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Relationship between perceived Performance

management
performance management system system
effectiveness
(PMS) effectiveness, work
engagement and turnover 2985
intention: mediation by Received 6 January 2021
Revised 19 October 2021

psychological contract fulfillment 12 November 2021

Accepted 14 November 2021

Neha Paliwal Sharma, Tanuja Sharma and

Madhushree Nanda Agarwal
Management Development Institute, Gurgaon, India

Abstract
Purpose – Performance management systems (PMSs) are critical for organizational success, but research is
undecided on their constructive influence and the means through which they impact work engagement and
turnover intention. This study aims to fill this gap by surmising psychological contract fulfillment as a
mediator in the relationship between PMS effectiveness (PMSE) and employee outcomes.
Design/methodology/approach – The study uses a survey research design. Data were collected from 327
working professionals in India. The Statistical Package for Social Science Version 10.0 (SPSS 10.0) and the
Analysis of Moments Structure (AMOS) 4.0 were used for data analyses.
Findings – The two-factor construct perceived PMSE was found to explain a larger variance in work
engagement and turnover intention than the separate measures for its constituents PMS accuracy (PMSA) and
PMS fairness (PMSF). Psychological contract fulfillment and work engagement were found to mediate the
relationship between PMSE and turnover intention.
Research limitations/implications – The study broadens the field of research on PMS in important ways.
It demonstrates that the two-factor construct PMSE has a larger influence on employee outcomes in
comparison to its constituent individual measures PMSA and PMSF. This is also the first study to suggest that
in contrast to PMSF, PMSA explains a higher variance in employee outcomes.
Practical implications – This study validates the strong relationship between PMSE and key employee
outcomes. Besides PMSF, managers can use the findings of this study to focus on the “right things” or accuracy
in the PMS context to enhance work engagement and reduce turnover.
Social implications – The study findings will have value everywhere owing to the diffusion and convergence
in the human resource management practices of multinational firms irrespective of their contexts (Ananthram
and Nankervis, 2013).
Originality/value – Earlier PMS studies have mostly been limited to either its fairness or accuracy and
attended unduly to its appraisal element. This study adopts a systems vision of PMS and overcomes earlier
drawbacks by investigating the role of both PMSA and PMSF in shaping employee outcomes. This is the first
study to empirically confirm that in contrast to PMSF, the PMSA constituent of PMSE explains a higher
variance in employee outcomes. The study provides greatly essential pragmatic support to the conjecture that
PMSs advance work engagement (Mone and London, 2014; Gruman and Saks, 2011) and lower turnover
intention (Kwak and Choi, 2015).
Keywords Performance management, Effectiveness, Accuracy, Fairness, Work engagement, Turnover
intention, Psychological contract fulfillment
Paper type Research paper

Benchmarking: An International
Introduction Journal
Performance management systems (PMSs) have been advancing incessantly as an Vol. 29 No. 9, 2022
pp. 2985-3007
indispensable tool for strategy execution (Schneier et al., 1991). Performance management © Emerald Publishing Limited
1463-5771
is “a process for establishing a shared understanding about what is to be achieved, and how it DOI 10.1108/BIJ-01-2021-0008
BIJ is to be achieved” (Weiss and Hartle, 1997, p. 3) to enhance organizational performance
29,9 (Mensah and George, 2015; Taylor, 2015).
The need for effective PMSs has seen a rise over the past few decades (De Waal and
Counet, 2009), exclusively in Asia (Rao, 2007). Strangely, the existent literature on PMS is
scant to present a cogent picture. PMS proponents (e.g. Sekhar et al., 2018) and PMS critiques
(e.g. Das, 2018) are in disagreement over its intended benefits for employee well-being and
motivation. This has led to an urgent call for gaining further transparency on the part played
2986 by PMSs in impacting employee outcomes, based on their perceived effectiveness in
organizations (Tweedie et al., 2019; Stumpf et al., 2010; Sharma et al., 2008).
This study investigates that what is the relationship between PMS effectiveness (PMSE)
and key employee outcomes (turnover intention (TI), psychological contract fulfillment (PCF)
and work engagement (WE)).
PMSE is operationalized as employee perception of its accuracy and fairness, based on the
PMSE measure developed by Sharma et al. (2016). This measure has been found to display
outstanding validity and reliability (Kakkar et al., 2020; Singh and Arora, 2018). Based on the
“equity theory,” it is suggested that perceived PMSE will lead to equity perception of
employee’s input/output balance. This will enhance their WE and lower their TI. Besides,
based on the “social exchange theory,” it is proposed that employee PCF will play a mediating
role in this relationship. This study makes some important contributions. First, unlike
previous studies, it uses an empirically validated measure of PMSE to overcome the
inconsistent findings regarding the intended benefits of the entire PMS. The prior discrepant
findings may be attributable to the use of unauthentic measures for distinct PMS practices, or
measurement of their accuracy or fairness separately. This study confirms that effective
PMSs certainly bring about constructive employee outcomes. Second, it corroborates that the
two-factor construct PMSE has a greater influence on employee outcomes than its constituent
standalone measures PMS accuracy (PMSA) and PMS fairness (PMSF). The results also
suggest that in contrast to PMSF, PMSA explains a higher variance in employee outcomes.
Third, several academic studies have recommended that psychological contract is expected
to play the mediating role in the association between developmental human resource (HR)
practices and employee outcomes (Seeck and Parzefall, 2010; Guest, 1999). This study offers
pragmatic support to this assumption and implies the conditions under which this is doable in
the PMS context (Figure 1).

