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Public Personnel Management2015, Vol. 44(2) 214 –238

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Article

What Drives Perceived Fairness of Performance Appraisal? Exploring the Effects of Psychological Contract Fulfillment on Employees’ Perceived Fairness of Performance Appraisal in U.S. Federal Agencies

James R. Harrington1 and Ji Han Lee1

AbstractWhile the recent literature acknowledges the importance of performance appraisal fairness in high-performing organizations, one of the major challenges facing human resource management (HRM) is establishing both an effective and a fair performance appraisal system; yet little is known about the key organizational and psychological factors that affect employees’ perception of performance appraisal fairness, especially in public organizations. In regards to employees’ perception of performance appraisal fairness, most studies have focused on the structural factors rather than the cognitive or psychological perspectives. Particularly, one of the key overlooked factors driving employees’ perceived fairness of performance appraisal is psychological contract fulfillment, which describes the expectations between an employee and the employer and what each gives and expects in return from the other. This study examines whether psychological contract fulfillments are associated with employees’ perceived fairness of performance appraisals in U.S. federal agencies. Using the Federal Employee Viewpoint Survey, this study finds that psychological contract fulfillments have a positive impact on federal employees’ perceived fairness of performance appraisals.

1University of Texas at Dallas, Richardson, USA

Corresponding Author:James R. Harrington, Public Affairs Program, School of Economic, Political, and Policy Sciences, University of Texas at Dallas, 800 West Campbell Road, Mail Station GR-31, Richardson, TX 75080-3021, USA. Email: [email protected]

564071 PPMXXX10.1177/0091026014564071Public Personnel ManagementHarrington and Leeresearch-article2014

Harrington and Lee 215

Keywordsperceived fairness of performance appraisal, psychological contract fulfillment, performance management, public human resource management (PHRM)

Introduction

Successful organizations must utilize management tools such as performance apprais-als to improve organizational performance and effectiveness (Esu & Inyang, 2009; Roberts, 2003; Rubin, 2011; Scott & Einstein, 2001).1 Among performance manage-ment practices, a performance appraisal system is one way to promote better organiza-tional performance by reviewing individual task accomplishments (Roberts, 2003). One of the critical factors that drive the potential success and acceptability of any performance appraisal system is the ratees’ reaction to the appraisal system (Carroll & Schneier, 1982; Murphy & Cleveland, 1991; cited in Giles, Findley, & Feild, 1997). In other words, the acceptance or rejection of the performance appraisal system may depend on perceptions of its fairness (Kim & Rubianty, 2011). Studies suggest that the more employees perceived their performance appraisal system as fair, the more they reported higher levels of trust and satisfaction with the appraisal system (Gabris & Ihrke, 2000; Hedge & Teachout, 2000; Mani, 2002; Masterson, Lewis, Goldman, & Taylor, 2000; Roberts & Pavlak, 1996).

Organizational psychologists describe two different types of contextual domains for performance appraisals: (a) the structural factors, which means the appraisal sys-tem itself, and (b) the psychological factors that occur throughout the appraisal process between raters and ratees (Giles et al., 1997). Cropanzano, Byrne, Bobocel, and Rupp (2001) argue that the quality of the performance appraisal system not only depends on the structural factors but also on the cognitive and psychological factors (Greenberg, 1986; Kim & Rubianty, 2011; Landy, Barnes, & Murphy, 1978; Murphy & Cleveland, 1991).2 From this perspective, an effective performance appraisal system should include structural and psychological perspectives that may enable the entire appraisal process to operate at an optimum level of performance (Giles et al., 1997).

More than anything else, the interpersonal relationship between raters and ratees is one of the most important predictors of a successful performance appraisal system (Judge & Ferris, 1993; Nathan, Mohrman, & Milliman, 1991; Reinke, 2003; cited in Kim and Rubianty, 2011). Organizational justice theory provides a theoretical back-ground to understand the appraisal-related interactions between raters and ratees and factors that may affect ratees’ perceptions of appraisal fairness (Greenberg, 1990). However, relatively few studies have examined the appraisal-related interactions between raters and ratees, especially in the public sector. Perceived fairness of apprais-als is a crucial issue in human resource practices in public organizations, because performance appraisals can be one of the most complicated and disputable HRM prac-tices in public organizations (Kim & Rubianty, 2011; Roberts, 2003).

Some critics argue that performance appraisal does not guarantee the accuracy of measurement for a public employee’s work performance, and it may lead to

216 Public Personnel Management 44(2)

unintended consequences such as incurring unnecessary competition and undermining work cooperation among public employees (Van Thiel & Leeuw, 2002, cited in Roberts, 2003;). However, the proponents of performance appraisal system advocate for its usefulness. They argue that managers can overcome the negative effects of per-formance appraisals by ensuring employees’ participation and feedback in the appraisal process (Murphy & Cleveland, 1991; Roberts, 2003). Thus, the managers should focus on perceived fairness of performance appraisal as a means to improve their organiza-tion (Cho & Sai, 2013; Kaplan & Atkinson, 1998; Kim & Rubianty, 2011; Krats & Brown, 2013; Lau & Moser, 2008; Lawler, 1967; Roberts, 2003; Sholihin & Pike, 2013). Studies in performance appraisal have contended that employees’ fairness depend on supervisory views on their performance (Folger & Bies, 1989; Giles et al., 1997; Landy et al., 1978).

