Relationship between perceived performance management system (PMS) effectiveness, work engagement and turnover intention: mediation by psychological contract fulfillment

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).