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© International Association for Applied Psychology, 2004. Published by Blackwell Publishing,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

Blackwell Publishing, Ltd.Oxford, UKAPPSApplied Psychology: an International Review0269-994X© Blackwell Publishing 2004October 2004534Original ArticlePERFORMANCE MANAGEMENTDEN HARTOG ET AL.

Performance Management: A Model and Research Agenda

Deanne N. den Hartog,* Paul Boselie and Jaap Paauwe

Erasmus University Rotterdam, The Netherlands

Le management est confronté au défi lancé aux organisations quand ellesdoivent définir, mesurer et stimuler la performance des salariés avec pourobjectif ultime d’améliorer la performance organisationnelle. La gestion desperformances implique différents niveaux d’analyse et est manifestement reliéeà l’évaluation des performances et aux thèmes relevant du managementstratégique des ressources humaines (MRH). Cet article présente un modèleconvenant à la gestion des performances qui combine des perspectives issuesdu MRH stratégique et des psychologies organisationelle et du travail. Lemodèle intègre des éléments de différents niveaux et enrichit les modèlesantérieurs en prenant explicitement en compte la perception des salariés, lerôle des supérieurs directs et une causalité qui peut être inversée. On présenteenfin les défis que les futures recherches devront affronter.

Performance management deals with the challenge organisations face in defin-ing, measuring, and stimulating employee performance with the ultimate goalof improving organisational performance. Thus, performance managementinvolves multiple levels of analysis and is clearly linked to the topics studiedin strategic human resource management (HRM) as well as performanceappraisal. This paper presents a model for performance management combininginsights from strategic HRM and work and organisational psychology. Themodel incorporates multi-level elements, and adds to previous models by expli-citly incorporating employee perceptions, the role of direct supervisors, andpossible reversed causality. Challenges for future research are also presented.

INTRODUCTION

The process of measuring and subsequently actively managing organ-isational and employee performance in order to improve organisationaleffectiveness is currently seen as critical to the development and survival

* Address for correspondence: Deanne N. den Hartog, Department of Organization andBusiness, Faculty of Economics, Erasmus University Rotterdam, Burg Oudlaan 50, 3062 PARotterdam, The Netherlands. Email: denhartog@few.eur.nl

The authors would like to thank Robert Verburg, the reviewers and editors for their helpfulcomments and suggestions.

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of organisations. Different terms refer to performance management initiativesin organisations; for example, performance-based budgeting, management-by-objectives, planning, programming and budgeting, and pay-for-performance(Heinrich, 2002). Initially, such initiatives stressed the need to make employeeperformance explicit and measurable in order to make performance more“manageable”. However, performance management has come to signify morethan a list of singular practices aimed at measuring and adapting employeeperformance. Rather, it is seen as an integrated process in which managerswork with their employees to set expectations, measure and review results,and reward performance, in order to improve employee performance, withthe ultimate aim of positively affecting organisational success (e.g. Mondy,Noe, & Premeaux, 2002). This same emphasis is found in the literature onstrategic Human Resource Management (HRM) emphasising the importanceof so-called high performance work systems (e.g. Appelbaum, Bailey, Berg,& Kalleberg, 2000).

Different models of performance management are found in the literature.Such models have stressed its importance as a system for managing organ-isational performance, managing employee performance, or for integratingthe management of organisational and employee performance. Definitionsemphasise the latter. For example, DeNisi (2000) holds that performancemanagement refers to the range of activities engaged in by an organisationto enhance the performance of a target person or group, with the ultimatepurpose of improving organisational effectiveness. Baron and Armstrong(1998) emphasise the strategic and integrated nature of performance man-agement, which in their view focuses on “increasing the effectiveness oforganizations by improving the performance of the people who work inthem and by developing the capabilities of teams and individual contributors”(pp. 38–39). They see performance management as a continuous processinvolving performance reviews focusing on the future rather than the past.

