Management Accounting Research xxx (xxxx) xxx

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Management Accounting Research

journal homepage: www.elsevier.com/locate/mar

Performance management and work engagement – New evidence using

longitudinal data
Stefanie Ehmann a, Patrick Kampkötter a, *, Patrick Maier a, Philip Yang b
a
University of Tübingen, Department of Managerial Accounting, Nauklerstr. 47, 72074 Tübingen, Germany
b
Paderborn University, Department of Sustainable HRM and Leadership, Warburger Str. 100, 33098 Paderborn, Germany

A R T I C L E I N F O A B S T R A C T

JEL classification: The value and the impact of performance management systems on employee-level and firm-level outcomes is a
D23 widely discussed topic in both academia and practice. In this paper, we investigate the impact of performance
J01 management and evaluation practices (PMEPs), such as performance appraisal interviews, formal target
J33
agreements and performance-related pay schemes, on employee-level work engagement. Building on manage­
M41
M52
ment theories, we argue that PMEPs relate positively to employee-level work engagement. By applying a con­
tingency perspective, we further explore the context dependence of this relationship with respect to firm size,
Keywords:
Performance management
industry, and ownership type. Using a longitudinal, linked employer-employee data set in four waves; and by
Work engagement applying various fixed effects regressions to account for unobserved heterogeneity, our results imply a positive
Performance evaluation and statistically significant impact of PMEPs on work engagement. We further find that the relationship between
Target agreements PMEPs and work engagement is smaller for larger firms and for firms in the IT, Communication & Other Services
Performance appraisals sector.
Performance feedback
Performance-related pay

1. Introduction Franco-Santos et al., 2012).

In this study, we focus on performance management and evaluation
The value and the impact of performance management systems practices (PMEPs) as specific tools of a PMS. PMEPs are a system of
(PMSs) on employee-level and firm-level outcomes is a widely discussed management practices of different degrees of formality with the aim of
topic in both academia and practice (Otley, 1999; Ferreira and Otley, incentivizing, evaluating, and rewarding past and future performance of
2009; Franco-Santos et al., 2012; Aguinis et al., 2013; Armstrong, 2022). employees in alignment with organizational objectives. We particularly
Research on this topic encompasses a broad array of definitions and focus on three specific PMEPs: (1) performance appraisal interviews
conceptions of PMSs. Otley (1999) and Ferreira and Otley (2009) pro­ (PAIs, also called performance feedback interviews or performance re­
pose a multi-dimensional performance management framework that views (Armstrong, 2022), i.e., pre-scheduled conversations between
consists of a variety of key aspects. In the World Management Survey, for supervisors and subordinates, during which the latter’s past perfor­
instance, a large-scale management survey developed by Bloom and Van mance is assessed, (future) potential and training needs are identified,
Reenen (2007, 2010), information on the use of multiple performance and career and personal development plans are discussed, (2) formal
management practices from the areas of monitoring, targets, and in­ target agreements (TAs), i.e., written agreements specifying the targets
centives is elicited from industrial-firm managers. Although some the employee needs to meet over the course of the year, and (3)
research on PMSs suggest positive management quality and performance-related pay (PRP) schemes, i.e., compensation structures
firm-performance implications (Bloom et al., 2019), the overall empir­ that make part of the remuneration dependent on the performance of the
ical evidence concerning its general effectiveness is mixed (e.g., employee, her team/division, and the firm.1

* Corresponding author.
E-mail address: [email protected] (P. Kampkötter).
1
Representative evidence from private-sector firms in Germany (data used in this paper) shows that PMEPs are actually of high practical relevance. In 2018, 85%
of firms reported using PAIs, while 81% reported using formal TAs and 74% PRP schemes. Taking the employee perspective, 64% of all employees working in these
firms reported being covered by a PAI, 42% reported having both a PAI and a formal TA, and 62% stated that they received PRP.

https://doi.org/10.1016/j.mar.2023.100867
Received 12 October 2020; Received in revised form 11 November 2023; Accepted 14 November 2023
1044-5005/© 2023 Elsevier Ltd. All rights reserved.

Please cite this article as: Stefanie Ehmann et al., Management Accounting Research, https://doi.org/10.1016/j.mar.2023.100867
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

We study the effect of PMEPs on employee work engagement, which positive link between PMEPs and employee-level work engagement.
is “a positive, fulfilling, work-related state of mind that is characterized Empirically, we show that PMEPs relate positively to work engagement
by vigor, dedication, and absorption” (Schaufeli et al., 2002, p. 74). In in a larger-scale linked employer-employee data set. However, this
previous research, work engagement has shown to be a key factor positive effect is of different magnitude when distinguishing the effect of
influencing individual outcomes such as employee effort (Presslee et al., the specific PMEPs. This empirical analysis benefits from our linked
2023), job performance (Salanova et al., 2005; Halbesleben, 2010; Rich employer-employee data structure, since usually firm-level information
et al., 2010; Christian et al., 2011), and innovativeness at work on the design and coverage of PMSs combined with data on
(Schaufeli et al., 2006). Furthermore, it has also found to be a relevant employee-level outcomes are rarely available, especially with regard to
antecedent to organizational outcomes such as customer loyalty (Sala­ middle management and across firms (Indjejikian and Nanda, 2002;
nova et al., 2005), firm productivity (Harter et al., 2002), and financial Dekker et al., 2012; Qiu et al., 2022).
returns (Xanthopoulou et al., 2009). Second, our paper complements existing literature with respect to
Building on key overarching management theories that are also the incidence and effectiveness of PMSs in a wide range of firm envi­
applied in the context of management accounting (goal-setting theory, ronments. Our descriptive results show that PMEPs are used differently
organizational justice theory, expectancy theory, and principal-agent across firms of various sizes, industries, and ownership patterns. For this
theory),2 we argue that PMEPs relate positively to work engagement reason, we apply a contingency perspective and explore whether the
due to a stronger feedback link, enhanced goal and target clarity, the effect of PMEPs on work engagement differs with respect to these firm
specificity and development of performance-related rewards, and the contexts. Our empirical results show that the effect of PMEPs on work
closer alignment of interests between employees and the firm. Further­ engagement is overall positive. Nonetheless, our findings also point to
more, we explore the context dependence of this relationship by tentative differences in the magnitude of the effect when inspecting
applying a contingency perspective. Because the extent to which PMSs various firm sizes and industries. Thus, our study emphasizes the need to
and PMEPs are used varies among firms of different sizes, industries, and consider contextual factors on the firm and individual level when
ownership patterns, we analyze whether the relationship between studying the implications of PMSs and PMEPs (Abdel-Kader and Luther,
PMEPs and work engagement is moderated by these firm contingencies. 2008; Sholihin et al., 2011; Messner, 2016).
We then test these relationships empirically using data from the Finally, we also complement previous literature from a methodo­
Linked Personnel Panel (LPP), a longitudinal, matched employer- logical perspective. Our longitudinal data structure allows for an esti­
employee data set (Kampkötter et al., 2016). This data set is represen­ mation of a variety of different regression specifications employing a
tative for German private-sector establishments with more than 50 diverse set of fixed effects such as year and firm fixed effects. Firm fixed
employees and their respective workforce.3 The LPP combines an effects, in particular, provide relevant insights to previous between-firm
employer survey (between 769 and 1219 firms per wave) with an studies, as they allow for within-firm comparisons of a larger number of
employee survey, consisting of a random sample of employees working firms. Thus, we are able to account for unobserved time-constant het­
within the surveyed firms (roughly between 6500 and 7500 individuals erogeneity on the firm level that likely determines both the level of work
per wave). We observe four waves - 2012, 2014, 2016/17 and 2018/19 - engagement in a given firm and the existence or extent of PMEPs. With
of the LPP resulting in a total of around 16,500 employee-firm-year this empirical design, we aim at addressing potential sources of endo­
observations. geneity (Latham and Locke, 2007) and at mitigating “statistical arte­
Using a multitude of fixed effect regressions, we find a positive and facts, such as sampling error” (Derfuss, 2009, p. 203), which might
statistically significant overall effect of PMEPs on work engagement, explain heterogeneous results so far.
even controlling for time-constant heterogeneity at the firm (e.g., The remainder of the study is structured as follows: In Section 2, we
leadership culture) or individual (e.g., ability or talent) level. We also define our main constructs and discuss theoretical considerations. Sec­
find positive engagement implications for each of the three specific tion 3 describes the data and the empirical strategy. In Section 4, we
PMEPs. However, the positive effect is stronger for PAIs and TAs than it present our results, and Section 5 concludes.
is for PRP schemes. With respect to contingencies, our empirical results
provide tentative evidence that this positive direct effect decreases 2. PMEPs and work engagement
slightly for larger firms and firms in the IT, Communication, & Other
Services sector. Despite these heterogeneities our results suggest that the 2.1. Definition of main constructs
overall positive effect of PMEPs on work engagement persists across the
analyzed contingencies. Hence, we conclude that the usefulness of There are many different definitions of PMSs in previous research.
PMEPs as a tool to increase work engagement applies to firms of While some of them define performance management in a rather narrow
different sizes, industries, and ownership patterns. sense (e.g., focusing on performance measurement only), others define it
We contribute to the literature in several ways. First, our study more broadly (see, for instance, Ferreira and Otley, 2009; Broadbent and
complements existing research on the value of PMSs for employee-level Laughlin, 2009; Franco-Santos et al., 2012; Abernethy et al., 2021). To
outcomes by analyzing the implications of PMEPs, a combination of date, no universal definition of the term has emerged in the literature
three established performance management practices – performance due to its complex nature and the variety in perspectives. In some cases,
appraisal interviews, written target agreements, and performance- research emphasizes variations in distinct features of PMSs (Cheng et al.,
related pay schemes (see, for instance, Otley (1999) and Ferreira and 2007; Lau, 2011; Franco-Santos et al., 2012). Other definitions attach
Otley (2009)). Building on management theories, we then develop a more importance to variations concerning the purpose of the systems
(Hall, 2008; Franco-Santos et al., 2012; Micheli and Mari, 2014).
Building on the established (extended) performance management
2
framework of Otley (1999) and Ferreira and Otley (2009), we study the
For reviews of the theories in the context of accounting research, see, for implications of PMEPs as a system of management practices of different
instance, Birnberg et al. (2006), Lambert (2006) or Wibbeke and Lachmann
degrees of formality with the aim of incentivizing, evaluating, and
(2020).
3 rewarding past and future performance of employees in alignment with
An establishment denotes a regionally and economically separate unit. Two
types of firms exist: 1) multiple-establishment firms, which comprise several organizational objectives. Our research focuses on three specific prac­
establishments, and 2) single-establishment firms, where firm and establish­ tices: 1) annual, pre-scheduled performance appraisal interviews, 2)
ment denote the same entity. For the purpose of readability, we only use the formal target-setting between supervisors and subordinates, and 3)
term “firm” throughout the paper. However, in all regressions, we control for performance-related compensation schemes.
these two types of firms. PAIs are pre-scheduled, regularly-held appointments in which

