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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.

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.

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.

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.

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.

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).

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).

Concerns about the effectiveness of performance management systems (PMS) have long-driven researchers and practitioners to explore ways of measuring it. It is imperative for organizations to understand, how employees perceive the effectiveness of their PMS, for positive employee outcomes. Hence, the purpose of this paper is to explore the operationalization of the construct “employee perception of PMS effectiveness” (PMSE). An evidence of construct validity for the “two-factor PMS effectiveness” measure with perceived “PMS accuracy” and “PMS fairness” as its two factors is provided. In addition, a scale to measure “employee perception of PMS accuracy” is developed.

Mixed-methods research methodology.

Findings confirmed the possible existence of the two-factor PMSE construct, with PMS accuracy and fairness as its factors. Construct validity is established through its correlations with important outcome variables. The development of a valid and reliable 12-item scale for perceived PMS accuracy (Cronbach α value=0.83) is an additional key contribution.

The research presents opportunities for future empirical studies to examine the influence of PMS accuracy and effectiveness on employee outcomes (engagement, retention, etc.). Researchers may also cross-validate the PMSE measure in different socio-cultural contexts.

The perceived PMS accuracy and effectiveness measures can serve as powerful investigative tools to measure employee perceptions regarding PMS. It can help organizations identify and correct the shortcomings in their existing PMS.

This is the first paper to offer a cogent conceptualization and operationalization of employee perceptions of PMS accuracy and effectiveness. Hence, it has key implications for academics and practitioners.