution to their organization, which is a management communication activity between managements and employees to improve employees' working ability and performance and achieve organization's strategic objective (Liu and Zhang, 2011 ). It is also the process of assessing or evaluating performance to make decisions (e.g., about promotions) (Ligon et al., 2012). Notably, performance appraisal is a critical component of all performance management systems (DeNisi and Kluger, 2000; Aguinis, 2009). Performance appraisal can give information about an employee's past behaviors with respect to established standards of employee behaviors and results. The goals of performance appraisal are to improve individual and team performance, as well as employee engagement, motivation, and job satisfaction (Aguinis, 2009). Recently, competencies have been widely recognized as performance measures in a company. The importance of competencies to organizations cannot be overstated; in fact, they can be the key to competitive advantage (Cardy and Selvarajan, 2006). For an appraisal system to be effective, organizational members must believe that their competencies are reflected in the appraisal process (Gilliland and Langdon, 1998). Correct performance check and evaluation can arouse employees' ANQ Congre ss 2012 Hong Kong on Stri ving for Exce ll ence through Product and Service Quality; 31 July - 3 August. 2012