2
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

supervisors meet up with their subordinates (Burke et al., 1978; 2.2. The relationship between PMEPs and work engagement
Cederblom, 1982). These PAIs, which comprise both an evaluative and
developmental dimension (Cummings and Schwab, 1978; Asmuß, 2008; Several management theories, which have also been applied in the
Boswell and Boudreau, 2002), serve a variety of purposes. Firstly, they management accounting context, are informative about the relationship
enable supervisors to evaluate their employees’ current performance between PMEPs and work engagement (for an extensive review, see
and to provide them with performance feedback on their past achieve­ Birnberg et al. (2006), Lambert (2006) or Wibbeke and Lachmann
ments (Kay and Meyer, 1965; Ivancevich, 1982; Pitkänen and Lukka, (2020)).
2011; Jacobs et al., 2014; Pichler et al., 2020). Additionally, these Firstly, goal-setting theory, put forward by Locke and Latham
meetings offer the opportunity to discuss potential training needs and (1990), states that more specific and concise goals are associated with a
career ambitions of employees and thus, to assess the future potential of higher level of performance and motivation than general and vague “do
subordinates (Gordon and Stewart, 2009; Meinecke et al., 2017; Arm­ your best” goals. Given that performance is controllable, an increased
strong, 2022). These sessions can either have a formal or a non-formal goal specificity focuses the individuals’ attention on what should be
character. In this paper, we focus on pre-scheduled and, thus, formal accomplished and, thus, is more effective, particularly in the presence of
PAIs. The effectiveness of PAIs has shown to depend on factors such as, feedback systems (Locke and Latham, 1990,2002; Lunenburg, 2011;
for instance, the level of support and criticism of supervisors (Burke Locke and Latham, 2019).
et al., 1978; Cederblom, 1982; Silverman and Wexley, 1984). Secondly, organizational justice theory, going back to Greenberg
Written TAs are often negotiated during annual PAIs (Burke et al., (1987), emphasizes the motivational potential of, amongst others, pro­
1978; Cederblom, 1982). They specify and formalize the goals that cedural justice. Procedural justice refers to the fairness perceptions of
employees are expected to achieve during a prescribed time period. individuals concerning the processes in which outcomes are established.
Thus, TAs can contain transparent quantitative as well as qualitative Generally, organizational justice theory assumes that individuals expe­
goals for employees that should foster the understanding of their riencing higher levels of procedural justice will also react in a more
job-specific tasks and help them to make sense of their superiors’ ex­ positive way, thus evoking better outcomes. Processes in which in­
pectations (Kampkötter et al., 2017; Martin and Thomas, 2022). dividuals are given the opportunity to actively participate in and voice
Whereas much of the prior literature focuses on unique aspects of the their thoughts are typically perceived as fairer (Greenberg, 1987,1990).
target setting process (e.g., Indjejikian et al., 2014; Ioannou et al., 2016; Thirdly, expectancy theory postulates that the degree of individual
Voußem et al., 2016; Feichter et al., 2018; Yitzhaky et al., 2021; Martin motivation depends on three aspects, namely their belief that their
and Thomas, 2022; Maas and Shi, 2023; Shang et al., 2023; Feichter, performance can be influenced by their effort level (expectancy), that
2023), in this paper we focus on the implications of the introduction of their performance is rewarded with corresponding outcomes (instru­
formally-specified targets as a performance management instrument in mentality), and that those outcomes are valuable to them (valence).
firms generally. These three aspects are connected multiplicatively and, thus, all
PRP schemes cover all remuneration systems, in which the extent of together determine the level of individual motivation (Vroom, 1964;
variable pay of employees depends on individual, divisional, and orga­ Ferris, 1977).4
nizational performance outcomes (Murphy, 2000; Bloom and Van Finally, principal-agent theory emphasizes the typical divergence
Reenen, 2010; Luft, 2016; Unger et al., 2020; Bandiera et al., 2021). between the interests of employees and those of their firm, particularly
They can be structured along various elements (Liu and Leitch, 2013). in cases where employee effort is non-contractible and moral hazard
Firstly, they may contain some sort of performance metric, usually problems arise. To address these issues, management practices are
subjective or objective indicators or a combination of these two (Mur­ implemented to better align these diverging interests and through that
phy, 2000; Lazear, 2000; Manthei et al., 2023a; Wood et al., 2023). motivate their workforce to act on behalf of their shareholders (Pre­
Secondly, a reference standard (Murphy, 2000; Indjejikian and Nanda, ndergast, 1999).
2002; Wood et al., 2023) can be used to evaluate performance, which is
typically linked to various different internal or external factors (Gibbons 2.2.1. Performance appraisal interviews
and Murphy, 1990; Murphy, 2000; Holzhacker et al., 2019; Yatsenko, PAIs provide a structured framework for supervisors to communicate
2022). Thirdly, the relationship between performance and pay is of formal performance feedback concerning their subordinates’ actual and
significance (Murphy, 2000; Manthei et al., 2023a). It could be specified potential contribution to firm value (Cederblom, 1982; Pichler et al.,
in a way such that individual and organizational performance outcomes 2020). According to goal-setting theory, performance feedback is an
are aligned via an employee’s compensation contract. essential factor that ties the specificity of goals to the motivation of
In this paper, we relate PMEPs to work engagement of employees. employees (Locke and Latham, 2002; Budworth et al., 2015; Locke and
Work engagement is grounded in the literature on management and Latham, 2019). Beyond this contextual role, feedback can also directly
organizational psychology and reflects work-related motivation, affect the motivation of employees as it informs them about their
enthusiasm, and personal investment in work and job-related tasks progress made so far and gives them insights into potential future ad­
(Kahn, 1990; Schaufeli and Bakker, 2003; Bakker and Leiter, 2010; justments needed concerning the level or the direction of their effort
Bakker, 2017). Schaufeli et al. (2002) define work engagement as “a (Bakker and Demerouti, 2007; Pitkänen and Lukka, 2011; Gruman and
positive, fulfilling, work-related state of mind” (p. 74). According to Saks, 2011). Thus, PAIs contribute to greater clarity on the side of em­
Schaufeli and Bakker (2004) and Schaufeli et al. (2002), work engage­ ployees concerning their goals and corresponding achievement strate­
ment consists of three different dimensions: vigor, dedication, and ab­ gies. Because of the feedback component inherent in PAIs, these can
sorption. Employees scoring high in the vigor dimension can be hold work engagement-enhancing implications. Also, during PAIs, su­
characterized by high energy levels, resilience, and perseverance. Thus, pervisors and their subordinates typically engage in a two-way
vigor captures the degree of activation of an employee. Strong dedica­ communication about performance, potential, and future development
tion illustrates, amongst others, employees feeling enthusiastic and to which both parties can contribute (Cawley et al., 1998; Sumelius
proud of their work. Hence, this dimension depicts how strongly em­ et al., 2014). Ideally, employees are thereby given the opportunity to
ployees identify with their work. An advanced level in the absorption
dimension relates to employees being fully immersed in their work and
losing track of time over work. This is sometimes also described as a 4
There are variations in expectancy theory that, for instance, forego the
particular kind of flow state in which employees are very focused and differentiation between performance and outcome and thus, sum up expectancy
fixated on their work. and instrumentality or focus on an additive connection between these elements
(Ferris, 1977; Kominis and Emmanuel, 2007).