Clearly, the process of performance management involves managingemployee efforts based on

measured

performance outcomes. Thus, deter-mining what constitutes good performance and how the different aspects ofhigh performance can be measured is critical to the design of an effectiveperformance management process. These topics have been extensivelystudied in the area of performance appraisal. Much of the performanceappraisal research stems from work and organisational psychology, wherethe accurate measurement of key aspects of employee performance has con-stituted an important research topic. DeNisi (2000, p. 121) defines perform-ance appraisal as “the system whereby an organization assigns some ‘score’to indicate the level of performance of a target person or group”. Mondyet al. (2002) define performance appraisal as a system of review and evalua-tion of an individual’s (or team’s) performance. Topics of investigation inperformance appraisal research include both the content (what is appraised)

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and the process of appraising performance (who appraises and how is itdone) within organisations.

The emphasis in the area of performance appraisal has changed over theyears. Research used to focus on accuracy of (supervisory) performanceratings and other such limited and measurement focused issues, but hasbroadened and currently also addresses social and motivational aspects ofappraisal (Fletcher, 2001). Fletcher defines performance appraisal morebroadly as “activities through which organizations seek to assess employeesand develop their competence, enhance performance and distributerewards” (p. 473). Defined as such, performance appraisal is an importantpart of performance management. Fletcher holds that as a set of practices(and in the form of performance management), performance appraisal hasnow become part of a more strategic approach to integrating HR activitiesand business policies.

Current research links HRM to organisational performance (e.g. Boselie,Paauwe, & Jansen, 2001). There is obviously a link between HRM andperformance management. Taking a performance management approachinvolves aligning HRM practices in such a way that they maximise currentas well as future employee performance, which in turn is expected to affectorganisational performance. According to Roberts (2001) performancemanagement involves the setting of corporate, departmental, team, andindividual objectives (sometimes labeled “policy deployment”, the cascadingdown of strategic objectives to a meaningful set of targets for every indi-vidual involved); the use of performance appraisal systems; appropriatereward strategies and schemes; training and development strategies andplans; feedback, communication, and coaching; individual career planning;mechanisms for monitoring the effectiveness of performance managementsystem and interventions and even culture management. Thus, performancemanagement involves the day-to-day management, as well as the supportand development of people.

Performance management involves aligning HRM practices so thatemployee performance and development are enhanced, with the aim ofmaximising organisational performance. However, such an integration ofpractices is not easy. Also, aligning practices directly involved in perform-ance management also affects other practices, such as selection. Complic-ated cross-level processes are involved in the proposed performance cycles.Often the proposed causal chain involves organisational-level HRM prac-tices affecting individual performance, which in turn affects organisationalperformance. However, in research the impact of individual and groupperformance on organisational performance is mostly assumed ratherthan tested. DeNisi (2000) holds that although performance at a higher levelof analysis (e.g. the organisation) is in part due to performance at lowerlevels (e.g. individuals, teams), it is often more than the simple sum of such

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performance at lower levels. Changing individual performance is often notenough to improve an organisation’s performance. Vice versa, variables atthe organisational level may constrain individual performance. Thus, tounderstand and change individual performance, one needs to understandthe organisational context in which it occurs. Such organisational-levelvariables are often left out of consideration in studies focusing on theindividual level. Thus, research in this area should take multi- and cross-level effects into account.

The aim of the current paper is to develop a model and research agendafor performance management that is grounded in the HRM / performancemanagement field. First, we briefly address HRM and performance. A typ-ical model of the causal relationships between HRM practices and employeeas well as organisational performance is presented and we build on thismodel to create a model of performance management. The model leads tosuggestions for future research in the performance management field.

MODELING THE LINK BETWEEN HRM AND PERFORMANCE

The performance management perspective stresses the need to align HRMpractices with the aim of affecting employee and organisational perform-ance. Thus, an integrated set of HRM practices is central to performancemanagement. The relationship between HRM and (firm) performance hasbeen the topic of a heated debate over the last decade (e.g. Wright & Snell,1998). Studies in this area often report positive relationships between inte-grated bundles of HRM practices and different measures of organisationalperformance (e.g. Arthur, 1994; Delery & Doty, 1996; Guthrie, 2001;Huselid, 1995; MacDuffie, 1995).