Literature review
Performance management system effectiveness (PMSE)
The investigation of “performance management system” effectiveness is still far away from
what researchers envisioned (DeNisi and Smith, 2014; Dewettinck and Dijk, 2013; Mishra and
Farooqi, 2013). Specifically, fewer researchers have paid attention to employee perception of
PMS to map its effectiveness (Gupta and Kumar, 2012; Biron et al., 2011), despite its
unparalleled significance (Selden and Sowa, 2011).
PMSs can have different configurations conditional to organizational needs (Budhwar
et al., 2019). Nevertheless, irrespective of these structural differences, a PMS is described as
being formed of four crucial activities: performance planning, feedback and coaching, review
and outcomes (Bernthal, 1996), that are accurately defined and fairly conducted to congregate
toward a significant result for overall PMSE (DeNisi and Murphy, 2017; Sharma et al., 2016).
Hence, “perceived PMS effectiveness” (PMSE) is delineated as employee perceptions about its
accuracy and fairness. PMSA means the level to which PMS gives an exact basis for
performance identification. PMSF entails its procedural, distributive, interpersonal and
informational justice (Sharma et al., 2016; Murphy and DeNisi, 2008).
 H9 Performance
Work management
PMS
EFFECTIVENESS H3 Engagement system
(PMSE) effectiveness
(WE)

H5 H4b 2987
PMS Accuracy

(PMSA)
Psychological
Contract Fulfillment H7 H8
H2
(PCF)
PMS Fairness
H6
(PMSF)

H4a
Turnover

Intention
H1 Figure 1.
(TI) Proposed
conceptual model

PMS effectiveness (PMSE), turnover intention (TI), psychological contract fulfillment (PCF)
and work engagement (WE)
The relations among PMSE, TI, PCF and WE can be understood using the “equity theory”
(Adams, 1965).
Researchers have emphasized the need to study the impact of PMSE on key employee
outcomes like turnover and WE (Gruman and Saks, 2011; Selden and Sowa, 2011). Taking a
clue from Sharma et al. (2016), recently, Kakkar et al. (2020) attempted to examine the
relationship between PMSE and these employee outcomes. However, they ended up repeating
the mistake of measuring “perceived PMS effectiveness” merely with its “perceived
accuracy” instrument, while ignoring its “perceived fairness” component altogether. So, this
necessitates further investigation to authenticate the relationships purported by them.
TI is a valuable concept in the management literature (Shore and Martin, 1989), which
presents apparent problems with organizational performance (Chang et al., 2013). TI is an
employee’s intent to change jobs or firms on one’s own accord. It is a substitute variable for
employee turnover (Slattery and Selvarajan, 2005). This warrants research in the PMS
context to resolve employee turnover issues (Schyns et al., 2007) for devising focused
interventions to prevent superfluous costs (Bratton and Gold, 2012). Human resource
management (HRM) practices, like PMS, are the most direct organizational systems that
influence employee outcomes like TI (Fabi et al., 2015; Chang et al., 2013; Biron and Boon,
2013). Studies hint that employee perception of poor PMS practices makes them prone to
consider quitting the organization (Mishra, 2019; Kwak and Choi, 2015; Brown et al., 2010).
Conversely, employee satisfaction with performance management lowers their intention to
quit (Jawahar, 2007). The equity theory (Adams, 1965) suggests that employees provide input
such as work efforts, and in turn receive outputs like pay and promotion. These outputs are
generally decided through PMS. Employees compare their ratio of input to output, to that of
other employees, which impacts their feelings of equity. Employee outcomes may be
BIJ impacted by this input/output ratio. Hence, perceived PMSE (perceived equity/inequity) is
29,9 likely to influence their intent to stay. Thus, it is hypothesized as follows:
H1. PMSE is negatively related to TI.
There is also a need for gaining further insight into employee PCF to understand the
employer–employee interactions (Guest, 2004), in the PMS context. The psychological
contract is defined as an employee’s belief regarding the mutual obligations between self and
2988 the organization (Rousseau, 1989). Employee beliefs concerning reciprocal obligations
become contractual when the employee believes that he/she owes certain contributions (e.g.
loyalty, hard work) in exchange for certain inducements (e.g. job security, high pay)
(Rousseau, 1990).
HRM practices play a significant role in employee PCF (D’Annunzio-Green and Francis,
2005). PMS is among the most critical of these practices (Mishra and Farooqi, 2013; Uen et al.,
2009). PMSE (including its accuracy and fairness dimensions) is a major element in the
psychological contract-making process (Stiles et al., 1997; Seeck and Parzefall, 2010). If
employees perceive that PMS is accurate (results in accurate performance evaluation,
feedback and rewards), then they will experience PCF. Consequently, they will give due
consideration to their employment agreement while discharging their duties. Besides, if
employees perceive that PMS is fair (there is employee participation with less possibility of
bias and favoritism), then they will feel being valued and hence, experience PCF Thus, it is
hypothesized as follows:
H2. PMSE is positively related to PCF.
Another closely related concept is WE. Kahn (1990) was the first to coin the term
“engagement” in an organizational context. It is defined as an affirmative and fulfilling state
of mind at work, exemplified by “vigor, dedication, and absorption.” Among its three
characteristics, vigor connotes high energy and mental resilience. Dedication indicates a
strong sense of enthusiasm. And, absorption implies full concentration in one’s work
(Schaufeli et al., 2002, 2006).
The association of PMSE with WE has not been adequately examined (Gupta and Kumar,
2012; Maslach and Leiter, 2008). Employers recognize that contented employees perform well,
but it is their long-term engagement and retention that drive business results. This becomes
possible only through effective HRM practices like PMS (Singh et al., 2019; Al Mehrzi and
Singh, 2016). A development-oriented PMS is likely to garner employee trust and drive them
toward their work (Festing and SchVafer, 2014; Engle et al., 2008). Yet, realistic proof
concerning how PMSs relate to WE is trivial. The few studies that have explored this
association have furnished contradictory findings (e.g. Stokes et al., 2013; Gupta and Kumar,
2012; Mone et al., 2011). The equity theory implies that perceived PMSE will lead to equity
perception of employee’s input/output balance. Thus, PMSE may be extremely instrumental
in enhancing WE. Therefore, it is hypothesized as follows:
H3. PMSE is positively related to WE.
Psychological contracts are the unstated assurances that employees perceive their employer
to have made, regarding promotion, compensation, etc. (Rousseau, 1995). Perceived
fulfillment of the employment deal (PCF) is likely to impact employee outcomes (Guest,
2004). Whereas, when employee expectations are not met, they are likely to quit (Pearson,
1995; Wang et al., 2008; Chen et al., 2009). The social exchange theory advocates that
perceived fulfillment of promised obligations makes employees more concerned about
maintaining their employment relationship over time, as they view it as a mutually beneficial
exchange. This is likely to make them engaged and reduce their TI. Therefore, it is
hypothesized as follows:
 H4a. PCF is negatively related to TI. Performance
H4b. PCF is positively related to WE. management
system
The mediating role of psychological contract fulfillment and work engagement effectiveness
The developmental HR practices universally are found to be related to WE, as they rebalance
employees’ psychological contracts with the organizations (Bal et al., 2013). The
psychological contract is likely to play a mediating role in the relationship between HR 2989
practices and employee outcomes (Seeck and Parzefall, 2010; Guest, 1999). Thus, perceived
PMSE probably leads to employee PCF, which, in turn, impacts their WE and TI. Therefore, it
is hypothesized as follows:
H5. PCF mediates the relationship between PMSE and WE.
H6. PCF mediates the relationship between PMSE and TI.
Globally, the issues of importance to HR managers are performance and retention.
Fortunately, WE has emerged as a significant factor in employee retention (Lockwood, 2007).
Researchers have suggested a significant negative relationship between engagement and TI
(Bhatnagar, 2012). Engaged employees are less likely to quit their organizations. Therefore, it
is hypothesized as follows:
H7. WE is negatively related to TI.
HR practices shape employees’ psychological contracts, which affect their engagement, and
sequentially lead to outcomes like lowered TI (Bhatnagar and Biswas, 2010). Evidence
suggests that engagement can play a mediating role in the relationship between perceived
PMSE and TI. The presence of formal appraisals and performance improvement plans has
been found to impact engagement, and consequently, employees’ intent to stay (Robinson
et al., 2004). Therefore, it is hypothesized as follows:
H8. WE mediates the relationship between PCF and TI.
H9. WE mediates the relationship between PMSE and TI.