3
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

participate in the process to a certain extent and make their voice heard beneficial in all firms. Rather, in order to be effective, management
(Holbrook, 2002; Thurston and McNall, 2010; Pichler, 2012; Jacobs systems have to fit the particular features in which they are used.
et al., 2014). Taking into account the key concepts of organizational Some research is already beginning to record differences in ante­
justice theory, the setting of PAIs can be associated with a comparatively cedents of PMSs, i.e., in the distribution of their incidence across various
strong perception of procedural fairness. Thus, PAIs should provoke firm sizes, industries, and ownership patterns. With respect to firm size,
positive reactions of employees’ and foster their involvement. different studies have shown that larger firms make use of performance
Relatedly, formal PAIs may also foster an employee’s feeling of appraisals (Grund and Sliwka, 2009) and management practices (Bloom
procedural justice, as the higher degree of formalization can increase the and Van Reenen, 2007,2010) significantly more often compared to
perceptions of employees that the rules and procedures to make de­ smaller firms. Regarding industry-specific differences, Grund and Sliwka
cisions in their company are more fair, as compared to situations where (2009) describe that performance appraisals are rather prevalent in the
supervisors follow their ad hoc judgments and strongly differ in the way financial and corporate-services industries, but are only rarely imple­
they conduct more informal conversations in the absence of formalized, mented in the construction sector. Concerning the ownership status and,
organizational procedures (Folger et al., 1992; Gibbs et al., 2004; Lau in particular, the particularities of family firms, prior literature finds
and Moser, 2008; Hartmann and Slapničar, 2012). tentative differences in terms of the extent of performance management
coverage (Bloom and Van Reenen, 2007,2010; Broszeit et al., 2019).
2.2.2. Formal target agreements The difference in the distribution of PMSs across firms described in
TAs consist of an employee’s objectives that are formalized and put the literature could have many reasons. Among other things, a higher
into writing. Thus, they represent a valuable resource for employees prevalence of PMSs may be the result of differences in the firms’ re­
which specifies their individual goals and provides them with guidance sources and capabilities. Alternatively, a firm could purposely choose
concerning the direction of their effort. As outlined above, goal speci­ (not) to implement PMSs if their effectiveness varies across organiza­
ficity is a key determinant in goal setting theory (Locke and Latham, tions. Therefore, in an exploratory analysis, we will investigate potential
1990,2002). Therefore, formal TAs with their - usually by design - heterogeneities regarding the effectiveness of PMEPs for work engage­
higher degrees of goal specificity are particularly suited to positively ment in different contextual settings. We hereby explore the moderating
impact employee motivation and thus engagement (Dekker et al., 2012; role of firm size, industry, and ownership status in particular.
Kampkötter et al., 2017; Feichter et al., 2018).
Furthermore, the implications of the already described common 3. Data
features of TAs can even be more extensive. Expectancy theory assumes
that individuals are more motivated when instrumentality is stronger, 3.1. Dependent and independent variables
thus, when they are convinced that superior, individual performance
will be rewarded by higher outcomes. In general, TAs explicitly specify In order to examine the nexus between PMEPs and work engage­
the valued achievements ex ante, while at the same time, employees are ment, we use the Linked Personnel Panel (LPP), a longitudinal, matched
more likely to be able to rely on the previously agreed objectives. employer-employee data set.5 The LPP is representative of German
Therefore, the use of TAs should strengthen the aspect of instrumentality private-sector establishments with more than 50 employees covered by
and thus enhance employee engagement (Ferris, 1977; Kominis and social security (for a detailed description of the design of the data set and
Emmanuel, 2007). the applied constructs, see Kampkötter et al. (2016)). Response rates are
comparatively high, amounting to, for instance, 75% for the employer
2.2.3. Performance-related pay survey and 34% for the employee survey for the fourth wave. Overall,
In case of performance-related pay schemes, principal-agent theory we find no significant selectivity effects on panel participation. Surveyed
delivers arguments for an increased level of employee engagement. As establishments are randomly drawn from the IAB establishment panel,
performance-related pay schemes typically tie individual bonuses to an annual survey of nearly 16000 German establishments. In order to
individual, divisional, and organizational outcomes, this closer align­ consider establishments of all sectors and size classes, the sample is
ment of firm and individual interests and their increased responsibility randomly drawn in a disproportionate and stratified manner by estab­
towards results should foster employees’ effort, motivation, and lishment size, federal state, and business sector.
engagement (Prendergast, 1999; Lazear, 2000). We can make use of four waves – 2012, 2014, 2016/17 and 2018/19
Additionally, the implications of expectancy theory need to be – of the LPP employer-employee data set. The employer survey covers
considered. The motivation of individuals also is higher, the more value between 769 and 1219 firms per wave. Firm managers provided infor­
they attribute to the potential outcomes they can reach. With mation on management practices and other firm characteristics. From
performance-related pay, employees benefit monetarily from superior these firms, a random sample of employees working within the surveyed
performance. Following expectancy theory and assuming that em­ firms (roughly between 6500 and 7500 individuals per wave) were
ployees typically ascribe at least some value to financial compensation, interviewed at home via telephone (CATI) or web interface (CAWI)
the use of the PMEP element performance pay should be connected to about job characteristics and perceptions, personal characteristics, at­
higher levels of employee engagement (Ferris, 1977; Kominis and titudes towards their organization, and behavioral variables. This
Emmanuel, 2007). feature of the data enables us to examine the link between the presence
Building on the previous discussion, all three PMEPs should thus be of PMEPs and work engagement on the individual level, while simul­
positively associated with work engagement. taneously being able to control for organizational characteristics at firm
level. Furthermore, the longitudinal structure of the data enables us to
2.3. A contingency perspective on the link between PMEPs and work employ panel data methods, allowing us to move closer towards
engagement causality.