Although significant progress has been made in unraveling the linksbetween HRM and performance, several theoretical and empirical problemsremain. Most studies suffer from methodological limitations. For example,many are conducted at a single point in time (cross-sectional). Most usesingle respondents (mostly HR managers) as their source of information.They tend to focus on the managerial view and seldom assess the employees’perspective. Often sample sizes are limited. Also, the theoretical foundationfor how and why measured HRM practices might affect performance is notalways clear. For example, Guest (2001) illustrates that theory-building aswell as operationalising and measuring HRM, performance, and the rela-tionship between them is still problematic. Which HRM practices should bestudied? How can these be measured? Which performance outcomes arerelevant? What are the causal mechanisms involved?

In modeling the relationship between HRM and performance, HRMpractices are typically expected to increase employees’ organisational com-mitment and motivation, which in turn affects employee performance and

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ultimately organisational performance (e.g. models by Becker, Huselid,Pickus, & Spratt, 1997; Guest, 1997; Paauwe & Richardson, 1997). InGuest’s (1997) model, see Figure 1, HRM practices (e.g. selection, training)ensue from HRM strategies (e.g. differentiation, cost-reduction). HRMpractices are assumed to result in HRM outcomes (e.g. employee commit-ment, workforce flexibility). Such HRM outcomes then result in employeebehavior (e.g. effort, cooperation). The behavioral outcomes influence per-formance outcomes (e.g. productivity, innovation, absenteeism). The laststep in the causal chain is formed by financial outcomes (e.g. profits).

Guest’s model adds to previous models by including different levels ofanalysis. DeNisi (2000) notes that performance is both a multi-level and across-level phenomenon. Performance exists at different levels (e.g. indi-vidual, group, organisation) and although the models for performance at eachof these levels are not completely identical, they are similar, which suggeststhat performance can be seen as a multi-level construct. Performance is alsoa cross-level construct as performance at one level of analysis influencesperformance at other levels. Such influences can run both ways (e.g. indi-vidual performance can influence organisational performance as well as viceversa).

Although models such as Guest’s are useful in developing insight into therelationship between HRM practices and performance, problems remain.For example, the logical distance between the different elements in themodel can be problematic. Also, effects of different HRM practices maydiffer or even counteract each other. The proposed chain of events assumed

FIGURE 1. Linking HRM and performance.Source : Guest (1997)

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complicates cross-level processes. For instance, Guest’s model proposes thatorganisation-level HR practices directly affect individual-level employeeoutcomes and later in the causal chain, individual performance is assumedto affect organisational performance. Testing this process is complicatedas the different levels of analysis and cross-level effects place stringentrequirements on data and analytical techniques. Another problem is thatthe directionality of the results should not be taken for granted (e.g. highperformance may positively affect commitment as much as vice versa). Also,different employees are often assumed to

perceive

the employment practicesoffered by the organisation similarly, which is not necessarily the case (e.g.Guest, 1999). Finally, the role of direct managers and supervisors in the(fair) implementation of HRM practices is often underestimated. This isespecially relevant when considering performance management, in whichmanagers play a key role in assessing and improving employee performance.Several of these points are taken into account in the model presented below.Also, as stated, modeling these relationships implies a specification of thecross- and multi-level nature of the research phenomenon. Thus, beforediscussing the model, we first touch on the multi-level nature of the employ-ment relationship.

