Purpose - The purpose of this paper is to examine literature in order to explore the reasons why performance management (PM) positively affects employee engagement (EE) as well as how PM should be conducted to achieve EE. It also provides future research suggestions. Design/methodology/approach - Derived from substantial literature review, approaches describing how three PM processes (performance agreement, on-going feedback, and performance evaluation) can enhance EE are discussed. Findings - Throughout the three PM processes, the following should be applied to foster EE: employee development facilitation and support, employee involvement, trust, and justice. In order to have a PM system achieve EE, the broad context and culture of organizations may have to change to be sustainability oriented. Research limitations/implications - Future research can test possible associations between a set of integrated PM activities and Kahns (1990) concept of three psychological conditions (meaningfulness, availability, and safety), leading to EE, and eventually sustainable corporate performance outcomes. Research examining associations between particular preceding sustainable contextual elements and PM, leading to engagement, also deserves attention. Practical implications - One practical implication of this paper is that it may provide possible guidance to managers seeking to engage their employees when managing their performance, and increase awareness of potential constraints created by non-sustainable contextual elements. Originality/value - This paper fulfills a need to explore how PM can be conducted to achieve EE, which is still scarce in current literature and research. The paper offers a holistic perspective that sustainable contexts in organizations are also needed, if PM to engage employees will flourish. © Emerald Group Publishing Limited.