The arguments outlined above suggest a generally positive influence

of PMEPs on work engagement (i.e., a positive average effect). Yet, there
is a large body of literature, also in the field of management accounting,
that emphasizes the need to consider the context in which practices are 5
The data set is open to any researcher and is available via the Research Data
embedded (Otley, 1980; Abdel-Kader and Luther, 2008; Dekker et al., Centre (FDZ) of the German Federal Employment Agency at the Institute for
2012; Messner, 2016; Otley, 2016). Based on contingency theory, this Employment Research (IAB). The DOI is: 10.5164/IAB.LPP1819.de.en.v1. For
strand of research claims that management systems are not equally more details, see Haylock and Kampkötter (2019) and Ruf et al. (2020).

4
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

3.1.1. Dependent variable variables on the firm and employee level. Firm-level controls comprise
We operationalize work engagement via the widely used, interna­ industry (5 categories), region (north, east, south, west), firm size (4
tionally validated nine-item work engagement scale UWES-9 (Schaufeli dummies), a set of dummies capturing majority ownership of the firm (e.
et al., 2006). Respondents are asked to indicate to which extent they g., family firm, dispersed ownership, financial investor), and a dummy
agree with nine statements regarding their job on a five-point Likert capturing a single-establishment firm vs. a firm that operates multiple
scale, such as the following: At my work, I feel bursting with energy. 6 establishments (e.g., multiple production sites). Employee-level controls
Higher scores on this scale indicate higher levels of work engagement include gender (with 1 being female and 0 male), age (4 dummies),
and vice versa. The reported scores of every single item of the work leadership position (0/1), full-time position (0/1), white-collar
engagement scale are added up and divided by 9, with the aggregated employee (0/1), monthly net income, type of employment contract
work engagement score representing an equally weighted average with (fixed term/permanent), permanent relationship (0/1), highest level of
values between 1 and 5 (Sonnentag, 2003). We further standardize this school education (6 dummies), highest level of further education (7
work engagement score to zero mean and unit variance prior to entering dummies), household size, and CAWI survey method (0/1).
the regressions. Cronbach’s Alpha is 0.915, indicating a high degree of
internal consistency of this construct. In 2019, the latest year included in 3.1.3. Empirical strategy
our data, the mean (unstandardized) engagement score is 3.49, while We estimate a variety of different OLS regression specifications
the median is 3.56. Therefore, we observe a higher probability mass at employing various fixed effects in order to be able to make more causal
larger values of work engagement, indicating that employees in our statements. In our main analysis, we regress work engagement on
sample are, on average, considerably engaged. The distribution is also different measures of PMEPs, including all controls on the firm and in­
very stable over time. dividual level as well as year fixed effects to make between-firm com­
parisons. Hence, our baseline specification can be expressed by the
3.1.2. Independent variables following equation:
Our analysis of PMEPs is based on three items from the LPP employee
yijt = β × PMEPijt + δ × Controlsit + η × Controlsjt + γ t + ϵijt (1)
survey and is in line with recent large-scale management surveys such as
the World Management Survey or the Management and Organizational The dependent variable yijt is standardized work engagement of in­
Practices Survey (Bloom and Van Reenen, 2007,2010; Bender et al., dividual i in firm j in time t, PMEPijt is our key independent variable of
2018; Bloom et al., 2019). We first measure the presence of a PAI via the interest (measured by either the PMEP score, the three PMEP dummies
following question: “Did you have an appraisal interview with your direct or the isolated practices), Controlsit and Controlsjt are vectors of time-
supervisor last year about issues related to, for instance, your professional varying controls on the employee (employee i) and firm level (firm j),
development or personnel evaluation? Please consider only appraisal in­ while γ t denotes year fixed effects and ϵijt the error term.
terviews for which an appointment was made in advance.” This question is We complement these regressions with a firm fixed effects specifi­
then used as a filter question for the item measuring the incidence of a cation in order to make additional within-firm comparisons. We account
formal TA, implying that an employee can only be covered by a TA if she for unobserved time-constant heterogeneity on the firm level that de­
is also covered by a PAI. It is important to stress the formal character of termines both the level of work engagement in a given organization and
PAIs, since respondents should only consider meetings with their su­ the existence or extent of performance management. In supplementary
pervisor for which a formal appointment was made. The item measuring analyses, we also run specifications including individual fixed effects
the presence of a TA (in conjunction with a PAI) is based on the and firm-year fixed effects. This enables us to explore within-person
following question: “Has your supervisor agreed on written targets with you variation and to take into account unobserved firm-year specific char­
during the PAI?”. To measure the existence of a PRP scheme, we make acteristics or trends. In all regressions, standard errors are clustered on
use of the following item: “Do you receive performance-related pay in the firm level. A descriptive overview of our main dependent and in­
addition to your fixed base salary? This refers, for example, to bonuses, spot dependent variables as well as on all firm-level and employee-level
bonuses, commissions, etc., regardless of whether they are contractually controls and contextual factors is provided in Tables B.1, B.2, and B.3
agreed or not.” in the Appendix.
We generate several indicators of PMEPs. First, we construct a
composite score variable, PMEP score, adding up the total number of the 3.2. The distribution of PMEPs
three specific performance management practices by which an
employee i in firm j is covered at date t. This variable ranges from 0 to 3, The data set examined in this paper comprises a broad set of
with zero stating that an employee is not covered by any of these contextual variables. These variables are not only beneficial for control
practices, and three stating that the employee is simultaneously covered purposes in analyses. Beyond that, they provide the opportunity to
by all three performance management practices considered. The mean of gather insights into the use of PMEPs over time and across different firm
our PMEP score amounts to 1.47 and the median to 1. In total, our data characteristics. Table 1 first provides an overview of the average value of
comprise 16,498 non-missing employee-firm-year observations. the PMEP score across time and firm-level contextual factors. Addi­
Since this PMEP score assumes a linear relationship with work tionally, it shows the respective percentage of employees being covered
engagement when increasing the number of PMEPs, we also use an by the individual PMEPs; thus, by a PAI, a TA, or a PRP scheme across
alternative, non-linear measure. In detail, we subdivide the PMEP score these variables.
measure into three dummy variables indicating whether employees are The results show that, on average, the use of PMEPs increases over
simultaneously covered by one, two, or three practices, regardless of the time. While the mean of the PMEP score amounts to 1.37 in 2012, it
exact composition of PMEPs. For all three dummies, employees not increases to 1.76 PMEPs per employee in 2018/2019. While the
covered by any of these three practices constitute the reference category. increasing trend is present for each PMEP individually, it is especially
29% of employee-firm-year observations are covered by a single prac­ pronounced for the usage of PAIs and TAs, which go up by 46% and
tice, 19% by two practices, and 27% by three practices. Third, we 37%, respectively. On the firm level, a considerable heterogeneity exists
include one distinct dummy variable for each practice in order to with respect to firm size. On average, the incidence of PMEPs strongly
analyze the isolated effects of the different types of PMEPs. increases with a firm’s size. Individuals working in firms with more than
Importantly, the data allow us to account for a rich set of control 500 employees are covered, on average, by 1.81 PMEPs, whereas in­
dividuals working in organizations with fewer than 100 employees
benefit from approximately half that amount. Again, this difference is
6
A complete list of the items used can be found in Appendix A. especially noticeable for PAIs and TAs. This variation in PMEP incidence