The Employment Relationship at Multiple Levels

Central to HRM and performance management is the employment rela-tionship, which can be studied on

different levels

as well as from

differentperspectives

. Relevant levels include the individual, group, functional,organisational, industry, and societal level. The different perspectivesinclude a legal or institutional dimension (the legal contract), a business ororganisational dimension (the transactional contract), and a person orhuman dimension (the psychological contract). This suggests many differentstarting points for studying HRM and contrasts the micro and macro per-spectives in this field. The macro perspective emphasises the collective level,and regularities in social behavior are assumed to transcend differencesamong individual social actors. Given a set of demographics and situationalconstraints, people are assumed to behave similarly. A risk of this viewis ignoring relevant individual variation that may influence the collective.The micro level emphasises the existence and importance of variations inindividual behavior and characteristics. The focus is on the individual levelwith the risk of paying insufficient attention to the contextual factors thatconstrain the effect of individual differences (Kozlowski & Klein, 2000).

Although different dimensions of the employment relationship could bestudied at multiple levels, they are typically linked to specific levels. Forexample, the legal and institutional dimension of the employment relationshipis most often assessed at the societal and industry levels (e.g. labour legislation

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and the role of trade unions and works councils). The transactional perspect-ive is taken, for example, in organisational-level HRM research on effectsof employee rewards systems on organisation outcomes such as productivity.Research on the person dimension (psychological contract) is focusedmostly on the individual level and relates, for example, to the influence of per-ceived agreements between an employee and employer on employee behaviour.

MANAGING PERFORMANCE IN ORGANISATIONS: A CONCEPTUAL MODEL

Figure 2 depicts our model of performance management. The model proposesan impact of the aligned set of HRM practices involved in performancemanagement on employee perceptions and attitudes and proposes thatfront-line managers play a crucial mediating role in implementing thesepractices. Employee perceptions and attitudes affect employee performance,which in turn affects organisational performance. The model also addressesreversed causality and some of the contingencies. We did not include overallstrategy or business strategy or even HRM strategy in the model for tworeasons. First, there is still little empirical evidence for a link between

FIGURE 2. A model of the HRM and performance relationship from a PM perspective.

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(a) business strategy and HRM strategy, and (b) HRM strategy and HRpractices or bundles of HR practices. Second, we want to keep the model asclear and parsimonious as possible. For the same reason, the organisationalperformance box was not further refined. Obviously, distinctions are poss-ible between more proximal outcomes such as productivity, turnover, andmore distal financial performance measures. However, for our purposes,organisational-level outcome measures are placed together. As compared toother models, employee perceptions, reversed causality, and the role ofdirect supervisors/managers are more prominent. Below, we briefly discussthese three points and provide a summary of the key assumptions and pro-positions of the model.

The Role of the Supervisor

Managers put performance management into practice, and by doing so willaffect employees’ perception as well as their commitment, motivation, andtrust. Work on leadership, leader–member exchange, goal-setting and moti-vation, perceived supervisory and organisational support, and proceduraland interactional justice may help further delineate the importance of directsupervisors and front-line managers in implementing HR practices (e.g.Colquitt, Conlon, Wesson, Porter, & Ng, 2001; De Haas, Algera, Van Tuijl,& Meulman, 2000; Den Hartog & Koopman, 2001; Locke & Latham, 2002;Rhoades & Eisenberger, 2002).

An HR department can develop (or buy in) sophisticated performancemanagement tools. However, whether these really sort effect depends on theappropriate

enactment

by line managers (e.g. Gratton & Truss, 2003). Theirconsistency, fairness, and skill in using tools such as holding consultationmeetings and conducting appraisal interviews will to a large degree determinewhether such tools indeed generate positive effects on commitment andemployee performance. The role of first line managers in carrying out policiesset by the firm is mentioned in the HRM literature (e.g. Storey, 1995); how-ever, studies have mostly ignored this role. Performance management clearlyand directly involves managers in the process. Managers set challenging yetattainable objectives, appraise performance, and give feedback. They ensurepossibilities for subordinates’ development and stimulate a climate in whichhigh performance is stressed. Thus, managers’ skill and fairness in perform-ing these tasks as well as their relationships with their different subordinateswill play a key role in the success of performance management.

