Goal-setting theory and performance management system

By Priya Chetty on January 21, 2019

Goal-setting theory refers to the effects of setting goals on subsequent performance. Researcher Edwin Locke found that individuals who set specific, difficult goals performed better than those who set general, easy goals (Yearta, Maitlis, & Briner, 1995). The goal-setting theory states that specific and challenging goals with appropriate feedback contribute to improved performance. Goals direct the employee to perform their jobs. It further facilitates the employees in understanding the number of efforts required to put in.

Overview of the Goal-setting theory

Edwin Locke presented the Goal-setting theory of motivation in the 1960s (Locke & Latham, 2006). According to the theory, goal setting and task performance share a direct relation. The specific and challenging goals along with appropriate feedback contribute to higher and better task performance. The willingness to work towards the attainment of the goal is the main source of job motivation.

Clear, particular and difficult goals are greater motivating factors than easy, general and vague goals. Specific and clear goals lead to greater output and better performance. Unambiguous, measurable and clear goals accompanied by a deadline for completion avoids misunderstanding. Goals should be realistic and challenging (Lunenburg, 2011). This gives an employee a feeling of pride and triumph. This further motivates the employee for the attainment of the next goal. The more challenging the goal, the greater is the reward generally and the more is the passion for achieving it.

Furthermore, appropriate feedback of results directs the employee behaviour and contributes to higher performance than the absence of feedback. Feedback is a means of gaining reputation, making clarifications and regulating goal difficulties. It helps employees to work with more involvement and leads to greater job satisfaction.

Principles of goal setting

Goal setting criteria

Goal setting involves the development of an action plan. Such action plans motivate and guide employee or team towards the goal.  One such goal setting criteria are the ‘SMART’ criteria. The letters S and M usually mean specific and measurable. Possibly the most common version has the remaining letters referring to achievable, relevant and time-bound. Goal setting improves the performance of employees to a greater extent. (Lunenburg, 2011)

Five basic principles of goal setting

Locke (1968) proposed five basic principles of goal setting as discussed below. These principles when applied at the organizational level improve the results.

  1. Clarity: A clear, measurable goal is more achievable than one that is poorly defined. In other words, one should be specific about the goals. The most effective goals have a specific timeline for completion of the task.  The employee should be well aware of the time for completion of his job. This helps an organization to achieve its goal effectively.
  2. Challenge: The goal must have a decent level of difficulty. This will motivate the employees to strive toward the goal to achieve it. Since the goal is challenging, it leads to brainstorming in employee and discover strategies to meet targets. Such challenge inspires the employee to excel in their performance.
  3. Commitment: One should put deliberate effort into meeting the set goal. A goal when shared with employees increases their accountability to meet that goal. With commitment, employees are accountable for their work. This makes them more responsible and aware of their actions and performance.
  4. Feedback. A method should be set up to receive information on progress towards a goal. From time to time meetings can be organized to discuss the progress and impediments in achieving the goal. If the goal turns out to be too hard, it is better to adjust the difficulty of the goal. This realization can be made through feedbacks. Feedback helps the organization to better evaluate an employee and his performance.
  5. Task complexity: If a goal is complex, sufficient time should be given for its completion. In other words, if a goal is really tough, training programmes can be organized to give the best results.

Applicability of Goal-setting theory

A study conducted by Locke, Latham, & Edwin (2002) found out that providing direction and a standard against which progress can be monitored, challenging goals can be achieved. It is well documented in the scholarly literature by Latham & Locke (2006) that specific goals can boost motivation and performance by leading employees to focus their attention on specific objectives. Monitoring is done by performance management systems. Such systems enable employees to guide and refine their performance.  It further increases the efforts of employees to achieve these goals. Employees then put in extra efforts to develop new strategies to face complex challenges to goal attainment. Leaders can build goal commitment by proper communication and inspiring vision or superordinate goal for followers to rally around.

An effective goal creates excitement and energy in employees. It is consistent with the values, objectives, and strategic advantages of the organization. Effective goal setting facilitates unified action consistent with the vision of organization (Lunenburg, 2011). When employees come across a difficult task, it urges them to give their best instead of merely setting strategies for a specific difficult performance goal. Such change in outlook causes the performance to improve. This is because a performance goal makes employees anxious to perform best which leads them to scramble for new strategies. This can create evaluative pressure and performance anxiety.

Thus, Goal-setting theory together with performance management systems impacts employee performance. The outcomes act as input for setting the next level of goals. This process can be repeated in a cycle so as to improve the performance of the employees.

Applicability of performance management systems in small and large organizations

There is not much difference in the applicability of Goal-setting theory in small and large organizations. The difference lies in the fact that employees’ participation in goal setting is not always desirable in a larger organization. This is because such participation can lead to conflicts with the management goals. In small organizations employee participation in goal setting makes a goal more acceptable. This increases the involvement of the employee in attaining the goal. In larger organizations, the participation of employees in setting a goal is not feasible. Larger organizations have more complex long-term goals owing to their resources base.

The availability of resources for Goal-setting and performance management is better in large organizations than the smaller ones.  Goal-setting theory is applicable in smaller organisations for short-term goal achievement (Appelbaum, Roy, & Gilliland, 2011).


  • Appelbaum, S. H., Roy, M. and Gilliland, T. (2011) ‘Globalization of performance appraisals: theory and applications’, in Management Decision. Emerald Group Publishing Limited, pp. 570–585. doi: 10.1108/00251741111126495.
  • Locke, E. (1968) ‘Toward a theory of task motivation and incentives’, Organisational Behaviour and Human performance, 3(2).
  • Locke, E. A. and Latham, G. P. (2006) ‘New Directions in Goal-Setting Theory’, Current directions in Psycholgical science, 15(5).
  • Lunenburg, F. C. (2011) ‘Goal-Setting Theory of Motivation’, International Journal of Management, 15(1), pp. 1–5.
  • Yearta, S. K., Maitlis, S. and Briner, R. B. (1995) ‘An exploratory study of goal setting in theory and practice: A motivational technique that works?’, Journal of Occupational and organizational Psychology, 68(3), pp. 237–252.