5
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

Table 1 Table 2
Distribution of PMEPs. PMEPs and Work Engagement.
Variables PMEP PAIa TAa PRPa Dependent Variable: Work Engagement (std.)
Score
Variables (1) (2) (3)
Year Wave 2012 1.37 45.76 31.84 59.26
PMEP Score 0.0979***
Wave 2014 1.39 48.12 34.10 56.50
(0.0086)
Wave 2016/2017 1.50 55.63 36.69 58.05
PMEP: One Practice 0.0667***
Wave 2018/2019 1.76 66.66 43.55 66.21
(0.0244)
Firm Size Fewer Than 100 Employees 0.97 30.85 17.29 48.76
PMEP: Two Practices 0.200***
100–249 Employees 1.15 39.73 25.74 49.23
(0.0301)
250–499 Employees 1.47 52.64 36.60 57.77
PMEP: Three Practices 0.283***
More Than 500 Employees 1.81 65.63 46.22 69.43
(0.0272)
Industry Manufacturing 1.48 51.86 37.76 58.59
Appraisal Interview 0.124***
Metal, Electrical, & 1.57 54.06 35.90 67.52
(0.0253)
Automotive
Target Agreement 0.111***
Retail, Logistics, & Media 1.22 43.96 26.66 51.42
(0.0238)
Company-Related & 1.45 53.69 35.91 55.05
PRP Scheme 0.0483**
Financial Services
(0.0196)
IT, Communication, & 1.27 52.87 37.10 36.93
Firm Controls yes yes yes
Other Services
Employee Controls yes yes yes
Ownership Family, Founder 1.26 43.35 27.80 54.82
Year FE yes yes yes
Management 1.38 49.82 33.63 54.77
Observations 16,498 16,498 16,498
Financial Investor 1.76 62.00 45.80 67.86
R-squared 0.078 0.078 0.078
Dispersed Ownership/ 1.82 65.28 48.37 68.60
Widely held The dependent variable is a score containing the equally-weighted average of
Government/Public Sector 1.90 72.73 51.43 65.45 nine items and is standardized. In Column (1), the independent variable is a
Other 1.63 59.24 40.35 63.40
score representing how many performance management and evaluation prac­
All numbers represent averages. a In %. PMEP Score = Sum of performance tices (PMEPs) an individual is covered by in a given firm and year. In Column
management and evaluation practices per individual; PAI = Performance (2), the PMEP score is subdivided into three dummy variables indicating
appraisal interview; TA = Written target agreement; PRP = Performance-related whether employees are covered by one, two, or three practices simultaneously.
pay scheme For all three dummies, employees not covered by any of the three practices
constitute the reference category. In Column (3), the three PMEPs (appraisal
interviews, target agreements, performance-related pay) are included as distinct
dummy variables. Employee controls comprise female (0/1), age (4 dummies),
is not as pronounced when evaluating industry or ownership patterns. supervisory position (0/1), white-collar employee (0/1), full-time position (0/
Industry-wise, merely the comparatively low implementation of TAs in 1), monthly net income, type of employment contract (fixed term/permanent),
Retail, Logistics, & Media and of variable pay in the IT, Communication, permanent relationship (0/1), highest level of school education (6 dummies),
& Other Services industry is striking. These numbers drive the relatively highest level of further education (7 dummies), household size, and survey
lower average PMEP score compared to other industries. When looking method (CAWI/CATI). Firm-level controls include industry (5 dummies),
regional area (4 dummies), ownership type (6 dummies), firm size (4 dummies),
at different ownership structures, PMEPs are more frequently used in
and single-establishment firm. Standard errors clustered on the firm level are
firms with dispersed ownership and financial investors as majority
reported in parentheses. The symbols * ,**, and *** represent significance levels
owners, as compared to family firms. The divergence is once more of 10%, 5%, and 1%, respectively. Constant not displayed.
driven by PAIs and TAs.7

4. Results

4.1. The impact of PMEPs on work engagement 6.7% of a standard deviation in case of one PMEP to 28.3% of a standard
deviation when simultaneously being covered by three PMEPs,
In Table 2, we estimate the average impact of the PMEP variables compared to employees not covered by any PMEP in a given firm and
(score and dummy variables) on work engagement. Column (1) is based year. Since all these coefficients are significantly different from each
on a regression of work engagement on the PMEP score as the main other (all Wald tests with p < 0.01), an increase in the number of
independent variable including all controls on the firm and employee practices is significantly associated with increasing levels of work
level as well as year fixed effects. The positive PMEP coefficient is sta­ engagement.
tistically and economically significant: If the PMEP score increases by Finally, we focus on the isolated effects of the different types of
one unit (i.e., if employees are covered by an additional PMEP), the PMEPs. To do so, we include one distinct dummy variable for each
work engagement score is, on average, approximately 10% of a standard practice in the specification reported in Column (3). By splitting up the
deviation higher. Next, Column (2) shows results when using our non- PMEP variable into its distinctive components, we can evaluate if one of
linear PMEP measures as the key independent variables. In this speci­ them specifically drives the results or if all of them actually are linked to
fication, we compare employees who are simultaneously covered by work engagement. The results indicate that, indeed, all three coefficients
either one, two, or three PMEPs to those that are not covered by any of in Column (3) are statistically and economically significant. Being
these practices (reference group). The estimated coefficients in Column covered by a PAI is, on average, associated with an increased level of
(2) of Table 2 indicate that employees exposed to a larger number of work engagement of 12.4% of a standard deviation, holding everything
practices at the same time exhibit statistically and economically signif­ else constant. The effect considering the presence of a TA is quantita­
icant higher levels of work engagement. The magnitude ranges from tively similar in size (and not significantly different from PAI at con­
ventional levels). Being subject to a PRP scheme is also positively
connected to work engagement, even though the magnitude is smaller.
7
Additional descriptive statistics for firm-level competitive strategy and
individual-level workforce characteristics (employee age, leadership re­
sponsibility, work contract, and gender) are provided in Table B.4 in the
Appendix.

6
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

The PRP coefficient is also significantly different from the PAI and the driven by the presence of PAIs and TAs. These individual-level results
TA coefficient (both Wald tests with p < 0.05).8 are in line with larger-scale firm-survey findings of a positive link be­
Besides these between-firm estimations, it is also important to ac­ tween management quality (with performance management being an
count for unobserved, time-constant heterogeneity on the firm level integral part of it) and firm-level outcomes such as productivity or
such as organizational culture, which might determine both an em­ profitability (Bloom et al., 2019).
ployee’s work engagement level and coverage by PMEP measures. We conduct various robustness checks employing different fixed ef­
Table 3 shows these firm fixed effects regressions. The results are fects specifications to verify the consistency of our results. First, we
broadly in line with our baseline estimates in Table 2 with slightly larger replicate our baseline specifications by controlling for individual fixed
coefficients when taking the within-firm rather than the between-firm effects and firm-year fixed effects. The inclusion of interaction terms
perspective. Hence, even when comparing two identical employees in between firm and year fixed effects is an even more conservative and
the same firm, we still find that (an increasing number of) PMEPs are strict approach, as it allows unobserved, firm-specific characteristics to
significantly positively related to employees’ work engagement.9 vary over time. As can be seen in Table IA.1 in the Internet Appendix, the
To conclude, our results suggest that the presence and the extent of results remain unchanged, both with respect to the magnitude and to the
PMEPs have a positive impact on work engagement on aggregate, even significance of the coefficients, which are still positive and statistically
controlling for time-constant firm heterogeneity. This effect is mainly significant. We also employ fixed effects on the individual level. They
allow us to control for any time-constant individual heterogeneity that
Table 3 might affect the level of engagement and the existence or extent of
PMEPs and Work Engagement – Firm Fixed Effects. PMEPs, such as, for example, talent or ability. As can be seen in
Dependent Variable: Work Engagement (std.)
Table IA.2, our results in Columns (1) and (2) largely confirm those from
the baseline estimations, whereas in Column (3) only PAIs are signifi­
Variables (1) (2) (3)
cantly correlated with work engagement. This is likely driven by the fact
PMEP Score 0.129*** that we do not have sufficient within-person variation across years.10 We
(0.0094)
conduct further (unreported) robustness checks. In order to account for
PMEP: One Practice 0.0797***
(0.0255)
concerns regarding the ordinal nature of the dependent variable, we
PMEP: Two Practices 0.243*** apply ordered logistic regression models. To tackle issues related to se­
(0.0299) lection bias and reverse causality, in addition, we estimate the instru­
PMEP: Three Practices 0.374*** mental variable method proposed by Lewbel (2012).11 These issues
(0.0298)
might arise in case engaged individuals self-select into PMEPs or in case
Appraisal Interview 0.144***
(0.0257) they are chosen for having a PMEP based on their previous level of
Target Agreement 0.162*** engagement. In all robustness checks, our results remain qualitatively
(0.0254) the same. Furthermore, all results are robust to clustering standard er­
PRP Scheme 0.0675*** rors on the individual and firm-year level. To conclude, our results
(0.0211)
Firm Controls yes yes yes
remain robust across a series of additional specifications, which supports
Employee Controls yes yes yes a strong positive impact of PMEPs on work engagement.
Year FE yes yes yes
Firm FE yes yes yes
Observations 16,347 16,347 16,347 4.2. The influence of contextual factors
Number of Firms 1148 1148 1148
R-squared (within) 0.057 0.057 0.058 In Section 3.2, we descriptively shed light on heterogeneities in the
For a detailed description of dependent and independent variables, as well as incidence of PMEPs across our sample. In this section, we go one step
employee-level and firm-level controls, see Table 2. Standard errors clustered on further and analyze if the previously documented positive effect of PAIs,
the firm level are reported in parentheses. The symbols *,**, and *** represent TAs, and PRP schemes on work engagement is moderated by specific
significance levels of 10%, 5%, and 1%, respectively. Constant not displayed. firm characteristics, or if this effect is the same in all types of
organizations.
Table 4 shows interaction terms between the set of contextual factors
and our PMEP proxies, namely PMEP score (Column (1)) and our three
8 dummy variables for PAIs, TAs, and PRP schemes (Columns (2) to (4)).
When comparing the single coefficients, one should recall that the survey
Note that the PMEP coefficients in the first row in this table always
item on TAs is, by design, a filter question, i.e., firms with no PAIs in place were
not eligible to answer the TA question. The rationale here is that negotiations reflect the impact of the considered PMEP proxy on work engagement
about formalized performance targets between subordinates and supervisors for the respective reference categories, i.e., fewer than 100 employees in
usually take place during pre-scheduled PAIs, at least in German firms. The case of firm size, the manufacturing sector in case of industry, and family
survey item on PRPs, however, applies to all firms. firms and firms owned by their founder in case of ownership status. In
9
Previous literature has argued that performance management practices Columns (2) to (4), we also control for the occurrence of the other two
need to be considered as a set of complements, i.e., the effectiveness of per­ PMEPs.
formance management practices should vary depending on their respective The first line of Table 4 confirms the positive impact of a higher
combination and connectedness (Milgrom and Roberts, 1995; Widener, 2007; PMEP score and the use of the three PMEPs on work engagement. All
Malmi and Brown, 2008; Ferreira and Otley, 2009; Grabner and Moers, 2013;
coefficients are economically and statistically significant, which sup­
Brickley et al., 2015; Qiu et al., 2022). Table B.5 in the Appendix shows
ports our positive effects documented in the baseline specifications in
regression results where we include interaction terms between PAI & PRP
schemes and between TA & PRP schemes (the interaction term between PAI &
Tables 2 and 3. Yet, the results further indicate that the overall effects of
TA is ruled out by survey design, because having a TA is only possible with a PMEPs on work engagement are moderated by firm size and industry.
pre-scheduled PAI). While the main effects of the individual dummies for PAI,
TA, and PRP schemes remain significant and quantitatively similar, none of the
10
interaction terms is significantly different from zero, indicating that there are This is a common problem of individual fixed effects analyses in manage­
no complementarities. This supports recent evidence by Manthei et al. (2023b), ment practices research, namely that there is “not enough real time series
who do not find complementarities between feedback about performance variation (given measurement error) to identify any significant relationships”
metrics and performance-related pay, but significant effects of both isolated (Bender et al., 2018).
11
practices. We use Stata’s ivreg2h command developed by Baum and Schaffer (2012).