Performance appraisal includes the numerous interactions between supervisors and their subordinates (Giles et al., 1997; Nathan et al., 1991). Thus, an organization needs to harness positive employee perceptions of performance appraisal fairness as a means of coping with the antipathy on performance appraisal systems. We address this issue by drawing upon the social exchange theory (i.e., psychological contract theory), which captures employee perceptions on their employment relationship (Coyle-Shapiro & Kessler, 2003). Then, we attempt to identify the key factors that drive the employees’ perceived fairness of performance appraisal in U.S. federal agencies. Research has shown that employees’ perceived psychological contract fulfillment affects employees’ work attitudes and organizational behaviors (Bal, Chiaburu, & Jansen, 2010; Bal, de Cooman, & Mol, 2013; Castaing, 2006; Cho, Cheong, & Kim, 2009; Knights & Kennedy, 2005; Lemire & Rouillard, 2005). From this insight, we hypothesize that psychological contracts fulfillment will positively affect public employees’ perception of fairness about their performance appraisal. Next, we describe the data, 2012 Federal Employee Viewpoint Survey (FEVS) and measurements we employed for testing our research hypotheses. Then, we present the results of the data analysis. Finally, we conclude by examining the theoretical and practical issues facing performance appraisal systems.

Theoretical Framework

Social Exchange Theory

We utilize the social exchange theory as a broad theoretical framework for understand-ing the impact of the appraisal-related interactions between raters and ratees on per-ceived fairness of performance appraisal. According to social exchange theory, “an individual voluntarily provides a benefit to another, invoking an obligation of the other party to reciprocate by providing some benefit in return” (Blau, 1964; Whitener, Brodt, Korsgarrd, & Werner, 1998; cited in Park, 2007, p. 49). The theory specifies employee–organization relationships as a process of social interactions including tangible (i.e., monetary rewards and costs) and intangible exchange (i.e., symbolic values such as respect, organizational recognition) between an employee and an organization (Blau,


1964; Ko & Hur, 2014; Lee & Hong, 2011). When an employee perceives benefits from an organization as roughly equal to what he or she contributes to the relationship, an employee is more likely to remain in that organization (Blau, 1964; Chen & Jin, 2014; Cho & Sai, 2013; Coyle-Shapiro & Conway, 2005; Cropanzano & Mitchell, 2005; Homans, 1961; Ko & Hur, 2014; Lee & Hong, 2011; Noblet & Rodwell, 2009).

Scholars discuss three different types of social exchanges: (a) psychological con-tract, (b) perceived organizational support (POS), and (c) leader–member exchange (LMX). The first one is psychological contract, which focuses on the expectations between an employee and the employer and what each gives and expects in return from the other (Berman & West, 2003; Coyle-Shapiro & Conway, 2005; Coyle-Shapiro & Kessler, 2003; Coyle-Shapiro & Parzefall, 2008; Jordan, Lindsay, & Schraeder, 2012; Rusaw, 2009; Tekleab & Chiaburu, 2011; Tekleab, Takeuchi, & Taylor, 2005). Next is POS, which focuses on an employee’s general beliefs about how much the organization recognizes the employee’s organizational contribution (Eisenberger, Huntington, Hutchison, & Sowa, 1986; Jordan et al., 2012; Tekleab & Chiaburu, 2011). Finally, it is LMX, which focuses on emotional support and exchanges between employees and their supervisor (Graen & Scandura, 1987; Ko & Hur, 2014; Lee & Hong, 2011; Tekleab & Chiaburu, 2011; Wayne, Shore, Bommer, & Tetrick, 2002).

Psychological Contract Fulfillment

Among those social exchange theories, our study employs the psychological contract as a main conceptual framework to understand public employees’ perceived fairness of performance appraisal by their perceived psychological contract fulfillments. Coyle-Shapiro and Kessler (2003) define psychological contract as “the individual’s belief regarding the mutual obligations” and exchanges between that person and another party (p. 215). This study defines the psychological contract as the expecta-tions between an employee and the employer, and what each gives and expects in return from the other. Previous research on psychological contract borrows MacNeil’s (1985) typology such as transactional contract and relational contract as means of categorizing psychological contracts (cited in Coyle-Shapiro & Kessler, 2003, p. 215). Transactional contract is conceptually defined as a monetizable or tangible exchange within a limited period of time and extent between parties such as an employee and the employer. In the context of the psychological contract, previous research operational-izes transactional contract as rapid advancement and salary increases for hard work (Robinson, Kraatz, & Rousseau, 1994).

However, relational contract is a nonmonetizable or intangible exchange that is based on socioemotional trust between the parties such as an employee and the employer (De Vos, 2002; MacNeil, 1985). Previous studies operationalize relational contract as “long-term job security, career development, training and development opportunities, and support for personal problems” (Robinson et al., 1994; cited in Coyle-Shapiro & Kessler, 2003, p. 215;). A majority of researchers on psychological contract empirically find that the context of psychological contract contains both transactional and relational contracts rather than just transactional or relational


contracts separately (Coyle-Shapiro & Kessler, 2003; Rousseau & Tijoriwala, 1998). Thus, our study also includes those two psychological contract dimensions, transac-tional and relational contract, in our empirical analysis.

Another conceptual framework to understand an interpersonal relationship between an employee and their organization is POS. Ko and Hur (2014) suggest, “employees who perceive that the organization is supportive of them and committed to helping meet their socioemotional and tangible needs will reciprocate by helping the organiza-tion achieve its goals (p. 178).” Concerning the relationship between psychological contract and POS, some scholars consider POS as an element of an individual’s psy-chological contract (Coyle-Shapiro & Parzefall, 2008; Guzzo, Noonan, & Elron, 1994; Millward & Brewerton, 2000; Tekleab et al., 2005). Thus, this study also treats POS as an element of an individual’s perceived psychological contract fulfillment. Based on this overview, we assume that employees’ positive beliefs about how much their orga-nization recognizes their organizational contribution is another strong predictor of employees’ perceived fairness of performance appraisals.