Data collection
As suggested by McCready (2006), sampling is a device to solve specific research problems.
Based on the total number of scale items, structural equation modeling (SEM) requirements
and feasibility, the minimum acceptable sample size was five times the number of
questionnaire items. Since the questionnaire contained 55 items, the estimated sample size
was 5 * number of items, i.e. 5 * 55 5 275 or higher. Out of the total questionnaires
administered (467), the response rate was about 70%. Hence, total and utilizable data were
gathered from 327 employees (Table 1). These respondents were from public and private
sector organizations, belonging to both manufacturing and service industries in India.
Service organizations included organizations like hospitality, IT Enabled Services (ITES),
banking, telecommunications, etc. Manufacturing organizations were power transmission,
electronics, cement, etc. Data were collected from the local and head branches, as well as
official sites. The organizations were selected at random through purposive sampling.

Measures
The following instruments were employed for data collection.
Perceived PMSE was conceptualized as “employee perceptions about its accuracy and
fairness” (Sharma et al., 2016, p. 236; Murphy and DeNisi, 2008; Levy and Williams, 2004).
BIJ Value
29,9 Parameter N %

Sample size 327 –

Industry
Service 279 85
2990 Manufacturing 48 15
Gender
Male 252 77
Female 75 23
Sector
Public 63 19
Private 264 81
Supervisory status
Yes 223 68
No 104 32
Average age (in years) 31.56
Table 1. Average total work experience (in years) 7.87
Sample characteristics Average experience with current organization (in years) 5.27