7
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

Table 4 employees covered by PRP schemes show higher levels of work

Effect Heterogeneity. engagement when working in smaller firms is in line with the findings
Dependent Work Engagement (std.) from our distributional analysis in Table 1, which has shown that the
Variable: heterogeneity across firm sizes, i.e., the distance between small and
Specific PMEP: (1) PMEP (2) (3) Target (4) PRP large firms, in the use of PRP schemes is smallest compared to the two
Score Appraisal Agreement Scheme
other PMEPs. A potential explanation could be that managers in larger
Interview
firms have difficulties observing their employees’ actions (e.g., because
PMEP 0.151*** 0.171*** 0.155** 0.205*** they are located elsewhere) and, hence, have incomplete information
(0.0283) (0.0607) (0.0683) (0.0607)
Moderator: Firm
about their subordinate’s contributions (Bol, 2011), which could render
Size PMEPs less effective. Additionally, in larger firms, a higher proportion of
PMEP × − 0.0084 0.0631 0.0365 − 0.107* job tasks are cross-functional or team-based, which makes performance
100–249 (0.0273) (0.0598) (0.0658) (0.0596) management more difficult and prone to biases. This is particularly true
employees
in case of subjective performance evaluations or when job tasks are
PMEP × − 0.0609** − 0.0459 − 0.0518 − 0.189***
250–499 (0.0294) (0.0657) (0.0679) (0.0641) mainly composed of creative and leadership tasks. If PRP schemes in
employees larger firms are based on group outcomes to a larger extent, a free-rider
PMEP × − 0.0512* − 0.0403 − 0.0340 − 0.163*** problem might occur, which weakens the link between PMEP and work
> 500 employees (0.0273) (0.0614) (0.0626) (0.0597) engagement even further (Holmstrom, 1982; Sprinkle and Williamson,
Moderator: Industry
PMEP × − 0.0137 − 0.0295 − 0.0224 − 0.0318
2006). In smaller firms with smaller and more decentralized teams,
Metal, Electrical & (0.0221) (0.0487) (0.0477) (0.0485) formal performance management practices such as PAIs and TAs might
Automotive be substituted by a closer interaction between supervisors and sub­
PMEP × − 0.0193 − 0.0643 0.0002 − 0.0276 ordinates. PRPs, however, can be considered more complimentary to
Retail, Logistics & (0.0295) (0.0640) (0.0694) (0.0627)
induce individual effort and, hence, should be used relatively more often
Media
PMEP × 0.0021 − 0.0226 − 0.0674 0.105 in smaller firms, as shown in Table 1. These firms might anticipate the
Company-Related (0.0268) (0.0608) (0.0550) (0.0646) positive impact on engagement and are able to set themselves apart from
& Financial Serv. other small firms by implementing PRP schemes, whereas in larger
PMEP × − 0.0770** − 0.151** − 0.197*** − 0.0617 firms, everyone expects PMEP practices to be present.12
IT, Communication (0.0315) (0.0765) (0.0689) (0.0867)
We next turn to industry as a moderating variable. In all columns, a
& Other Serv.
Moderator: negative interaction term for firms in the IT, Communication, & Other
Ownership Type Services industry is observable (compared to the manufacturing in­
PMEP × − 0.0160 − 0.0005 − 0.0189 − 0.0690 dustry), which is also significant for the PMEP score and for PAIs and
Management (0.0261) (0.0564) (0.0600) (0.0551)
TAs, but not for PRP schemes. This significantly weaker link between
PMEP × 0.0058 0.0056 0.0651 − 0.0555
Financial Investor (0.0268) (0.0620) (0.0636) (0.0572) PMEPs and work engagement is intuitive, because many jobs in this
PMEP × − 0.0205 − 0.0795 − 0.0190 − 0.0099 industry are characterized by R&D-intensive, more creative, and mainly
Dispersed (0.0256) (0.0631) (0.0507) (0.0711) team-based tasks, for which performance measurement, target setting,
Ownership and monitoring are likely to be more challenging. Furthermore, setting
PMEP × 0.0396 0.0765 0.111 0.0207
up targets in written form might hinder creativity and decrease moti­
Government/ (0.0398) (0.0879) (0.0880) (0.101)
Public Sector vation, particularly when output is only measurable at the team rather
PMEP × 0.0083 0.0176 0.0289 − 0.0060 than the individual level. Again, the overall effect (sum of PMEP coef­
Other (0.0255) (0.0534) (0.0484) (0.0569) ficient and respective interaction terms) is still positive in three out of
Firm Controls yes yes yes yes
four specifications. Recall that we observe a lower incidence of PRP
Employee Controls yes yes yes yes
Year FE yes yes yes yes
schemes in firms in the IT, Communications, & Other Services sector, as
Moderator Base yes yes yes yes shown in Table 1. Hence, although PRP schemes are used to a lower
Terms extent in this industry, the impact of PRP schemes on work engagement
Other PMEPs yes yes yes does not significantly differ between sectors.
Observations 16,498 16,498 16,498 16,498
For majority ownership as a moderator, we do not find significant
R-squared 0.079 0.079 0.079 0.080
interaction terms, indicating that PMEPs work very similarly across
The table presents interaction terms between our performance management and firms with different ownership patters. To conclude, the main take-away
evaluation practices (PMEPs) proxies (PMEP score and three distinct dummy of our study is that the overall effects of PMEPs on work engagement are
variables), as referenced in the respective column header and the set of
moderated by firm size and industry, whereas for the type of ownership
contextual factors (moderators). In Columns (2) to (4), the other two PMEPs are
we do not see any significant interaction terms. Still, even though we
controlled for, but not reported. A detailed description of the dependent vari­
able, employee controls, and firm-level controls can be found in Table 2. Stan­ document some effect heterogeneity, the overall effect of PMEPs on
dard errors clustered on the firm level in parentheses. The symbols *,**, and *** work engagement remains strongly positive across the vast majority of
represent significance levels of 10%, 5%, and 1%, respectively. Constant not specifications. Hence, our results indicate that the usefulness of PMEPs
displayed. as a tool to increase work engagement applies to firms of different sizes,
industries, and ownership patterns.
Concerning firm size, the results in Column (1) of Table 4 show that the
positive link between the number of PMEPs and work engagement is 5. Conclusion
significantly weaker in firms with more than 250 employees compared
to firms with fewer than 100 employees. Nevertheless, the overall In this paper, we analyzed PMEPs as a combination of three well-
impact of PMEPs on work engagement remains positive, as the sum of established performance management practices (performance
the PMEP coefficient and the respective interaction terms is greater than appraisal interviews, written target agreements, and performance-
zero. Columns (2) to (4) confirm the negative coefficients for larger firms related pay schemes) and related it to employee work engagement. In
for all three practices; however, only the results for PRP schemes are line with our theoretical arguments, our empirical results based on
statistically significant. But also in case of PRP schemes, the overall
impact remains positive even in the largest firms. The result that
12
We thank an anonymous reviewer for pointing this out.