For that reason, we assume that one of the aims of performance appraisal is estab-lishing and enhancing trust between employees and the organization. Thus, positive interactions and reciprocities between employees and the organization concerning per-formance appraisal are more important than any other institutional factors (Milliman, Nason, Zhu, & De Cieri, 2002). To be specific, studies empirically find a strong and positive relationship between perceived developmental performance appraisal use (e.g., performance feedback and identifying ratees’ training needs) and ratees’ perfor-mance appraisal acceptance or satisfaction (Boswell & Boudreau, 2000; Dipboye & de Pontbriand, 1981; Gosselin, Werner, & Halle, 1997). The studies verify that ratees’ perceived developmental performance appraisal use shows more effective perfor-mance appraisal acceptance in comparison with evaluative performance appraisal use which focuses more on structural matters such as pay arrangement, promotion screen-ing, and reason for dismissal concerning performance appraisal (Boswell & Boudreau, 2000; Dipboye & de Pontbriand, 1981; Gosselin et al., 1997). Based on this overview, this study formulates the following hypotheses:

•• Hypothesis 1: The more public employees positively perceive relational con-tract fulfillment, the more they are likely to perceive their performance appraisal fairly.

•• Hypothesis 2: The more public employees positively perceive transactional contract fulfillment, the more they are likely to perceive their performance appraisal fairly.

•• Hypothesis 3: The more public employees positively perceive organizational support, the more they are likely to perceive their performance appraisal fairly.

Perceived Fairness of Performance Appraisal

Previous research has examined the impact of perceived fairness of performance appraisals on intrinsic motivation (Kim & Rubianty, 2011; Oh & Lewis,


2009), organizational commitment (Salleh, Amin, Muda, & Halim, 2013), accuracy of performance evaluation system (Landy et al., 1978), and performance appraisal acceptability (Bradley & Ashkanasy, 2001; Maley, 2009; Taylor, Masterton, Renard, & Tracey, 1998). Yet, empirical research has not examined the key factors that drive perceived fairness of performance appraisals.

Organizational justice theory provides a conceptual framework to explain and operationalize our dependent variable, perceived fairness of the appraisal system (Cropanzano & Folger, 1996; Dipboye & de Pontbriand, 1981; Greenberg, 1986, 2004; Kim & Rubianty, 2011; Murphy & Cleveland, 1991). Organizational justice theory presents three categories of perceived fairness of performance appraisal—distributive, procedural, and interactional justice. Distributive justice focuses on the fairness of resource distribution. Procedural justice focuses on the fairness of appraisal process regardless of the appraisal outcomes themselves. Interactional jus-tice refers to “the fairness of the interpersonal treatment given in the course of explaining procedures and outcomes” (Kim & Rubianty, 2011, p. 332). Greenberg (2004) finds that employees’ perceived fairness of appraisal system is a multidimen-sional process, encompassing distributive, procedural, and interactional justice components.

Scholars argue that designing a fair and accurate performance evaluation system is hard to satisfy all employees as it is tied to “subjective human judgment” (Boice & Kleiner, 1997; Gabris & Ihrke, 2000; Longenecker & Goff, 1992; Poon, 2004; cited in Kim & Rubianty, 2011, p. 330). This research considers the term fairness of perfor-mance appraisal based on the employees’ perceptions of whether their performance was evaluated procedurally fair. However, accuracy of performance appraisal is whether their performance appraisal practices accurately or reasonably reflect employ-ees’ job performance. In sum, we assume that managing employees’ fairness percep-tion on their performance appraisal will foster more positive perceptions on their performance appraisal system accuracy; in turn, it will lead to more positive employee acceptance toward performance appraisal systems.

One of the conundrums of HRM is developing both an effective and a fair perfor-mance appraisal system, especially in the public sector. Contrary to fair performance appraisal which focuses on employees’ perception matter on performance appraisal, effective performance appraisal refers to an overall framework or an entire process that enables an optimal performance appraisal (Giles et al., 1997; Roberts, 2003). In other words, effective performance appraisal should encompass all related perfor-mance appraisal issues such as participation, goal setting, feedback, and fairness (Giles et al., 1997; Roberts, 2003). Meanwhile, ratees’ perceived fairness of performance appraisal is not “actual fairness.” Actual fairness refers to an objective judgment of performance appraisal criteria (Beugré, 1998; Furby, 1986). However, a perceptual fairness is “an evaluative judgment about the rightness of an individual’s treatment by others” (Furby, 1986; citied in Beugré, 1998, p. xiv). This study understands a per-ceived fairness of performance appraisal as a ratee’s relative and subjective judgment, not as an absolute and objective state of performance appraisal.


Link Between Psychological Contract Fulfillment and Perceived Fairness of Performance Appraisal

Scholars argue that one of the purposes of performance appraisals is cultivating orga-nizational loyalty and trust (Maley, 2009; Milliman et al., 2002). In a similar vein, research suggests that the psychological contract exists as a way to build trust and fairness into the work issues the employee faces with the employer (Guest, 2004; Maley, 2009; Robinson, 1996; Thompson, 2003). Studies find a relationship between employees’ distrust on accuracy and fairness of performance evaluation and employ-ees’ perceptions on psychological contract violation (Maley, 2009; Stiles, Gratton, Truss, Hope-Hailey, & McGovern, 1997).

Although previous research has identified relationships between psychological con-tract fulfillment and employees’ work behaviors or attitudes, the psychological contract theory has rarely been used to investigate employees’ perceived fairness of performance appraisal, and little is known about the theoretical capacity to predict employees’ per-ceived fairness of performance appraisals in the public sector. Only one study has attempted to link psychological contracts to employees’ perceived fairness in U.S. local government (Berman & West, 2003). Berman and West (2003) propose a positive rela-tionship between psychological contracts and the use of performance improvement strategies. However, they do not address the issue of employees’ perceived fairness of performance appraisal. Thus, this study aims to fill this gap in the literature.

Method

Data

This study employs the 2012 FEVS to examine the impact of psychological contract fulfillments on federal employees’ perceived fairness of performance appraisal. The U.S. Office of Personnel Management (OPM) administers the survey annually to fed-eral agencies. The survey aims to investigate federal government employees’ demo-graphic characteristics, perceptions of their supervisor and organization, working conditions, and other work-related experiences. The survey items on the data reflect those questions. The OPM conducted surveys, via the Internet, to approximately 1.6 million Federal employees from April 4 until May 16, 2012, to ask about their perspec-tives and experiences on a broad set of issues. The response rate of the survey was 46.1% with 687,687 participants from 82 different agencies (OPM, 2012; see Appendix B). However, this study examines approximately 442,550 federal employees after fil-tering the data to include full-time federal agency employees as well as to deal with missing data on the dependent, independent, and/or control variables.