Perceived PMSA was measured through a 12-item scale developed by Sharma et al. (2016).
This was a seven-point bipolar scale with end-points labeled Disagree strongly (1) and Agree
strongly (7).
Perceived PMSF was measured through an adaptation of Colquitt’s (2001) scale. The scale
had 18 items. This was a five-point bipolar scale with end-points labeled to a small extent (1)
and a large extent (5).
WE in this study has been defined as the work-related state of engagement marked by
vigor, dedication and absorption. It was measured through a nine-item UWES-9 scale
(Schaufeli et al., 2002, 2006). It reflected WE on three sub-scales, namely, vigor (three items);
dedication (three items) and absorption (three items). This was a seven-point bipolar scale
with end-points labeled Never (0) and Always/every day (6).
TI was measured using the three items from the Michigan organizational assessment
questionnaire developed by Cammann et al. (1983). This was a seven-point bipolar scale with
end-points labeled disagree strongly (1) and agree strongly (7).
PCF was measured through a five-item scale taken from Robinson and Morrison’s (2000)
global measure of perceived contract fulfillment. This was a five-point bipolar scale with end-
points labeled completely disagree (1) and completely agree (5). This measure of PCF is
consistent with its conceptualization as the opposite of breach (Lambert et al., 2003). High
scores indicate fulfillment, and low scores indicate a breach.
Control variable perceived organizational support (POS) is “the extent to which employees
perceive that their contributions are valued by their organization and that the firm cares
about their well-being” (Eisenberger et al., 1986, p. 501). It is the most significant among
variables that influence WE (Saks, 2006; Eisenberger and Stinglhamber, 2011) and TI
(Rhoades and Eisenberger, 2002). As per the “organizational support theory” (Eisenberger
and Stinglhamber, 2011), POS takes into account mostly all of the other factors that are likely
to impact WE (e.g. employment experiences, job characteristics), and TI (e.g. job satisfaction,
organizational commitment, leadership). Therefore, this study included POS as a control
variable. It was measured using an eight-item scale adapted from the measure developed by
Eisenberger et al. (1986). This was a seven-point bipolar scale with end-points labeled
Disagree strongly (0) and Agree strongly (6).
Methodology and analyses Performance
The Statistical Package for Social Science Version 10.0 (SPSS 10.0) and the Analysis of management
Moments Structure (AMOS 4.0) were used for data analyses. Preliminary analyses were
performed to ensure data normality and statistical validity of results (DiLalla and Dollinger,
system
2006). The standardized test of skewness and one-sample Kolmogorov–Smirnov test effectiveness
confirmed data normality. Variance inflation factor (VIF < 3) represented a lack of
multicollinearity for all variables. Item analyses were used to determine the reliability of the
instruments (scales) used. Table 2 depicts the descriptive statistics, reliability coefficients and 2991
partial correlations between constructs. Reliability values were found to be high (i.e. > 0.70)
(Sekaran, 2003). Significant correlations were found in expected directions, between the
variables (Table 2).
Further statistical analyses included measurement and SEM. Data were subjected to SEM
procedures with maximum likelihood estimates (Arbuckle and Wothke, 1999). SEM is a
second-generation multivariate data analysis technique having two parts: the measurement
model and the structural model (Byrne, 2010; Kline, 2010). Measurement models of the
constructs were tested using the exploratory factor analysis (EFA) and confirmatory factor
analysis (CFA). The Kaiser–Meyer–Olkin (KMO) measure for sampling adequacy was 0.870
(above 0.5) and statistically significant. This established the suitability of the data for factor
analysis (Kaiser, 1960). The cut-off points (criteria for scale validation and model fit) were set
with the support of existing literature, including Baron and Kenny (1986), Arbuckle and
Wothke (1999), MacCallum and Austin (2000) and Kenny (2014). Construct validity of the
instruments was established through CFAs. It confirmed that the manifest variables loaded
significantly on their latent constructs, while the latter were distinct empirically.
Discriminant validity of constructs was also established through the average variance
extracted (AVE) and shared variance estimates (Table 3).
Hereafter, competing models analysis was conducted using SEM and AMOS. PMSE was
treated as a two-factor construct comprising PMSA and PMSF (Sharma et al., 2016). Table 4
depicts the features of the various competing models. In Table 5, the fit measures of different
models have been contrasted. Since the chi-square (χ 2) test is vulnerable to sample size, the
overall model fit was assessed using fit indices such as incremental fit index (IFI) (Bollen,
1989), the Tucker–Lewis index (TLI) (Tucker and Lewis, 1973), the comparative fit index (CFI)
(Bentler, 1990) and the root mean square error of approximation (RMSEA) (Steiger, 1990).
Academic literature (Byrne, 2010; Hair et al., 1998; Browne and Cudeck, 1993) recommends
that values for all the fit indices need to be greater than 0.90, and that of RMSEA should be
lesser than 0.07. Model 3 (which comprised all hypothesized paths and used POS as control)
was found to be the best fitting model (Figure 2). For this model, the χ 2 was 203.551 (df 5 178,
n 5 74). The normed chi-square (CMINDF) value is also considered as an acceptable measure

1 2 3 4 5 6

1. PMSA (0.86)
2. PMSF 0.353** (0.89)
3. PCF 0.434** 0.404** (0.82)
4. TI
0.285 **

0.319**
0.243** (0.77)
5. WE 0.133* 0.136* 0.124*
0.572** (0.89)
6. POS 0.139 *
0.227 **
0.172 **

0.108 0.041 (0.88)
Mean 4.647 4.076 3.993 3.055 4.343 4.515
SD 0.288 0.222 0.278 0.615 0.344 0.332 Table 2.
Note(s): N 5 327; **p ≤ 0.01 (two-tailed); *p ≤ 0.05 (two-tailed); values in parentheses are reliability indices Reliability analysis and
(Cronbach’s alpha) correlation matrix
BIJ of fit. For Model 3, this value is 1.144. Values for the other fit indices were estimated to be:
29,9 IFI 5 0.999, TLI 5 0.999, CFI 5 0.999 and RMSEA 5 0.021. This indicated an acceptable
model as all the indices’ values were within the suggested range.

Hypotheses testing
Further SEM was used for the investigation of the hypothesized causal paths, linking the
2992 independent and the dependent variables. In the results of hypotheses testing, each of
the beta coefficients explains the relative importance of the causal construct in its effect on the
resulting construct (with its weight depicted by β and level of significance in the relationship
by ρ). The level of significance is based on the critical ratio (CR) of the regression estimate. CR
values greater than or equal to 2.58 indicate a 99% level of significance, and CR values greater
than or equal to 1.96 but less than 2.58, point to a 95% level of significance (Byrne, 2010).