8
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

linked employer-employee data document positive, statistically signifi­ relationships could be investigated in future research.
cant work engagement-implications of PMEPs in general and for each of Our study should not be viewed in isolation, but adds to the body of
its specific PMEPs individually, i.e., PAIs, TAs, and PRP schemes. research on the implications of performance management. We concur
Furthermore, we analyzed the context dependence of this relationship with Falk and Heckman (2009) and Kampkötter and Sliwka (2016), who
and found a smaller effect for larger firms and firms in the IT, highlight that compiling evidence from a multitude of data sources and
Communication, & Other Services sector. empirical methods – each of them with its strengths and weaknesses – is
Our descriptive results have shown that the distribution of PMEPs necessary to advancing the scientific state of knowledge. A hierarchy
varies across firms, which is in line with the findings of Grund and among different data set-ups or scientific approaches of analyses does
Sliwka (2009) and Broszeit et al. (2019). Similarly, our multivariate not exist, as they act as “complements, not substitutes” (Falk and
results indicate contextual heterogeneity of the PMEP-work engagement Heckman, 2009, p. 537; Schäffer, 2018). Through a plurality of data and
relationship with respect to firm size and industry. However, these methods, single-firm case studies with detailed firm-level information
moderating effects are small and only marginally affect the overall about internal characteristics of PMSs (see, e.g., Anderson et al., 2010;
positive effect of PMEPs on work engagement. Hence, given this evident Sholihin et al., 2011; Bol, 2011; Holzhacker et al., 2019), survey data
positive effect of PMEPs on work engagement, firms should consider a research with comprehensive responses from single firms or from busi­
more prevalent use of PMEPs to enhance employee motivation and ness managers across different firms and industries (see, e.g., Tuomela,
subsequent behavior, irrespectively of their size, industry, or ownership 2005; Dekker et al., 2012; Arnold and Artz, 2015; Bedford et al., 2016;
pattern. Voußem et al., 2016; Groen et al., 2017; Arnold and Artz, 2019;
Our empirical results indicate that all specific PMEPs have positive Guenther and Heinicke, 2019; Demartini and Otley, 2020), and field
effects on employee engagement. However, additional analyses show experiments through causal analysis in controlled settings (see, e.g.,
that certain PMEPs (TAs and PAIs) affect work engagement more than Berger et al., 2013; Liu and Zhang, 2015; Casas-Arce et al., 2017; Li and
others (PRP schemes). At the same time, we also find that employees Sandino, 2018; Casas-Arce and Martínez-Jerez, 2022; Manthei et al.,
covered by a greater number of PMEPs show higher levels of work 2023b), have all contributed to a better understanding of the impact of
engagement regardless of the specific PMEPs. Thus, from a theoretical performance management from different perspectives and levels. We
perspective, our study suggests future research should consider both, a believe that our longitudinal, linked employer-employee survey design
combined measurement of PMEPs as well as more fine grained mea­ adds a new layer to the existing literature and offers promising avenues
surements of its sub-dimensions that take into account the individual for future research in this field.
facets of the specific PMEPs. Moreover, our findings highlight the need
to further explore contingencies when studying the implications of
performance management systems (Dekker et al., 2012; Messner, 2016; Declaration of Competing Interest
Otley, 2016).
This study is not without weaknesses. First of all, as described above, The authors declare that they have no known competing financial
the main advantages of our data are the larger sample size and the interests or personal relationships that could have appeared to influence
longitudinal structure, which allow us to analyze the effectiveness of the work reported in this paper. All authors contributed equally to this
PMEPs across firms and its context dependence. As a consequence of work.
this, however, we lack evidence on the exact specificities of the PMEPs
within firms (such as a distinction between subjective and objective Data availability
performance measurement or the contractual details of the target
agreements and incentive schemes for each employee, see, e.g., The data set is open to any researcher and is available via the
Widener, 2006; Hartmann and Slapničar, 2009; Bol, 2011; Voußem Research Data Centre (FDZ) of the Institute for Employment Research
et al., 2016). Future research could fill this void, by further exploring (IAB). The DOI is: 10.5164/IAB.LPP1617.de.en.v1.
employee outcomes from these specific aspects of PMEPs. Second, we
focus on formal PMEPs, as we lack evidence of informal controls. Hence, Acknowledgements
our results can be seen as the lower boundary of the true effect of the
considered PMEPs. In the cases where informal management practices We are grateful to the editor, Henri Dekker, two anonymous referees,
do also have a positive impact on work engagement, our documented Markus Arnold, Mario Bossler, Michael Haylock, Thomas Keusch, Jan
effect sizes would be even higher. As these informal controls are Riepe, Breno Sampaio, Matthias Seckler, Dirk Sliwka, Giuseppe Trevi­
considered equally important (Ferreira and Otley, 2009), future san, and conference and seminar participants in Nuremberg, Recife, and
research should analyze employee outcomes of these tools in firms. A Trier for helpful comments and suggestions. Brian Cooper and Mariella
further issue of our study is the focus on linking PMEPs to work Misch provided excellent research assistance. Patrick Kampkötter
engagement. Despite empirical evidence on the relevance of work thanks the German Research Foundation (DFG) for financial support
engagement for employee effort and productivity (Christian et al., 2011; through priority program SPP 1764 (KA 4591/1-2 and SL 46/2-1). Part
Presslee et al., 2023), as well as firm outcomes (Salanova et al., 2005; of this research was conducted while Patrick Maier visited Universidade
Xanthopoulou et al., 2009), our study is not informative about the direct Federal de Pernambuco in Recife, Brazil. He would like to thank the
effect of PMEPs on these employee-level and firm-level measures. These Department of Economics for their hospitality.

Appendix A. Supporting information

Supplementary data associated with this article can be found in the online version at doi:10.1016/j.mar.2023.100867.

Appendix A. UWES-9 Work Engagement Scale

The following nine statements are about how you feel at work. Please read each statement carefully and decide how often you feel this way about
your work. Each of the following items should be answered on a five-point Likert scale from 1 (never) to 5 (daily): .