Measures

Dependent variable: Perceived fairness of performance appraisal. The dependent variable for this study is federal employees’ perceived fairness of performance appraisal. This


study employs a single item to create our dependent variable: “My performance appraisal is a fair reflection of my performance.” The survey participants’ responses ranged from 1 (strongly disagree) to 5 (strongly agree).

Independent variables: Perceived psychological contract fulfillments. The independent vari-able for this study is federal employees’ perceived psychological contract fulfillment, and it is subdivided into three categories: (a) perceived transactional contract fulfill-ment, (b) perceived relational contract fulfillment, and (c) perceived supervisory sup-port (PSS). We chose items on the 2012 FEVS data related to these three factors. However, these items may not fully capture the accurate concepts of perceived psy-chological contract fulfillments. Thus, we may fail to account for the weakness of incomplete items that is used to measure the independent variable, perceived psycho-logical contract fulfillment. Although relying on secondary data from employees’ responses on survey questionnaire whether they perceive their supervisor fulfilled expected obligation or has provided their needs is not a widely recognized psychologi-cal contract measurement tool to capture the shared expectations between an employee and the employer, previous researchers have commonly used employees’ responses on survey questionnaire as a psychological contract measurement tool (e.g., Coyle-Shap-iro & Kessler, 2003; Craig & Tetrick, 2001; Robinson & Morrison, 1995; Tekleab & Taylor, 2000; Turnley & Feldman, 2000).

The perceived transactional contract fulfillment is measured by a five-point Likert-type scale using six items. Transactional contracts are associated with recognition and awards for good performance (Coyle-Shapiro & Kessler, 2003; MacNeil, 1985; Robinson et al., 1994). To reduce the number of transactional contract items, this study uses a factor analysis to create an index that captures the latent trait of our intended construct. Table 1 presents a complete list of transactional contract items and the factor loading scores. The Cronbach’s alpha for the six items is .91, suggesting that items are closely interrelated with each other. Based on the Kaiser Criterion and screen test, the items loaded on one factor with an eigenvalue of 3.86. This study applies the standard linear scoring method as a means to create predicted scores. These scores are standard-ized with a mean of zero and a standard deviation of one. As employees have higher predictive scores, this suggests they experience more contracts that are transactional.

The perceived relational contract fulfillment is also measured by a five-point Likert-type scale using six items. Relational contracts are associated with encourage-ment and opportunities for employees to develop their skills (Coyle-Shapiro & Kessler, 2003; De Vos, 2002; MacNeil, 1985; Robinson et al., 1994). In common with the transactional contracts, this study uses an iterated principal factor analysis to create an index for six relational contract items. Table 1 presents the six relational contract items. Based on factor analysis, the items are highly related to each other with a Cronbach’s alpha of .88. In addition, the items clearly loaded onto one factor with an eigenvalue of 3.38. As with the previous factor, this study creates standardized values using a standard linear scoring method.

Eisenberger et al.’s (1986) Survey of Perceived Organizational Support (SPOS) is widely used to measure POS. Their original survey contains 36 unidimensional items.


Table 1. Main Survey Items and Basic Statistics.

Variable M SDFactor loading

Reliability coefficient Eigenvalues

Relational contracts .88 3.38 I am given a real opportunity to improve

my skills in my organization.3.59 1.12 .76

I feel encouraged to come up with new and better ways of doing things

3.50 1.19 .79

My work gives me a feeling of personal accomplishment.

3.84. 1.08 .83

I like the kind of work I do. 4.16 .89 .66 I know what is expected of me on the

job.4.00 .96 .67

My talents are used well in the workplace.

3.44 1.19 .79

Transactional contracts .91 3.86 Promotions in my work unit are based

on merit.2.91 1.21 .81

In my work unit, steps are taken to deal with a poor performer who cannot or will not improve.

2.76 1.19 .75

In my work unit, differences in performance are recognized in a meaningful way.

2.91 1.15 .89

Awards in my work unit depend on how well employees perform their jobs.

3.05 1.22 .85

Creativity and innovation are rewarded. 3.07. 1.15 .78 Pay raises depend on how well

employees perform their jobs.2.56 1.16 .72

Perceived supervisory support .94 4.42 My supervisor supports my need to

balance work and other life issues.4.00 1.06 .79

My supervisor/team leader provides me with opportunities to demonstrate my leadership skills.

3.72 1.15 .85

My supervisor/team leader provides me with constructive suggestions to improve my job performance.

3.60. 1.16 .86

Supervisors/team leaders in my work unit support employee development.

3.71 1.14 .86

My supervisor/team leader listens to what I have to say.

3.94 1.06 .90

My supervisor/team leader treats me with respect.

4.07 1.02 .88


However, our study examines PSS instead of POS as the items on the 2012 FEVS data more represent supervisory support than organizational support. The PSS is also mea-sured by a five-point Likert-type scale using six items. Table 1 presents the six PSS items. Based on factor analysis, the items are highly related to each other with a Cronbach’s alpha of .94. In addition, the items clearly loaded onto one factor with an eigenvalue of 4.42. Similarly, we apply the standard linear scoring method, and to ease interpretation, we standardized these scores to be mean 0 and standard deviation 1.

