Aim: The paper examines the relationship between performance management system and employee engagement. It also captures the perception of the employees for the effectiveness of existing performance management system and recommending practices to increase employee engagement levels.

Methodology: The study included 120 employees working at various managerial levels of the three market research organizations (KPO’s). All the steps of performance management system i.e. performance planning, performance monitoring, training and development, performance appraisal and compensation management were assessed with a structured questionnaire. Employee engagement was measured with Gallup Q12 questionnaire. Simple random sampling was used.

Findings: The study findings suggest a significant positive association between performance management system and employee engagement. The compensation dimension of performance management system was observed to have considerable influence on employee engagement levels.

Implications: The findings of the present study would provide valuable insight for management to adopt various and effective performance management practices in their workplace.

Originality/value – The study tests the relationship between performance management system and employee engagement in the market research industry. A significant positive relationship between some performance management system dimensions and employee engagement has been established. To the best of the researchers’ knowledge, this study is the first of its kind undertaken for this industry.

Limitations: The study was limited to KPO industry only which may limit the generalizability of the results to the other industries. The self- reported measures of the constructs were used which can lead to natural or single-source bias that influences the results