Formalization of annual performance feedback and employees’ job satisfaction in the SME context

Abstract

ABSTRACT Human resource management (HRM) practices in small and medium-sized enterprises (SMEs) to increase employees’ job satisfaction are on the rise. Given that SMEs often adopt highly formalized HRM practices of large companies, for example, in the case of annual performance appraisals, we investigate the relationship between the degree of formalization of annual performance feedback and employees’ job satisfaction in the SME context. Using an experimental survey study design (N = 166) in a German SME, we find that employees receiving annual performance feedback with a high degree of formalization report lower job satisfaction directly after the annual performance feedback than those who are still to receive their feedback. In contrast, in the case of annual performance feedback with a low degree of formalization, employees report higher job satisfaction right after the annual performance feedback than employees before the feedback. Moreover, we find that employees’ feedback orientation is an important moderator in this relationship.