Control variables. This study uses several control variables that may influence federal employees’ perceived fairness of performance appraisal. Previous studies indicate that employees’ demographic characteristics such as age, gender, educational level, work status, and organizational tenure affect employees’ work attitudes and behaviors (Cas-sar, 2001; Castaing, 2006; Coyle-Shapiro & Kessler, 2003; Knights & Kennedy, 2005; Mowday, Porter, & Steers, 1982; Suazo, Turnley, & Mai-Dalton, 2008). The FEVS data contain gender, age, tenure, race, and supervisory status. Thus, this study controls for those variables (see Appendix A). The gender variable is coded 1 when the survey respondent is male and 0 for female. The minority variable is coded 1 when the respon-dent is non-White and 0 for White. The age is coded 1 when the respondent is 40 years old or older than 40 and 0 for under age 40. The tenure is coded 1 when the survey

Table 2. Descriptive Statistics.

Variable M SD Minimum Maximum

Dependent variable Fairness of performance appraisal 3.72 1.14 1 5Independent variables Relational contracts 0 0.96 −3.08 1.38 Transactional contracts 0 0.97 −1.83 2.02 Perceived supervisory support 0 0.98 −2.91 1.16Control variables Age (Under 40 = 0, 40 or older = 1) 0.77 0.42 0 1 Tenure (10 or fewer years = 0, 11 or more years = 1) 0.54 0.50 0 1 Nonsupervisor (supervisor = 0, nonsupervisor = 1) 0.80 0.40 0 1 Male 0.56 0.50 0 1 Minority 0.34 0.47 0 1 Job satisfaction 3.73 1.06 1 5 Intrinsic motivation 4.37 0.77 1 5 Performance information use 3.75 0.98 1 5 Knowledge sharing 3.78 1.02 1 5 Cooperation 3.85 1.00 1 5 Workload 3.36 1.14 1 5 Resource availability 3.11 1.23 1 5 Goal clarity 0 0.79 −2.84 1.12

Source. Federal Employee Viewpoint Survey (FEVS) 2012 dataset; sample size = 687,687.Note. Sample restricted to 442,550 observations in the multivariate analysis due to missing data.


respondent has over 10 years of working experience in the federal agency and 0 for less than 10 years of working experience. The supervisory status is coded 1 when the respondent is nonsupervisory employee and 0 for supervisory employee.

In addition, this study controls for intrinsic motivation. A study on psychological contract argues that public employees may be less concerned about their psychological contract fulfillment from their organization because they have already intrinsically motivated (Coyle-Shapiro & Kessler, 2003). Intrinsic motivation refers to employees’ inherent satisfaction of working because of some subjective feeling that work is mean-ingful, enjoyable, and important (Lawler & Hall, 1970; cited in Gabris & Ihrke, 2000). Thus, the variable, a public employee’s intrinsic motivation, needs to control to exam-ine employees’ perceived fairness of performance appraisal. A single item, “the work I do is important,” will be employed for the intrinsic motivation. Furthermore, a lon-gitudinal study controlled an overall job satisfaction to explain employees’ perfor-mance appraisal reactions (Jawahar, 2005). Thus, this study also needs to control federal employees’ job satisfaction level to examine employees’ perceived fairness of performance appraisal.

Finally, this study controls for other possible variables that may affect federal employees’ perceived fairness of performance appraisal. A meta-analytic literature review on perceived fairness summarizes that managerial practices (e.g., coordinating and training opportunity) increase organizational members’ perceived fairness (Prasad, Martens, & Matthyssens, 2011). The 2012 FEVS data contain several items that repre-sent managerial practices (i.e., performance information use, knowledge sharing, cooperation, workload, organizational resource availability, and goal clarity). Thus, this study considers those managerial practices as control variables. We consider that public employees’ perceived psychological contract fulfillment would be affected by various managerial practices (e.g., performance information use, knowledge sharing, cooperation, workload, organizational resource availability, and goal clarity) in orga-nizations or agencies as well as individual characteristics (e.g., demographics, person-ality, and attitudinal factors).

Research Findings

This study uses the following model: the impact of psychological contracts fulfillment on perceived appraisal fairness as a function of the employee’s demographic charac-teristics (X), job attitudes (J), and managerial practices (M) is shown in equation (1)

Performance Appraisal Fairness Psychological

C

ij i i iX J M= + + +β θ αoontactsi jα + δγ ,

(1)

where i indexes employees, and j indexes federal agency. This study also includes an agency fixed effect (γj) in all models.

Table 2 shows descriptive statistics. Approximately 77% of the federal employees are over the age of 40 years. More than 50% of the employees have 11 years or more experience in the federal government. Males constitute approximately 56% of the


sample. Minorities constitute approximately 34% of the federal workforce, and they were classified as survey respondents belonging to all racial groups with the exception of White.

Table 3 also presents the results of explanatory factor analysis of federal employ-ees’ POS and transactional and relational psychological contract fulfillment. Eighteen items were factor analyzed using principal components analysis with varimax rotation. These items were measured by a 5-point Likert-type scale from 1 (strongly disagree) to 5 (strongly agree). The analysis produces three-factor solutions, each with eigenval-ues greater than 1.0.

In Model 1, this study examines the effect of relational contracts, transactional contracts, and supervisory support on perceived performance appraisal fairness while controlling for employees’ demographic characteristics (i.e., age, length of work expe-rience, gender, race, and supervisory status). Based on this model, this study finds a significant positive relationship for relational contracts (β = .226), transactional con-tracts (β = .269), and supervisory support (β = .373). All of these coefficients are strongly statistically significant (see Table 4, column 1). Thus, the result of Model 1 supports for Hypotheses 1, 2, and 3. Meanwhile, this study finds that older employees are significantly less likely to view performance appraisal as fair. This study also finds that minority employees’ perceptions are also associated with less favorable view of performance appraisal fairness. Contrary to our intuitive expectation, this study finds that nonsupervisory employees tend to have a more positive view of performance appraisal fairness compared with supervisory employees. This result comes from our data, the 2012 FEVS data, which are based on employees’ responses on survey (see Table 4, column 1).