9
S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

1. At my work, I feel bursting with energy. (VI1)

2. At my job, I feel strong and vigorous. (VI2)
3. I am enthusiastic about my job. (DE1)
4. My job inspires me. (DE2)
5. When I get up in the morning, I feel like going to work. (VI3)
6. I feel happy when I am working intensely. (AB1)
7. I am proud of the work that I do. (DE3)
8. I am immersed in my work. (AB2)
9. I get carried away when I am working. (AB3)
Note: VI = Vigor scale; DE = Dedication scale; AB = Absorption scale.
Source: Schaufeli and Bakker (2003).

B. Descriptive statistics
Table B.1
Descriptive Statistics – Main Dependent and Independent Variables.

(1) (2) (3) (4)

Variables Mean Std. Dev. Min. Max.

PMEP Score 1.473 1.135 0 3

PMEP: One Practice 0.290 0.454 0 1
PMEP: Two Practices 0.191 0.393 0 1
PMEP: Three Practices 0.267 0.442 0 1
Appraisal Interview 0.522 0.500 0 1
Target Agreement 0.356 0.479 0 1
PRP Scheme 0.594 0.491 0 1
Work Engagement (standardized) − 0.0073 1.003 − 3.206 1.588
Work Engagement (non-standardized) 3.669 0.837 1 5
Work Engagement Items
Engagement - Energy 3.388 1.006 1 5
Engagement - Strong 4.019 0.860 1 5
Engagement - Enthusiastic 3.755 1.027 1 5
Engagement - Inspiring 3.370 1.262 1 5
Engagement - Feel Like Working 3.499 1.132 1 5
Engagement - Happy 3.819 1.083 1 5
Engagement - Proud 4.088 1.006 1 5
Engagement - Immersed 3.623 1.155 1 5
Engagement - Carried Away 3.460 1.164 1 5
N = 16, 498
Table B.2
Descriptive Statistics – Firm-Level Controls and Contextual Factors.

(1) (2) (3) (4) (5)

Variables N Mean Std. Dev. Min. Max.

Industry - Manufacturing (0/1) 16,498 0.299 0.458 0 1

Industry - Metal, Electronics, Automotive (0/1) 16,498 0.402 0.490 0 1
Industry - Trade, Transportation, News (0/1) 16,498 0.102 0.303 0 1
Industry - Business-Related Services (0/1) 16,498 0.125 0.330 0 1
Industry - Information/Communication (0/1) 16,498 0.0719 0.258 0 1
Region - North (0/1) 16,498 0.192 0.394 0 1
Region - East (0/1) 16,498 0.251 0.434 0 1
Region - South (0/1) 16,498 0.276 0.447 0 1
Region - West (0/1) 16,498 0.281 0.449 0 1
Size - Less Than 100 Employees (0/1) 16,498 0.127 0.333 0 1
Size - 100–249 Employees (0/1) 16,498 0.231 0.421 0 1
Size - 250–499 Employees (0/1) 16,498 0.231 0.421 0 1
Size - More Than 500 Employees (0/1) 16,498 0.412 0.492 0 1
Strategy - Cost Leadership (0/1) 11,084 0.0533 0.225 0 1
Strategy - Benefit Leadership (0/1) 11,084 0.430 0.495 0 1
Strategy - Both Equally (0/1) 11,084 0.517 0.500 0 1
Ownership - Family/Founder (0/1) 16,498 0.429 0.495 0 1
Ownership - Management (0/1) 16,498 0.151 0.358 0 1
Ownership - Financial Investor (0/1) 16,498 0.0932 0.291 0 1
Ownership - Dispersed Ownership 16,498 0.110 0.312 0 1
Ownership - Government/ 16,498 0.0233 0.151 0 1
Public Sector (0/1)
Ownership - Other types (0/1) 16,498 0.194 0.396 0 1
Single-establishment Firm (0/1) 16,498 0.693 0.461 0 1

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S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

Table B.3
Descriptive Statistics – Employee-Level Controls.

(1) (2) (3) (4) (5)

Variables N Mean Std. Dev. Min Max

Age Category - under 25 (0/1) 16,498 0.0385 0.192 0 1

Age Category - 25–39 (0/1) 16,498 0.233 0.423 0 1
Age Category - 40–54 (0/1) 16,498 0.521 0.500 0 1
Age Category - over 55 (0/1) 16,498 0.207 0.405 0 1
Education - None (0/1) 16,498 0.0042 0.0645 0 1
Education - Lower Secondary School (0/1) 16,498 0.219 0.414 0 1
Education - Intermediate Secondary School (0/1) 16,498 0.424 0.494 0 1
Education - University of Applied Sciences Entrance Qualification (0/1) 16,498 0.110 0.313 0 1
Education - General Higher Education Entrance Qualification (0/1) 16,498 0.235 0.424 0 1
Education - Other (0/1) 16,498 0.0069 0.0825 0 1
Female (0/1) 16,498 0.272 0.445 0 1
Fixed-Term Contract (0/1) 16,498 0.0450 0.207 0 1
Full Time/Part Time (0/1) 16,498 0.127 0.333 0 1
Monthly Net Income (in Euros) 16,498 2419 1842 1 74,221
Household Size 16,498 2.777 1.228 1 14
Permanent Relationship (0/1) 16,498 0.841 0.366 0 1
Leadership Position (0/1) 16,498 0.290 0.454 0 1
Further Education - None (0/1) 16,498 0.0209 0.143 0 1
Further Education - Apprenticeship (0/1) 16,498 0.462 0.499 0 1
Further Education - Vocational/Business School (0/1) 16,498 0.0936 0.291 0 1
Further Education - Master Craftsman/Technical College (0/1) 16,498 0.206 0.404 0 1
Further Education - University of Applied Sciences (0/1) 16,498 0.0992 0.299 0 1
Further Education - University (0/1) 16,498 0.114 0.318 0 1
Further Education - Other (0/1) 16,498 0.0044 0.0659 0 1
White Collar (0/1) 16,498 0.625 0.484 0 1

Table B.4
Distribution of PMEPs – Extended.

Variables PMEP Score PAIa TAa PRPa

Strategy Cost Leader 1.38 49.74 36.04 51.78

Benefit Leader 1.75 63.16 44.30 67.63
Both Strategies 1.34 49.21 31.50 53.40
Workforce Age < 25 years 1.49 52.44 33.39 63.46
Age 25–39 years 1.56 56.01 37.36 62.90
Age 40–54 years 1.49 52.56 36.62 59.51
Age > 55 years 1.33 47.13 31.52 54.72
No Leadership Position 1.39 49.47 32.75 56.62
Leadership Position 1.68 58.99 42.56 66.36
Full-time Employee 1.51 52.73 36.27 61.67
Part-time Employee 1.24 48.83 30.97 44.21
Female Employee 1.35 51.12 34.70 49.68
Male Employee 1.52 52.65 35.94 63.10
a
in %; PMEP Score = Sum of performance management and evaluation practices per individual, PAI = Performance appraisal interview, TA = Written
target agreement, PRP = Performance-related pay scheme

Table B.5
Interactions between PMEPs.

Dependent Variable: Work Engagement (std.)

Variables (1) (2) (3) (4)

Appraisal Interview 0.124*** 0.132*** 0.124*** 0.145***

(0.0310) (0.0317) (0.0252) (0.0257)
Target Agreement 0.111*** 0.160*** 0.110*** 0.145***
(0.0243) (0.0257) (0.0382) (0.0388)
PRP Scheme 0.0490* 0.0569** 0.0479** 0.0600**
(0.0267) (0.0285) (0.0226) (0.0246)
Appraisal Interview X − 0.0014 0.0220
PRP Scheme (0.0380) (0.0375)
Target Agreement X 0.0013 0.0245
PRP Scheme (0.0432) (0.0427)
Firm Controls yes yes yes yes
Employee Controls yes yes yes yes
Year FE yes yes yes yes
Firm FE yes yes
Observations 16,498 16,347 16,498 16,347
R-squared (within) 0.078 0.058 0.078 0.058
For a detailed description of dependent and independent variables as well as employee-level and firm-level controls, see Table 2.
Standard errors clustered on the firm level are reported in parentheses. The symbols *,**, and *** represent significance levels of
10%, 5%, and 1%, respectively. Constant not displayed.

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S. Ehmann et al. Management Accounting Research xxx (xxxx) xxx

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