Employee Perceptions

HRM practices can be seen as “signals” of the organisation’s intentionstowards its employees and are interpreted as such by individual employees

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(e.g. Rousseau & Greller, 1994). However, employees do not necessarilyperceive such “signals” similarly or react to them in a similar manner. Guest(1999) noted that very little research focuses on employees’ reactions toHRM. He suggests that the impact of HR practices on employees’ commitmentand performance depends on employees’

perception

and

evaluation

of thesepractices. Perception and attitudes may mediate and moderate the relation-ship between HRM practices and employee performance-related behavior.

Variation may exist in employees’ perceptions of HRM practices orbenefits offered by the organisation even when in objective terms what isoffered to different employees is very similar. Individual differences in percep-tions and reactions to what the organisation has to offer may, for instance,follow from an employee’s previous experience, their beliefs, comparisonto others, or the type of employment contract. Also, different promisesmade to prospective employees in the recruitment process may result indifferent evaluations of what the employer offers (e.g. Rousseau, 1989). Thislatter perspective is related to research on the psychological contract, whichstudies employees’ evaluation of the content of their exchange relationshipwith the organisation. Rousseau (1989, p. 121) defined the psychologicalcontract as “individual beliefs in a reciprocal obligation between the indi-vidual and the organization”. Research has focused mostly on the aftermathof contract formation, breach, and associated responses. For instance,research on violation of the psychological contact shows the consequencesof contract breach such as a loss of trust and decrease in commitment (e.g.Robinson, 1996). Also, research indicates that workers with different typesof psychological contract respond differently to violation of the contractand organisational change (Rousseau, 2001). Similarly, research in the areaof met expectations (e.g. Irving & Meyer, 1994) and person–organisation fit(e.g. Kristof, 1996) call attention to the effect that individual differences inthe employment relationship may have on outcomes such as commitmentand employee performance.

Reversed Causality

Much of the research on HRM and performance is cross-sectional. Thus,directionality of the linkages is often assumed rather than tested. HRM isproposed to be one of the

causes

of a better competitive position and betterfinancial performance of firms. However, there are also compelling argumentsfor a reversed link. Organisations that perform better in financial terms mayhave more opportunities to invest in High Performance Work Systems. Thus,the model proposes that besides HRM influencing performance, there is alsoa reverse loop. Organisational success, for example, in terms of high profitsor significant growth of market share, has a positive effect on the willingnessto invest in HR practices (e.g. Hiltrop, 1999; Paauwe & Richardson, 1997).

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Unraveling what causes what is not easy. Using subjective performanceindicators, Guest, Michie, Conway, and Sheehan (2003) find links betweenHRM and both productivity and financial performance, but their longitu-dinal study fails to show that HRM

causes

higher performance. Theiranalyses support the view that profitability creates scope for more HRMrather than vice versa. This also holds at other levels. High performance isproposed to positively affect employees’ commitment, trust, and motivation.Employees will be motivated by personal as well as organisational success.For example, performance affects commitment as much as vice versa. Empir-ical support for such processes is available (e.g. Locke & Latham, 2002).

The Model: Key Propositions

A summary of the key assumptions of the proposed model is:

• Most performance management practices (e.g. performance appraisal,feedback training, coaching, information sharing) are facilitated andimplemented by direct supervisors or front-line managers. Thereforethe behavior of line managers will mediate the effect of (most) prac-tices on employee perception (and behavior).

• HRM and performance management practices (as implemented bymanagers) first affect the employee’s perception and evaluations. Forexample, only if information sharing is seen and interpreted as such(and not as a manipulative form of commanding), will it have theopportunity to positively affect intentions and behavior.

• Employee behavior in turn will have its impact on organisational per-formance (e.g. productivity). Contextual factors can constrain theimpact individual performance has on organisational-level outcomes.