In Model 2, this study controlled for intrinsic motivation. Even with the controls, the psychological contracts remain largely unchanged (see Table 4, column 2). Thus, the result of Model 2 also supports for Hypotheses 1, 2, and 3. This study finds that federal employees’ both intrinsic motivation and job satisfaction are positively associ-ated with their perceived fairness of performance appraisal. In Model 3, this study controls for various managerial practices. The psychological contracts remain positive and statistically significant (see Table 4, column 3). Thus, the result of Model 3 sup-ports for Hypotheses 1, 2, and 3. Interestingly, this study finds that managerial prac-tices are essential for employees to view performance appraisals as fair. For instance, higher levels of performance information availability are associated with higher levels of perceived fairness of performance appraisal. This is intuitive, because employees have a clearer sense of the performance metric. On the same note, goal clarity is asso-ciated with more perceived fairness as well. However, this study finds that knowledge sharing and cooperation are both negatively associated with perceived fairness of per-formance appraisal. These research findings from Model 3 are substantiated by Rubin’s (2011) standpoints on performance appraisal. Utilizing the 2010 OPM dataset and the General Accountability Office (GAO) performance appraisal criteria, Rubin (2011) finds that approximately 68% of federal employees perceive that performance apprais-als fairly reflect their individual performance. This may be related to the fact that performance appraisals are individually focused, which may actually incentivized less meaningful cooperation. This result is substantiated by the argument that performance


management tools cause unintended consequences such as incurring unnecessary competition and undermining work cooperation among public employees (Van Thiel & Leeuw, 2002, cited in Roberts, 2003).

In Model 4, this study includes an agency fixed effect to control for unobserved and any time-invariant agency characteristics. In other words, Model 4 takes into account the concern that federal employees’ perceived fairness of performance appraisal may respond to many characteristics of federal agencies’ organizational environment that

Table 3. Results of Factor Analysis of Main Variables.

Items

Factor

1 2 3

Perceived supervisory support My supervisor supports my need to balance work and

other life issues..73 .22 .18


.73 .29 .23


.74 .34 .19


.71 .36 .20

My supervisor/team leader listens to what I have to say. .85 .24 .18 My supervisor/team leader treats me with respect. .85 .20 .18Transactional contracts Promotions in my work unit are based on merit. .28 .71 .19 In my work unit, steps are taken to deal with a poor

performer who cannot or will not improve..20 .72 .14

In my work unit, differences in performance are recognized in a meaningful way.

.29 .82 .18

Awards in my work unit depend on how well employees perform their jobs.

.31 .76 .17

Creativity and innovation are rewarded. .31 .60 .23 Pay raises depend on how well employees perform their

jobs..18 .66 .14

Relational contracts I am given a real opportunity to improve my skills in my

organization..35 .35 .35

I feel encouraged to come up with new and better ways of doing things.

.35 .35 .35

My work gives me a feeling of personal accomplishment. .23 .23 .77 I like the kind of work I do. .13 .12 .77 I know what is expected of me on the job. .32 .23 .49 My talents are used well in the workplace. .31 .35 .47Eigenvalue for rotated factors 4.52 4.01 2.30


Table 4. Regression Results of Predicting Perceived Fairness of Performance Appraisal.

Variables Model 1 Model 2 Model 3 Model 4

Relational contracts 0.226*** (94.88)

0.203*** (67.22)

0.170*** (49.79)

0.162*** (47.42)

Transactional contracts 0.269*** (123.55)

0.268*** (121.19)

0.262*** (106.91)

0.263*** (107.29)

Supervisory support 0.373*** (157.80)

0.370*** (153.19)

0.370*** (145.99)

0.372*** (147.17)

Demographic characteristics Over age of 40 −0.0472***

(−13.72)−0.0485*** (−14.05)

−0.0487*** (−13.86)

−0.0640*** (−18.07)

Over 10 years of experience

−0.0396*** (−12.81)

−0.0386*** (−13.38)

−0.0339*** (−11.56)

−0.0175** (−5.90)

Nonsupervisory employee

0.104*** (33.94)

0.104*** (33.79)

0.0840*** (26.39)

0.0895*** (28.02)

Male −0.0423*** (−16.17)

−0.0425*** (−16.16)

−0.0426*** (−15.90)

−0.0656*** (−23.93)

Minority −0.0497*** (−17.91)

−0.0513*** (−18.39)

−0.0615*** (−21.57)

0.0541*** (−18.91)

Job attitudes Job satisfaction 0.0246***

(10.41)0.0116***

(4.74)0.0127***

(5.21) Intrinsic motivation 0.0150***

(6.39)0.0185***

(7.29)0.0211***

(8.33)Managerial practices Performance

information use0.0366*** (15.53)

0.0375*** (15.97)

Knowledge sharing −0.0350*** (−16.93)

0.0289*** (−14.02)

Cooperation −0.00495*** (−2.44)

0.00766*** (−3.79)

Workload 0.0555*** (32.44)

0.0513*** (30.06)

Resources −0.00540*** (−3.42)

−0.00335*** (−2.13)

Goal clarity 0.0296*** (9.48)

0.0350*** (11.25)

Constant 3.730*** (848.38)

3.573*** (262.55)

3.467*** (185.96)

3.408*** (161.56)

Agency fixed effect? No No No Yes R2 .415 .415 .420 .426 n 472,399 467,068 442,550 442,550

Note. t statistics in parentheses.**p < .01. ***p < .001.


are not observable. In comparison with our Models 1, 2, and 3, agency fixed effects (Model 4) substantiate the importance of taking the characteristics of the agency. That is, this study finds a significant positive relationship for relational contracts (β = .162), transactional contracts (β = .263), and supervisory support (β = .372) (see Table 4, column 4). Thus, the result of Model 4 also supports for Hypotheses 1, 2, and 3. Meanwhile, the coefficients for relational contracts, transactional contracts, and super-visory support were slightly decreased when we consider time-invariant, unobservable agency characteristics. To conclude, the results are consistent with the idea that public employees are strongly and simultaneously affected by agency characteristics as well as individual-level factors (Park, 2007).