1 2 3 4 5 6

1. PMSA 0.768
2. PMSF 0.134 0.895
3. PCF 0.166 0.132 0.503
4. WE 0.019 0.019 0.025 0.890
5. TI 0.105 0.123 0.029 0.356 0.593
Table 3.
Validity analysis 6. POS 0.007 0.049 0.012 0.001 0.018 0.507
through AVE and Note(s): AVE estimates are given along the diagonal; shared variance is below the diagonal; discriminant
shared variance validity of constructs is established as AVE estimates are greater than the shared variance among constructs
estimates (Fornell and Larcker, 1981)

Independent Dependent Mediating Control

Model variable variable variable variable Remarks

1 PMSE TI, WE PCF None No path between TI

and WE
2 PMSE TI, WE PCF, WE None A path between TI and
WE
3 PMSE TI, WE PCF, WE POS All hypothesized paths
4 PMSE TI, WE None None No path between TI
and WE
Table 4. 5 PMSE TI, WE None None A path between TI and
Competing models WE

Fitness criteria Model 1 Model 2 Model 3 (best fit) Model 4 Model 5

CMIN (χ )
2
94.880 81.784 203.551 51.373 22.837
Df 60 59 178 18 17
CMINDF (χ 2/df) 1.581 1.386 1.144 2.854 1.343
RMSEA 0.042 0.034 0.021 0.075 0.032
Table 5. CFI 0.998 0.999 0.999 0.997 1.000
Model fit indices for TLI 0.998 0.998 0.999 0.995 0.999
competing models IFI 0.998 0.999 0.999 0.997 1.000
 0, 0, 0,
e6 e7 e8
1 1 1
Turnover intention
TIN2 TIN3
1 0
TI

1
0,
0, 0, 0, 0, 0, R2

e1 e2 e3 e4 e5
1 1 1 1 1
Ps yc hological c ontrac t fulfilment
PCFN2 PCFN3 PCFN4 PCFN5
WE
0, 0, 1 0
1 0,
e16 PMSAMN
0, 1
1 PMSE PCF R1
1
e15 PMSFMN
0,
R3

1
0
EE
1
Vigour DedicationAbsorption
1 0, 1 0, 1 0,
e11 e10 e9

0,
POS
1

Perceived organiz ationalPOS2

support POS3 POS4 POS5 POS6 POS7 POS8
1
0, 1
0, 1
0, 1
0, 1
0, 1 0, 1 0, 1 0,
e24 e23 e22 e21 e20 e19 e18 e17
effectiveness
Performance
system

2993
management

Structural Model 3: the

Figure 2.

best fit model

BIJ Table 6 depicts standardized regression estimates (β) between the main constructs for the
29,9 best fit model, and levels of significance (ρ) for hypothesized relationships.
As shown in Table 6, perceived PMSE significantly predicts TI (standardized
β 5
0.619, ρ ≤ 0.01). PMSE has a significant impact on PCF (β 5 0.616, ρ ≤ 0.01)
and on employee engagement (WE) (β 5 0.256, ρ ≤ 0.05). PCF significantly predicts TI
(β 5 0.300, ρ ≤ 0.05). But, PCF does not have a significant impact on WE (β 5
0.017,
ρ 5 NS). However, WE significantly predicts TI (β 5
0.497, ρ ≤ 0.01). Thus, the
2994 empirical results confirm that H1, H2, H3, H4a and H7 be accepted, while H4b is not
accepted. R-squared values (Table 7) suggest that the two-factor construct PMSE (a
combination of PMSA and PMSF) accounts for a higher variance in the key employee
outcomes in comparison to the standalone measures of PMSA and PMSF. The results
also suggest that PMSA accounts for a higher variance in employee outcomes in
comparison to PMSF.

Mediator analysis
For mediation analysis, the direct effects path model was contrasted with the mediating
effects path model, using nested models (Long, 1983). Various nested and competing models
were built up and tested for this purpose. A Sobel test was conducted to test H5, i.e. to evaluate
the mediating effects of PCF on the relationship between PMSE and WE. It was expected that
PMSE would have a significant effect on PCF, and the effect of PMSE on WE drops after
adding PCF in the proposed measurement model (Preacher and Leonardelli, 2006; Preacher
and Hayes, 2004). The test results indicated that PCF (Sobel test z 5
0.096, p > 0.00) did not
mediate the relationship between PMSE and WE. Also, bootstrapping analysis (of 5,000
bootstrap samples with 95% confidence intervals (CIs)) was conducted to determine the
range of the indirect effects (MacKinnon et al., 2004). Bootstrapping is the established
technique for the calculation of CIs for precise indirect effects (Williams and MacKinnon,
2008). The findings of bootstrapping pointed out that the range of the indirect effects for PCF

Hypothesis Path from Path to B CR P Remarks

H1 PMSE TI
0.619
3.870 p ≤ 0.01 Accepted

H2 PMSE PCF 0.616 5.318 p ≤ 0.01 Accepted
H3 PMSE WE 0.256 2.030 p ≤ 0.05 Accepted
H4a PCF TI 0.300 2.808 p ≤ 0.05 Accepted
H4b PCF WE
0.017
0.175 NS Not accepted
Table 6. H5 PMSE to PCF To WE Mediation hypotheses testing depicted later
Regression estimates H6 PMSE to PCF To TI
for the best fit model: H7 WE TI
0.497
8.093 p ≤ 0.01 Accepted
testing H1 to H4b H8 PCF to WE To TI Mediation hypotheses testing depicted later
and H7 H9 PMSE to WE To TI

Independent variable (IV)

