Combining Individual and Collective Employee Incentives to Enhance Organizational Performance

Abstract

A large body of literature provides empirical evidence of a positive relationship between reward practices and performance. However, little has been said about different combinations of individual and group incentives as drivers of organizational competitiveness. This paper examines bundles of nine individual and group PFP practices and their joint effect on selected financial and non-financial indicators of organizational performance (OP). Our empirical research study included 61 middleand large-sized companies in Croatia in order to analyze the aforementioned relationships. The categorical principal component analysis generated two factors of PFP practices that were subsequently used as independent variables in a multiple regression analysis. The first PFP bundle consisted of individual subjectively-based bonus and two shared-ownership practices and was found to positively influence non-financial indicators of OP, i.e. quality of services or products and innovativeness. The second factor consisted of individual performance appraisal and profit-sharing and it positively influenced financial indicators of OP, i.e. productivity and, to a lesser extent, profitability. Implications for theory and practice are also discussed.