When do performance management practices improve firm performance? The role of stakeholder groups

Abstract

This paper examines the firm-level outcome of performance management practices. Using a Korean firm-level panel data from 2007 to 2017, this study tests the main effect of performance management practices on firm performance. More importantly, this study develops a political contingency perspective and suggests that the effectiveness of performance management practices is contingent on the interests, preferences, and power of the relevant stakeholder groups – that is, family owners, professional CEOs, HR professionals, and labor unions. The fixed-effects regression results reveal that performance management practices improve firm performance. Also, the results show that the effects of performance management practices on firm performance are greater when professional CEOs have greater relative power than family owners and when there is a high number of HR professionals. The findings provide new insights into the strategic human resource management (SHRM) literature by illuminating the importance of the underexplored political context.