PMSE PMSA PMSF
Dependent variable (DV) R-squared estimates

TI 0.599 0.436 0.388

Table 7. PCF 0.361 0.144 0.015
R-squared values WE 0.256 0.106 0.016
was from
0.184 to 0.107. Seeing that bootstrapping analysis results contained zero, the Performance
mediation between PMSE and WE was not supported. Similarly, the Sobel test was management
conducted to test H6. The test results indicated that PCF (Sobel test z 5 2.242, p ≤ 0.05)
significantly mediated the relationship between PMSE and TI. Besides, bootstrapping test
system
results showed that the range of the indirect effects for PCF was from 0.065 to 0.651. Since the effectiveness
bootstrapping test results did not include a zero, a full mediation between PMSE and TI was
sustained. Likewise, the Sobel test was carried out to test H8. The test results indicated that
WE (Sobel test z 5
2.156, p ≤ 0.05) significantly mediated the relationship between PCF and 2995
TI. Additionally, bootstrapping test results indicated that the range of the indirect effects for
PCF was from
0.147 to
0.011. Seeing that the bootstrapping analysis findings did not
contain a zero, a complete mediation between PCF and TI was maintained. A Sobel test was
also performed to test H9. The test results indicated that WE (Sobel test z 5
2.57, p ≤ 0.01)
significantly mediated the relationship between PMSE and TI. Also, bootstrapping test
results pointed out that the range of the indirect effects for WE was from
0.183 to
0.046.
Since bootstrapping analysis results did not contain a zero, a full mediation between PMSE
and TI was supported. As evident, the findings of both the Sobel test and bootstrapping test
did not point toward statistically significant indirect effects for PCF (H5; Table 8). Therefore,
H5 was not accepted. However, these test results pointed toward statistically significant
indirect effects for PCF (H6; Table 8), WE (H8; Table 8) and WE (H9; Table 8). Therefore, H6,
H8 and H9 were accepted.

Discussion
The focus of this research was to investigate the role of PMSE in influencing key employee
outcomes like PCF, WE and TI. Performance management is a crucial HR system (Aguinis,
2009), yet many organizations build a perfect PMS on paper but fail at its implementation
(Axson, 2010). There is a scarcity of knowledge on how PMSE influences employee outcomes
(Tweedie et al., 2019). Hence, organizations must leverage the motivational perspective of
PMSs to influence employees positively and achieve desired outcomes (DeNisi, 2011).
The study reiterates the positive influence of PMS on employee outcomes. The results
confirm that through appropriate interventions (Biswas and Varma, 2012), like using an
effective PMS, organizations can reduce TI considerably. This finding is in congruence with
other current research. Van Waeyenberg et al. (2016) have argued that if performance
management is conducted consistently, and connects individual goals to organizational
goals, then employees will be less likely to quit. These are nothing but some of the features of
an effective PMS (Sharma et al., 2016). An effective PMS is instrumental in reducing the
inconsistency between desired and exhibited performance by aligning employee goals with
organizational goals, thus leading to lowered employee dissatisfaction and TI.
The findings also imply that PMSE significantly and positively impacts PCF. Employees
are willing to perform optimally, provided they perceive the favorableness of their treatment
by the organization. Employee evaluations of job demands (working hours; time pressure)
and job resources (freedom to decide, help from supervisor) in congruence with organizational
expectations (Babakus et al., 2017) are likely to influence their PCF (Birtch et al., 2016).
Effective PMSs ensure that the employees receive organizational support, such as ongoing
feedback and coaching to sustain good performance, which enhances their PCF.
Further, the study outcomes advance the belief that PMSE is positively related to WE.
You get out of performance management what you put in (Pulakos, 2009, p. 184).
Low perceived fairness in performance management lowers employee well-being (Schinkel,
2011). Too many leaders rely on complicated HR systems, which are disengaging for
employees. As organizations worldwide jostle to re-engineer their existing PMSs, this study
 BIJ
29,9

and H9
2996

Table 8.

testing H5, H6, H8

Mediation analyses:
Direct effects model (without PCF and WE as Mediation effects model (with WE and only PCF as a
mediators) mediator)
Hypothesis Path from Path to β CR p Path from Path to β CR p Accepted/Not accepted

