Performance management system and its role for employee performance: Evidence from Ethiopian SMEs

Abstract

Small and mediumenterprises (SMEs) are crucial to Ethiopia's economy in creating jobs and reducing poverty. Despite the extensive literature on performance management systems (PMS) and employee productivity, there remain unanswered questions regarding which PMS predictors most effectively contribute to improved employee performance. This study aims to investigate the role of PMS in enhancing employee productivity in Ethiopian SMEs using both qualitative methods such as a literature review alongside quantitative techniques like linear regression analysis based on primary & secondary data sources. The findings provide valuable insights into effective strategies for implementing an efficient performance management system that can enhance employees' work outcomes within SMEs operating in Ethiopia.The results show that the implementation of an effective performance management system can significantly improve productivity among SMEs in Ethiopia. The five predictors identified by the linear regression model are important factors that contribute to better work outcomes among employees in Ethiopian SMEs; however, evaluation has been found to have the strongest positive relationship with improved job outcomes among those studied. Based on these findings, we recommend that SME owners/managers/HR professionals implement an effective performance management system that includes clear job responsibilities defined through performance planning, regular feedback provided about progress made towards goals set during the planning stage, periodic appraisals providing constructive criticism as well as recognition for good work done; offering training opportunities helping employees develop new skills or refine existing ones; rewarding high-performing employees who meet or exceed expectations with incentives such as bonuses or promotions can motivate them further.