International Journal of Multidisciplinary and Current Research ISSN: 2321-3124 Research Article Available at: http://ijmcr.com 250|Int. J. of Multidisciplinary and Current research, Vol.7 (May/June 2019) Effect of Setting of Performance Contract Objectives on Organizational Performance in the State Owned Sugar Companies Mr. Andrew Opiyo Mwalim, Dr. Robert K.W. Egessa and Mr. Kwendo Evans * *Masinde Muliro University of Science and Technology, Kakamega, Kenya Received 01 March 2019, Accepted 01 May 2019, Available online 02 May 2019, Vol.7 (May/June 2019 issue) Abstract Poor performance in the Kenya public sector consistently hindered the realization of sustainable economic growth and development since the country attained her independence in 1963 (Mbithi, 1996). Among the noted factors that contribute to poor performance included: excessive regulations and control, frequent political interference, poor management, outright mismanagement of resources and lack of a guiding vision (Government of Kenya, 2005). Lack of clear focus as to what is expected from employees and poor or no methods of measuring performance has been the greatest challenge (Muthaura, 2007). The new Government elected in 2003 decided to manage public service through performance contracting system to address the situation. In Kenya, Performance contracting concept can be traced back in 1990 through Cabinet Memorandum No. CAB (90) 35 when performance contracting paradigm was conceived and designed with an aim of having a real impact in changing the way things were being done, creating a new behavior patterns and adoption of positive attitude work ethics in the entire public service delivery (Kobia and Mohammed, 2006). The system was expected to return faith on government services to the citizens and other international stakeholders (Muthaura, 2007). The paradigm was later outlined in the Economic Recovery Strategy for Wealth and Employment Creation (ERS) 2003-2007. Keywords: Performance contracting, objective setting, organizational performance The Concept of Performance Contracting 1 Performance contracting is a branch of management science referred to as management control systems (GoK, Training Manual, 2005). Kumar (1994) defines performance contracting as a memorandum of understanding (MoU). In Kenya performance contracting is used as a management tool to help the public sector executives and policy makers to define responsibilities and expectations/ targets between the contracting parties to achieve common mutually agreed goals (Kobia and Mohamed, 2006). Different scholars have defined performance contracts differently. However, they seem to hold similar views on the contents of performance contracts. According to Blasi (2002), a performance contract is an agreement between two parties that clearly specifies their mutual performance obligations, intentions and responsibilities. It is a freely negotiated performance agreement between the government, acting as the owner of a government agency, and the agency itself up to and including other levels of management levels of the organization. Most commonly, performance contracts *Corresponding author’s ORCID ID: 0000-0000-0000-0000 DOI: https://doi.org/10.14741/ijmcr/v.7.3.1 include bonuses for a job well done, less often, salary decrease for poor performance. The increase interest in performance contracts coincides with the demands for greater accountability. Nellis (1989) observes that performance contracts are negotiated agreements as owners of a public enterprise, and the enterprise itself in which the intentions, obligations and responsibilities of the two parties are freely negotiated and then clearly set out. Shirley (1998) advocates the view that performance contracts seem to be a logical solution since similar contracts have been successful in the private sector in shifting them from ex anti control to expose evaluation, thus giving managers the autonomy and incentives to improve efficiency and thereafter holding the managers accountable for results. Shirley and Xu (2000) observe that performance contracts are now widely used in developing countries where successful contracts have featured sensible targets, stronger incentives, longer terms, and managerial bonds but confined within competitive industries. Mann (1995) and GoK(2005a) trace the evolution of performance contracting to France in the1970s when the French Prime Minister commissioned a committee headed by Simon Nora to investigate relations between public enterprises and the ministers. The concept was