H5 PMSE WE 0.581 5.473 p ≤ 0.01 PMSE TO PCF TO WE 0.232 1.871 p 5 0.061 Not accepted
Direct effects model (without PCF and WE as Mediation effects model (with TI and only PCF as a
mediators) mediator)
H6 PMSE TI
1.023
4.483 p ≤ 0.01 PMSE TO PCF TO TI
0.763 5.611 p ≤ 0.01 Accepted
Direct effects model (without WE as a mediator) Mediation effects model (with WE as a mediator)
H8 PCF TI
0.147
2.224 p ≤ 0.05 PCF TO WE TO TI
0.067
1.197 0.231 Accepted
Direct effects model (without PCF and WE as Mediation effects model (with only WE as a mediator)
mediators)
H9 PMSE TI
1.023
4.483 p ≤ 0.01 PMSE TO WE TO TI
0.436
4.492 p ≤ 0.01 Accepted
underscores that excellent PMSs require more than metrics to be effective. To cultivate WE, Performance
managers must communicate the performance standards and what constitutes good management
performance regularly. They must help employees in understanding that the PMS is meant to
support their development (Groscurth, 2015). To be successful, a PMS should be based on the
system
classic maxim. effectiveness
First do the right things, and then do the things well (Cokins, 2006, p. 5).
This is nothing, but building up an effective PMS, which is both accurate and fair (Sharma 2997
et al., 2016). Building upon previous research, this study brings advanced clarity and adds
further credence to the postulation that perceived PMSE could be modeled as a higher-order
construct that drives score on two factors: perceived PMSA and perceived PMSF.
The results indicate that PMSE is a combination of PMSA and PMSF, though perhaps not
an exact summation of these two. The results also suggest that PMSE explains a larger
variance (refer, Table 7) in the key employee outcomes than the separate measures for PMSA
and PMSF. This substantiates that researchers need to focus on both PMSA and PMSF
dimensions to examine the impact of the 2-factor construct PMSE on employee outcomes
(DeAscentis, 2016; Frigo and Ubelhart, 2016).
Another key point to consider here is that though both PMSA and PMSF account for
PMSE, the impact of PMSA on employee outcomes is much more important than that of
PMSF. Therefore, researchers and practitioners must give due consideration to PMSA for
ensuring effective PMSs, besides its fairness. The results indicate that in contrast to PMSF,
PMSA explains a higher variance in key employee outcomes (in TI by 4.8%, in psychological
fulfillment by 12.9%, and in WE by 9%). This perchance is also a reason behind the strong
positive association between PMSE and employee outcomes found by Kakkar et al. (2020),
despite their use of a PMSA scale to measure PMSE with no regard to its fairness dimension.
This further implies that while lack of PMSF results in employee turnover, this possibility is
enhanced greatly if employees doubt the overall accuracy (and therefore the authenticity) of
having a PMS itself. Here, it is imperative to understand that in comparison to PMSF, PMSA
establishes a rather clearer link between employee contribution and one’s treatment by the
organization. Accordingly, employee belief regarding the fulfillment of one’s psychological
contract (Rousseau, 1990) is much more likely to be impacted by PMSA than its fairness.
Likewise, employees’ WE is more likely to be impacted by PMSA than its fairness component.
There is a lack of research on the quality of the employer–employee relationship as a
predictor of TI (Kim et al., 2017). Employee PCF is a convincing indicator of the quality of this
relationship. The results as well suggest that employee PCF is likely to reduce their TI. This
provides empirical support to the scarce literature on this relationship (e.g. Gardner et al.,
2014; Hicks and Monroy-Paz, 2015). However, the study did not find any empirical support for
the role of PCF in causing WE or as a mediator in the relationship between PMSE and WE.
There might be several reasons for this. PCF is a complex cyclic process, itself influenced by
employee satisfaction, commitment and motivation (Katou and Budhwar, 2012). Besides,
psychological contract violations in different instances and leader–member exchange
relationships (Tekleab et al., 2005) are also likely to influence the role of employee PCF in any
framework. This renders PCF as more of a hygiene factor. This is a gap that future studies
can look into. The influence of PCF on employee outcomes and mediation by PCF in such
relations can rather be optimally captured through longitudinal investigations (Bal
et al., 2013).
Another considerable point is that the drivers of TI are age, marital status, unemployment
rate, pay, satisfaction with co-workers and similar others (Cotton and Tuttle, 1986). These are
to some extent different from the drivers of WE such as alignment of employee efforts with
organizational strategy, empowerment, employee development opportunities, support and
BIJ recognition, among others (Kompaso and Sridevi, 2010). In the current context, it is evident
29,9 that PMSE covers some of the drivers of WE to a greater extent than it covers the drivers of
TI. This is likely to lower the role played by PCF in the relationship between PMSE and WE
because the way PCF operates to enhance WE (Moore, 2014) is possibly taken care of by
perceived PMSE in this research.
Nevertheless, the results strongly sustain that PCF is a mediator in this relationship
between PMSE and TI. None of the studies on PMS and TI that were identified throughout
2998 this work have examined the possible mediation by PCF. Hence, this is, beyond doubt, a novel
finding. It suggests that researchers should certainly take employee PCF into account, to
understand the “why” of the relationship between HRM system perceptions and employee
outcomes. The findings also extended strong empirical support to the conjecture that a rise in
WE levels results in lowered TI. This finding is consistent with the extant literature. It
reinforces that engaged employees are energetically and persistently occupied in their work
so much that they hardly have any time and space remaining for negative thoughts such as
quitting (Saks, 2006).
The results furthermore asserted that WE mediates the relationship between PCF and TI.
This finding is valuable to understand the process through which PCF influences TI. It
implies that employee experience of the fulfillment of employer obligations toward them
through effective PMSs makes them more affirmative and energetic (Dhir, 2019). Such
employees are less likely to garner any negative intentions like quitting. Also, the study
received strong empirical support for the mediation of the relationship between PMSE
effectiveness and TI, by WE. This finding is entirely new and specific to the present study.
While literature supports that PMSs might have favorable outcomes, it is so far unclear
“why” and “under which conditions” (Van Waeyenberg et al., 2016). This finding marks that
instead of using PMS as merely a managerial tool, organizations must devise it as an effective
system, which engages and retains employees.

Theoretical implications
Despite ample endeavors to advance PMSs, uncertainties about their concrete effectiveness
remain (Pulakos et al., 2015). The study broadens the field of research on PMS in four
important ways. First, it employs an empirically validated measure of PMSE to overcome the
prior incoherent findings regarding its anticipated benefits. The former inconsistent findings
may be owing to the use of dissimilar invalidated measures for discrete PMS practices, such
as appraisal to measure overall PMSE; or perhaps due to an excessive focus on a single aspect
of PMSE, for instance, its accuracy or fairness. Putting all speculations to rest, this study
verifies that effective PMSs indeed lead to beneficial employee outcomes. Second, it
demonstrates that the two-factor construct PMSE has a larger influence on employee
outcomes in comparison to its constituent individual measures PMSA and PMSF. This is the
first study to suggest that in contrast to PMSF, PMSA explains a higher variance in employee
outcomes. Third, this study pragmatically examines and suggests a possible mechanism that
is behind the relationship between PMSE and employee outcomes. Fourth, it extends the
equity theory and the social exchange theory to performance management. These theories
have been applied to investigate the relations involving HR practices and employee outcomes,
however not in the PMSE context.

