The Mediating Role of Interpersonal Trust in the Relationship between Formality of Performance Evaluation and Managerial Performance: Empirical Evidence from Malaysia

A Performance Measurement System (PMS) for performance evaluation is used primarily for motivation and evaluating employee performance. The mixed findings on behavioural consequences of performance evaluation from previous research suggest further research to examine its effect on individual performance. This research examined the role of interpersonal trust in the design and function of a control system, specifically the formality of a performance evaluation system in emerging economies. Data was gathered using survey questionnaires that were distributed to higher-level executives and managers of Malaysian Government-Linked Companies (GLCs). The research proposed that subordinates’ interpersonal trust may influence the relationship between the formality of a performance evaluationsystem and managerial performance. Using regression analysis, the research revealed that the use of PMS for performance evaluation may influence individual behaviour. The findings confirm the researchers’ expectation that the formality of performance evaluation has a significant influence on interpersonal trust, leading to enhanced managerial performance. There is also evidence of interpersonal trust having a mediating effect between the formality of performance evaluation and managerial performance when tested using the Sobel Test. These findings provide evidence that PMS as a formal performance evaluation may enhance trust, which is significant for improving individual performance. Keywords: formality of performance evaluation, interpersonal trust, managerial performance