PFP Perception in Multi-PFP Form Environments and the Implications for PFP System Effectiveness

Abstract

Compensation research has generally considered pay-for-performance (PFP) perceptions in terms of how people feel and react to only a single PFP form or PFP systems as a whole, regardless of the complexity of the compensation system pertaining to the individual. Synthesizing construal level theory and expectancy theory, we provide insights into how employees develop complex conceptualizations of PFP when they have more than one PFP form at a time. We propose that (1) individuals shape PFP perceptions at different levels of mental construals, ranging from more abstract to more concrete; (2) concrete conceptualizations lead to specific, detailed, multidimensional perceptions of PFP form elements (i.e., expectancy, instrumentality, and valence) while abstract conceptualizations lead to more general perceptions with fewer perceived dimensions; and (3) the levels of the construals developed by individuals have different implications for PFP system effectiveness at the individual and organizational levels. We also discuss how this theoretical approach provides a structure for enhancing our understanding of modern pay practices that helps to close the gap that currently exists between compensation theory and practice.