Discussion

In recent years, perceived fairness of performance appraisal has received more schol-arly attention in the public sector (Cho & Sai, 2013; Kim & Rubianty, 2011). This study has examined the main factors that may affect public employees’ perceived fairness of performance appraisal. Overall, the results find that the psychological contracts affect public-sector employees’ perception of performance appraisal fairness. Specifically, our study results confirm that psychological contract fulfillment (i.e., transactional and relational contract fulfillments, and PSS) significantly and positively influences federal employees’ perceived fairness of performance appraisal than any other factors. These results are consistent with previous research (e.g., Berman & West, 2003), which find a positive relationship between employees’ perceived psychological contract fulfillment and their positive work attitudes (i.e., fairness perception on performance appraisal).

The research results also show that each type of psychological contract fulfillments (i.e., transactional and relational contract fulfillments, and PSS) affect employees’ per-ceived fairness of performance appraisal differently. As Table 4 shows, an employee’s PSS has a larger impact on their perceived fairness of performance appraisal than transactional and relational contract fulfillment. This result corresponds with a previ-ous argument that public employees may be more sensitive to their supervisory sup-port (Coyle-Shapiro & Kessler, 2003). The study result also implies that public employees’ perceived fairness of performance appraisal may be contingent upon how well they feel they have been supported by their supervisors as well as their concern for the public-sector organization for which they work. In this sense, the provision of supervisory support for employees may be “a low-cost way” of managing desired employees’ attitudes and behaviors in public organizations (Coyle-Shapiro & Kessler, 2003, p. 225). In other words, public organizations should be more focused on boost-ing and developing supervisory support strategies as a means of improving percep-tions of fairness for their performance appraisal system.

Our research findings also have some practical implications for HR managers. Given the rapid changes in public personnel management, HR managers may find psychological contracts fulfillment as a useful strategy to better manage public employees’ perceptions and work attitudes (Berman & West, 2003). Studies find that providing vague and incomplete expectations to employees may lead to troublesome consequences; however, managers can potentially overcome this problem by fulfilling


employees’ psychological contracts (Berman & West, 2003; Kotter, 1973; Lester & Kickul, 2001; Niehoff & Paul, 2001; Rousseau, 2001). As Berman and West (2003) note, managers can increase psychological contract fulfillment by “explaining verbal and written promises and acceptable behavior in detail, as well as clarifying perfor-mance expectations” (Berman & West, 2003, p. 281). By doing so, managers are able to minimize misunderstandings and provide clear expectations about performance goals. In our research, we find that HR managers can increase employees’ perceptions of performance appraisal fairness by leveraging relational and transactional contracts, and supervisory support. Given the rise of New Public Management practices, HR managers must leverage these contract fulfillments to increase public employees’ per-ceptions of performance appraisal fairness. Although psychological contract fulfill-ment may not be a panacea to solve all HR-related issues, acknowledging its theoretical implications and practical usefulness would be more helpful to public managers to deal with employees’ perceptions on organizational treatment.

Our study results also show that older employees are less likely to perceive perfor-mance appraisal as fair. This result confirms previous research findings that younger employees perceive the performance appraisal process as fair (Cleveland & Landy, 1981; Ferris, Yates, Gilmore, & Rowland, 1985; Kavanagh, Benson, & Brown, 2007). Future research needs to provide effective strategies to reduce this gap concerning older employees’ lower levels of perceived fairness of performance appraisal. As work envi-ronments become more complex in organizations and each generation hold different work expectations, management scholars and practitioners are acknowledging that orga-nizations need to reconsider HRM practices and the employee–employer relationship. One strategy is to focus on increasing psychological contract fulfillment among older employees as a means of providing clear expectations about their work performance. Future research should carefully examine the impact of differential demographic charac-teristics on work-related perceptions such as performance appraisal fairness.

Among our control variables, federal employees’ intrinsic motivation is positively associated with their perceived fairness of performance appraisal. This result may sug-gest that public employees’ perceived fairness of performance appraisal does not rely exclusively on the fulfillment of employer obligations. As Perry and Wise (1990) sug-gest, public service ethos or intrinsically oriented work motivations are particularistic to the public sector. The nature of public service delivery may constrain the ability and willingness of public servants to match the behavior of their employer in terms of psychological contract fulfillment.

This study has several possible limitations. First, although this study operationalizes perceived psychological contract fulfillments into three aspects (i.e., transactional, rela-tional contract fulfillments, and PSS), these aspects may not fully represent the accurate concepts of psychological contract fulfillments (Coyle-Shapiro & Kessler, 2003). Thus, further studies need to develop a more accurate measurement for psychological con-tract fulfillment factors. Second, this study used cross-sectional data, the 2012 FEVS. Thus, this study may fail to account for causal relationships between independent and dependent variables in terms of endogeneity (Cho & Poister, 2014; Kim, 2012). Thus, this study may overlook a reverse causality. Third, the FEVS data are based on self-reported responses from the survey participants. Thus, this study may fail to account for


common method bias, which overestimates the relationships among variables as all of the variables in our study were measured based on self-reported responses. Finally, this study also has a limitation in terms of generalization of research findings because it uses secondary data from the 2012 FEVS data. The secondary data used in this study can be a valuable source of information for obtaining knowledge in issues of employees’ view-points of their manager and organization, working conditions, and other related work experiences. However, secondary data are not collected for the same research goal as this study intended. In this sense, the secondary data are a complementary tool; they cannot be a substitute for primary data (Singleton & Straits, 2009).

Future research should focus more on these theoretical issues to determine an opti-mum combination of each psychological contract dimension (i.e., transactional and relational contract fulfillments, and PSS) to foster more positive employee perceptions on performance appraisal fairness. In addition, further research needs to investigate what kind of managerial practices (e.g., goal setting, training opportunity, and family-friendly policies) increases psychological contract fulfillment.

Appendix A

Measurement Items for All Variables.

