Performance management systems in an Indian manufacturing sector: Partnering, monetary incentives and the alignment of organizational goals

The functions of a performance management system in any organization encompass diverse activities, which include the performance appraisal process. In order to design appraisal systems and appraise employees appropriately, organizations may enter into partnerships with external consultants. In addition, organizations are required to allocate financial resources to support not only the performance management system itself but also incentives for employees with superior performance. The purpose of this paper, using a model, is to investigate the influence of partnering and financial support on the functions of a performance management system. The capacity of the system to align its functions to help achieve an organization's strategic goals is also examined.

A questionnaire survey elicited responses from middle‐level employees using a validated instrument. The variables included in the study were based on prevailing practices in performance management, which include partnering (or collaborating) with professionals external to the organization, the financial support made available to the system and the alignment of the functions of a performance management system with the strategic goals of the organization. The sample comprised 165 respondents selected from six organizations manufacturing automobile components in Coimbatore, India. Partial least squares, a structural equation modeling technique, was used to estimate the influence of the latent variables.

The results indicated that partnering has a negative significant impact on: the functions of the performance management system; and alignment. Financial support has a negative impact on alignment, whereas the performance management system's overall functions has a significant positive impact on alignment. Likewise, financial support has positive significant impact on the performance management system's functions.

Employees feel that appraisals are a continuous internal assessment process best conducted by those inside their organizations. External members can appraise employees at particular points in time but these appraisals do not reflect accurately an employee's overall performance across time. Hence, employees implicitly reject external appraisers and partnering in the performance appraisal process. The appraisal process was found to have financial support by way of incentives, pay increases and the allocation of bonuses based on performance. The paper usefully confirms that organizations must strive continually to design and implement HR practices that are organization specific and employee friendly.