Managerial implications
Organizations are increasingly focusing on innovative PMSs to retain employees and
improve performance (Som, 2008). Yet, the lack of ready-made answers to performance
management dilemmas makes PMS challenging and distrustful for managers too (Arnaboldi
et al., 2015). There is an immense opportunity to improve PMSs and make them significantly
transformative for organizations (Walsh and Fisher, 2005; Buckingham and Goodall, 2015) to Performance
ease cynicism regarding performance management (Amba-Rao et al., 2000). management
This study bridges the rigor–relevance gap (Panda and Gupta, 2014) and validates the
strong relationship between PMSE and key employee outcomes, thus making it vital for
system
managers to focus on concrete ways to enhance PMSE. effectiveness
Effective performance management involves more than simply evaluating the past (Cardy, 2004,
p. 121). 2999
It needs to be forward-looking. One of the significant challenges that have plagued PMSs is
how to manage performance fairly and accurately (Pulakos, 2009). By emphasizing that
effective PMSs that lead to positive employee outcomes are both accurate and fair, this study
helps managers in devising ways to enhance employee engagement and lower their TI. An
effective PMS can also be indispensable in delineating employer and employee obligations in
the organizational relationship. To fulfill employee psychological contracts, managers must
make certain that they are providing a suitably rewarding employment experience to the
employees. Poorly performing employees need to be coached to deal with their weaknesses,
and conditions have to be shaped for their future success (Gardner et al., 2014).

Future directions
The study findings will have value everywhere owing to the diffusion and convergence in the
HRM practices of multinational firms irrespective of their contexts (Ananthram and
Nankervis, 2013). However, these also proffer an opportunity for future researchers to
examine these relations in the light of Asian and Western cultures (Budhwar and Khatri,
2001). It would be interesting to note the extent to which the findings in the Indian context
appear to be in harmonization with those suggested in Western scholarship (Cooke and Saini,
2010). Besides, to remain focused, this research dwells on a single HRM practice, the PMS.
Future studies may like to focus on other HR practices and their interaction effects on
employee outcomes, to shed further light on the overall HRM effectiveness. Scholars are also
encouraged to examine additional variables that may mediate or moderate these
relationships. From a practitioner perspective, the findings will guide managers to elicit
key employee outcomes and consequently improve performance. Managers can employ the
PMSE scale as a standard to gauge its effectiveness and take curative measures based on the
drawn insights (Sharma et al., 2016; Engemann Kurt, 2006).

Limitations
Despite its valuable contributions, this research has certain limitations. The study did not
take into account the impact of employee personality on the study variables. However, based
on prior research, it is argued that personality characteristics do not influence the
relationships among variables under consideration (Keeping and Levy, 2000).
The use of self-report measures may have led to common method bias (Podsakoff et al.,
2003), though it was taken care of through Harman’s single-factor test. Even so, past research
suggests the absence of common method bias in the use of self-report data for PMS research.
Rather, it recommends self-report measures as the most logical way to measure employee
perceptions about PMS (Keeping and Levy, 2000), as employees are in the best position to
describe their work experiences (Chang et al., 2013).
Reliance on cross-sectional data for the establishment of causal relationships is another
limitation. This may be overcome in prospective studies through longitudinal investigations.
Although the data are cross-sectional in nature, the extensive literature review and analysis
provide strong evidence for a causal order running from the predictor variables to the
BIJ criterion variables. Yet, further inquiries may help more to understand the outcomes of
29,9 upward or downward trajectories of variables like PCF over a period (Conway et al., 2011), to
examine the relationship between PMSE and other employee outcomes.
Since the data have been collected from employees in Indian organizations, the
relationships might differ in other national and cultural contexts. Also, as the sample
comprised employees from different organizations, it was difficult to control for the actual
contents of PMSs in these firms. Hence, though the recommendations made are general, a
3000 comparatively larger sample drawn from across the globe may further enhance the utility of
the proposed conceptual framework.

Conclusion
Performance management has remained a predicament for decades, which cannot be
dispensed off with. Despite the dissatisfaction, it remains an essential mechanism for HR
decisions. The caveat is that organizations should be able to defend the performance ratings
behind such decisions. This is often disputed.
To resolve this quandary, “Effective performance management is a key. The investment
will pay off” (Risher, 2015, p. 59).
The study adds credibility to the perspective that employee perception of PMSE could be
modeled as a higher-order construct that drives scores on two factors: perceived accuracy and
perceived fairness. It validates that perceived PMSE can induce positive employee outcomes.
The results suggest that perceived PMSE significantly influences employee PCF and WE
positively. However, it influences their TI negatively. PCF significantly predicts TI and
mediates the relationship between PMSE and TI. WE has a significant negative impact on TI.
It mediates the relationship between PCF and TI. Also, it mediates the relationship between
PMSE and TI.
The results signify that organizations should focus on employee perceptions of PMSs,
perhaps by soliciting their involvement in their design and execution. They should
standardize their core PMS structure based on employees’ perceived effectiveness of the
entire system and its constituent practices, as well as features of accuracy and fairness. This
is needed to facilitate positive PMSs’ perceptions and to consequently attain helpful employee
outcomes and improved performance.

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Further reading
Crawford, E.R., LePine, J.A. and Rich, B.L. (2010), “Linking job demands and resources to employee
engagement and burnout: a theoretical extension and meta-analytic test”, Journal of Applied
Psychology, Vol. 95 No. 5, pp. 834-848.
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Management Systems to Make Employees Your Organization’s Greatest Asset, Perseus Books,
Reading, MA.
Maslach, C., Schaufeli, W.B. and Leiter, M.P. (2001), “Job burnout”, Annual Review of Psychology,
Vol. 52, pp. 397-422.
Piening, E.P., Baluch, A.M. and Ridder, H.G. (2014), “Mind the intended-implemented gap:
understanding employees’ perceptions of HRM”, Human Resource Management, Vol. 53
No. 4, pp. 545-567.
Turnley, W.H., Bolino, M.C., Lester, S.W. and Bloodgood, J.M. (2003), “The impact of psychological
contract fulfillment on the performance of in-role and organizational citizenship behaviors”,
Journal of Management, Vol. 29 No. 2, pp. 187-206.

Corresponding author
Neha Paliwal Sharma can be contacted at: nehapsharma84@gmail.com

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