KPI-based performance appraisal and employee performance: examining the sequential indirect associations through meaningful work and employee engagement among generation Z employees

Abstract

The growing dominance of Generation Z in the global workforce has prompted organizations to redesign performance management systems that extend beyond evaluating performance outcomes to fostering meaningful work experiences and sustained employee engagement. Despite substantial advances in performance management research, existing studies have predominantly examined the direct relationship between performance appraisal and employee performance, offering limited insight into the underlying psychological mechanisms through which KPI-Based Performance Appraisal generates superior performance outcomes. Addressing this gap, the present study investigates the influence of KPI-Based Performance Appraisal on Employee Performance through the sequential mediating roles of Meaningful Work and Employee Engagement among Generation Z employees in Indonesia's retail industry. A quantitative explanatory research design was employed using survey data collected from 223 Generation Z employees of PT Basa Inti Persada through purposive sampling. The proposed research model was analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4. The results indicate that KPI-Based Performance Appraisal positively influences Meaningful Work, Employee Engagement, and Employee Performance. While Meaningful Work significantly enhances Employee Engagement, it does not directly improve Employee Performance. Instead, Employee Engagement emerges as the principal mechanism through which meaningful work is translated into higher levels of performance, functioning both as an independent mediator and as part of the sequential mediation pathway. By integrating Self-Determination Theory, Goal-Setting Theory, and the Job Characteristics Model, this study advances the performance management literature by providing a comprehensive explanation of how developmental KPI systems enhance employee performance through successive psychological processes rather than through performance measurement alone. From a practical perspective, the findings suggest that organizations should implement participative, development-oriented, and continuous feedback-based KPI systems that cultivate meaningful work and strengthen employee engagement, thereby maximizing the performance potential of Generation Z employees.