Performance management effectiveness: Lessons from world-leading firms

While interest in performance management has increased considerably in recent years, research has revealed inconsistent results about its effectiveness. Inconsistencies may be related to insufficient understanding of the factors likely to enhance the effectiveness of performance management systems. The current study seeks to address this issue by investigating performance management systems in 16 world-leading firms. We use signalling theory [e.g. Spence (1973), Quarterly Journal of Economics, 87, 355-374; Murray (1991), Journal of Marketing, 55, 10-25] to propose that to the extent that firms promote certain facilitating practices, employees infer that management is concerned with performance management issues, and this may have a trickle-down effect with regard to the effectiveness of the firm's performance management system. Our framework proposes four performance management system facilitators, which include v(1) taking a broad view of performance management that includes both strategic and tactical elements; (2) involving senior managers in the process; (3) clearly communicating performance expectations and (4) formally training performance raters.