Dependent variable Perceived fairness of

performance appraisalMy performance appraisal is a fair reflection of my performance.

Independent variables Relational contracts

(Cronbach’s α = .86)I am given a real opportunity to improve my skills in my

organization.I feel encouraged to come up with new and better ways of doing

things.My work gives me a feeling of personal accomplishment.I like the kind of work I do.I know what is expected of me on the job.My talents are used well in the workplace.

Transactional contracts (Cronbach’s α = .91)

Promotions in my work unit are based on merit.In my work unit, steps are taken to deal with a poor performer

who cannot or will not improve.In my work unit, differences in performance are recognized in a

meaningful way.Awards in my work unit depend on how well employees perform

their jobs.Creativity and innovation are rewarded.Pay raises depend on how well employees perform their jobs.

Perceived supervisory support (Cronbach’s α = .94)

My supervisor supports my need to balance work and other life issues.



(continued)


Appendix B


My supervisor/team leader listens to what I have to say.My supervisor/team leader treats me with respect.

Control variables Age (under 40 = 0, 40

or older = 1)What is your age group? (A) under-40/(B) 40 or older

Tenure (10 or fewer years = 0, 11 or more years = 1)

How long have you been with the Federal Government (excluding military service)? (A) 10 or fewer years/(B) 11 or more years

Supervisory status (supervisor = 0, nonsupervisor = 1)

What is your supervisory status? (A) Nonsupervisor/team leader/(B) supervisor/manager/executive

Gender (0 = female, 1 = male)

Are you: (A) male/(B) female

Minority (0 = nonminority, 1 = minority)

(A) Minority/(B) nonminority

Job satisfaction Considering everything, how satisfied are you with your job? Intrinsic motivation The work I do is important. Performance

information useI have enough information to do my job well.

Knowledge sharing Employees in my work unit share job knowledge with each other. Cooperation The people I work with cooperate to get the job done. Workload My workload is reasonable. Resource availability I have sufficient resources (e.g., people, materials, budget) to get

my job done. Goal clarity

(Cronbach’s α = .62)I know how my work relates to the agency’s goals and prioritiesManagers review and evaluate the organization’s progress toward

meeting its goals and objectives.

Agency List.

37 departments/large agencies 45 small/independence agencies

Broadcasting Board of Governors Advisory Council on Historic PreservationCourt Services and Offender Supervision

AgencyAfrican Development Foundation

Department of Agriculture American Battle Monuments CommissionDepartment of Commerce Chemical Safety and Hazard Investigation

BoardDepartment of Education Commission on Civil RightsDepartment of Energy Committee for Purchase From People Who

Are Blind or Severely Disabled

(continued)


Department of Health and Human Services Commodity Futures Trading CommissionDepartment of Homeland Security Consumer Product Safety CommissionDepartment of Housing and Urban

DevelopmentCorporation for National and Community

ServiceDepartment of Justice Defense Nuclear Facilities Safety BoardDepartment of Labor Export-Import Bank of the United StatesDepartment of State Federal Election CommissionDepartment of the Interior Federal Housing Finance AgencyDepartment of the Treasury Federal Labor Relations AuthorityDepartment of Transportation Federal Maritime CommissionDepartment of Veterans Affairs Federal Mediation and Conciliation ServiceEnvironmental Protection Agency Federal Retirement Thrift Investment BoardEqual Employment Opportunity Commission Institute of Museum and Library ServicesFederal Communications Commission Inter-American FoundationFederal Energy Regulatory Commission International Boundary and Water

Commission: United States and MexicoFederal Trade Commission Kennedy CenterGeneral Services Administration Marine Mammal CommissionNational Aeronautics and Space

AdministrationMerit Systems Protection Board

National Archives and Records Administration National Capital Planning CommissionNational Credit Union Administration National Council on DisabilityNational Labor Relations Board National Endowment for the ArtsNational Science Foundation National Endowment for the HumanitiesNuclear Regulatory Commission National Gallery of ArtOffice of Management and Budget National Indian Gaming CommissionOffice of Personnel Management National Mediation BoardPension Benefit Guaranty Corporation National Transportation Safety BoardRailroad Retirement Board Nuclear Waste Technical Review BoardSecurities and Exchange Commission Occupational Safety and Health Review

CommissionSmall Business Administration Office of Navajo and Hopi Indian RelocationSocial Security Administration Office of the U.S. Trade RepresentativeU.S. Agency for International Development Overseas Private Investment CorporationDepartment of Defense Postal Regulatory Commission

Selective Service SystemSurface Transportation BoardTrade and Development AgencyU.S. International Trade CommissionU.S. Office of Government EthicsU.S. Office of Special CounselU.S. Access BoardWoodrow Wilson International Center for

Scholars

Source. Excerpted from 2012 Federal Employee Viewpoint Survey Results (pp. 29-31).


Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

1. In our study, performance appraisal refers to the process, which means “performance is reviewed and evaluated” (CFR 430.203). Our understanding is in line with the definition of previous research. According to Lawler (1967), “the ultimate success of a performance appraisal system depended on the confidence of the person being evaluated in the appraisal process (Landy, Barnes, & Murphy, 1978, p. 751).”

2. All related terminologies such as psychological, cognitive, and psychosocial terms would be separately considered psychological aspects of performance appraisal fairness. For the sake of simplicity, however, our study included all conflated terms within the concept, psychological contract fulfillment.

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Author Biographies

James R. Harrington is an assistant professor of Public Affairs Program at the University of Texas at Dallas. His research interests include performance management, performance data usage, accountability, and education governance. His research primarily uses large administra-tive datasets to examine issues at the intersection of management and policy.

Ji Han Lee is a PhD candidate of Public Affairs Program at the University of Texas at Dallas. His research interests include public human resource management, performance management, public service motivation, social exchange theory, and goal-setting theory.

http://www.fedview.opm.gov/2012files/2012_Government_Management_Report.PDF

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