• Reversed causality plays a role. Organisational success (e.g. highprofits or growth of market share) could increase (a) the willingness oftop management to invest in HR practices, and (b) the employees’commitment, trust, and motivation.

• Organisational contextual factors, both internal (e.g. capital intensity)and external (e.g. degree of unionisation in the industry), and individualemployee characteristics (e.g. age, gender, and level of education) andpreferences (e.g. preferred job type, level of autonomy) may constrainthe proposed relationships between HR practices and organisationalperformance.

DISCUSSION AND FUTURE RESEARCH

Performance management involves aligning the total set of an organisation’sHRM practices in such a way that employee and, ultimately, organisational

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performance is maximised. Thus, the link with the field of HRM is clear andmany of the research challenges outlined in the HRM and performance fieldalso hold when considering performance management (e.g. Delery, 1998;Gerhart, Wright, & McMahan, 2000). The model presented above also sug-gests a research agenda that is more specific for performance management,for example through clearly addressing the role of employee perceptions andsupervisors in research. Research is needed on the differences in enactmentof HRM practices and the effects thereof. Also, research could assesswhether the type of relationship the front-line supervisor has with eachsubordinate (LMX) moderates the link between HRM practices andemployee perceptions. Other such hypotheses can be developed and tested.

Research on different levels of analysis as well as cross-level influences areof interest. For example, how and when do individual and group perform-ance influence organisational performance (and vice versa)? The “middlesection” of the model describes the impact of direct supervisor/front-linemanagers, employees’ perceptions and attitudes, and employee behaviorsuggesting research on individual employee level. Organisational perform-ance is on the organisational level and HRM practices are set out at theorganisational level, although organisations may differentiate betweenemployee groups (e.g. Den Hartog & Verburg, 2004). Other levels (such asgroups/teams) are also of interest (e.g. how does individual performancerelate to team performance, when do group norms constrain individualbehaviour?). Future research will also need to consider the many methodo-logical challenges involved in multiple and cross-level research (see e.g.Kozlowski & Klein, 2000).

As stated, the measurement of performance plays an important role inperformance management and some of the interesting challenges for futureresearch are related to performance appraisal. For instance, Fletcher (2001)suggests that the content of appraisal nowadays goes beyond task perform-ance to incorporate contextual performance. A key challenge in this area isdetermining what constitutes good performance (and hence what should bemeasured and stimulated), which is also highly relevant for the wider perform-ance management process. For example, Molleman and Timmerman (2003)describe the impact of shifts in organisational performance indicators onthose of employees. They argue that as an organisation’s leading perform-ance indicators shift towards innovation and the creation of knowledge,more non-routine work and interdependence between workers is found andperformance criteria at lower levels should shift to reflect this.

The context of performance management is changing, and Fletcher (2001)mentions cultural differences and the impact of new technology as interestingemerging areas of research. For instance, as more and more organisationswork internationally, collaboration and coordination of people located indifferent nations increases. Often this collaboration within organisations

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takes the form of global work teams. Performance management is problem-atic in such teams as members are likely to have widely differing viewpointsabout appropriate ways to reward, recognise, evaluate, and train anddevelop team members (Kirkman & Den Hartog, 2004). Another point toconsider is the legal implications that the use of certain practices may have,which will differ for different countries. Thus, future research on the wider(and sometimes cross-cultural) context is of interest.

Obviously, additional theory-building in the area of performance manage-ment is needed. Although our model proposes a general process involvingseveral different steps, it does not yet specify in detail all of the processestaking place. Research can focus on the model as a whole or try to flesh outin more detail what happens in specific parts of the process. Gaining insightinto the processes and variables that play a role in the process of performancemanagement is not only of academic interest. Companies in many differentareas are trying to improve their output by implementing performance manage-ment systems and finding that this is an arduous and complicated task.Research may help improve such systems. Such similarity of interests of aca-demics and practitioners may help academics gain better entrance to the em-pirical reality, which is badly needed to perform the multi-level research neededto enhance understanding of how and why performance management works.

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