Effects of Compensation Strategy on Psychological Contract - An Empirical Study in China

Abstract

Based on the thorough review of the past research about compensation and psychological contract, the paper examines the relationships between compensation strategy and psychological contract, using data of 128 supervisors and 526 employees from 20 companies. Results show that there are the mechanistic compensation strategy and the organic compensation strategy. Moreover, the two compensation strategies have significant effects on the dimensions of economic motivation, contextual support, development opportunity, organizational identity and entrepreneurship orientation in the employer's psychological contract. They also affect the dimensions of economic motivation, contextual support, development opportunity, rules keeping, organizational identity and entrepreneurship orientation in the employee's psychological contract significantly. At last, the paper discussed the implications of the study and the directions for future research in employees' motivation and strategic compensation management