Individual Performance Pay Research Articles

The informational effect of pay for individual performance on intrinsic motivation

PurposeThis research aims to test the role of the informational effect (IE) on the relationship between pay for individual performance (PFIP) and intrinsic motivation (IM). Special attention is also given to how the supervisor’s positive (PF) and negative feedback (NF) influence workers' perceptions of the informational content of PFIP.Design/methodology/approachWe used a two-wave online survey among workers covered by a PFIP system and collected a total of 472 answers. To test our hypotheses, we adopted SPSS PROCESS macro Model 9.FindingsThe results suggest that IE fully mediates the positive impact of PFIP on IM, with this effect diminishing in the presence of NF, while PF shows no significant influence.Practical implicationsOrganizations should invest in the development of mechanisms to mitigate perceptions of rewards as behaviour control mechanisms. Instead, PFIP should be perceived as a means to gain valuable insights into performance.Originality/valueBy using a research design allowing external validity in opposition to the widely used experimental one, we contribute to the debate about the relationship between extrinsic rewards and IM. Theoretical and practical implications in the workplace are also discussed.

Making the Right Call: The Heterogeneous Effects of Individual Performance Pay on Productivity

Making the Right Call: The Heterogeneous Effects of Individual Performance Pay on Productivity

Generation X and Millennials: Perception Toward Pay for Individual Performance

Generational differences will cause different effects on the way employees view and perceive the policies designed by their organizations to motivate them, one of which is performance pay. The study aims to examine the differing perceptions of pay for performance between employees from Generations X and Millennials. This study was conducted by using a survey of which the respondents were from private and public sector organizations. The total number of respondents in this research is 355 employees, which are made up of 156 respondents from Generation X and 199 Millennial respondents. In this study, t-test and Linear regression models were used for hypotheses testing. Results of the t-test showed that there are differences in perceptions of pay for performance between Generations X and Millennials (p < 0.05). Generation X gives a higher positive evaluation on pay for performance compared with Generation Millennials. Results of the regression test showed that pay for performance had a significant effect on employee work motivation for both Generations X and Y (p < 0.05). The results of this study provide insights to organizations into designing appropriate compensation programs based on the demographics of their employees.
 Keywords: generation differences, motivation, external regulation, performancecontingent rewards

National culture moderators of pay for individual performance and the financial performance of multinational enterprises

AbstractWe examined the effectiveness of pay for individual performance (PFIP) in companies operating in multiple cultures. With the use of data from 308 multinational enterprises (MNEs) collected by IBM's WorkTrends™ project, we tested hypotheses regarding the moderating influence of the nine dimensions of the GLOBE country culture model on the relationship between PFIP and changes in financial performance over time. Multiple employees per firm (mean N = 24.7 employees) reported the extent there was a PFIP climate (PFIPc) in their firm. We matched these data at the firm level to changes in net income per employee over 4 years from the Wharton Research Data Service (WRDS). Consistent with predictions developed from contingency and cross‐cultural theories, after including relevant controls, we found the positive relationship between PFIPc and subsequent MNE performance is greater in cultures higher in future orientation, institutional collectivism and uncertainty avoidance and also lower in in‐group collectivism, power distance and humane orientation.

Does pay for individual performance truly undermine employee creativity? The different moderating roles of vertical and horizontal collectivist orientations

AbstractThe extant literature has generated inconclusive findings concerning the effect of pay for individual performance (PFIP) on creativity. Supplementing self‐determination theory with compensation‐activation theory, we theorized and tested the moderating roles of individual cultural values of vertical and horizontal collectivist orientations on the relationship between PFIP and employee creativity as mediated by intrinsic motivation. The empirical results of two field studies provided convergent support for the intrinsic motivation mechanism underlying the positive relationship between PFIP and employee creativity among individuals with high vertical (but not horizontal) collectivist orientations. These findings highlight the importance of considering individual differences in cultural values in understanding how extrinsic rewards affect creativity.

Pay for Individual Performance: Aiding or Harming Sustainable Intrinsic Motivation?

This study aims to understand the effect of pay for individual performance (PFIP) on employees’ intrinsic motivation. Although several studies have analyzed this relationship, until now, the role of satisfaction with variable rewards has not been considered. It was hypothesized that employees who are satisfied with variable rewards would find in PFIP a source of feedback that would contribute to the satisfaction of their basic psychological needs. An empirical study was conducted with 184 professionals working in human resource consulting firms. Data were collected using an online survey, and the PROCESS macro for SPSS was used to analyze the proposed hypotheses. The results indicate that, in this context, PFIP has a direct positive effect on intrinsic motivation. It also has an indirect positive effect, which is partially and sequentially mediated by satisfaction with variable rewards and satisfaction of basic psychological needs. Employers should emphasize the informational nature of rewards, and also seek alignment between the objectives of the compensation system and employee expectations and values. The present findings broaden our understanding of how a PFIP system influences a sustainable intrinsic motivation.

The model of relationships between pay for individual performance and work engagement

PurposeResearch on the relationship between pay for individual performance (PFIP) and work engagement (WE) is limited. The purpose of this paper is to present a model outlining a threefold association between PFIP and WE: a direct association, an indirect association via pay satisfaction and a joint indirect association via pay level and pay satisfaction.Design/methodology/approachStructural equation modeling and bootstrapping procedures were used to test hypotheses with regard to these associations based on data obtained from two independent studies: the author’s own research project, and the European Work Conditions Survey 2015.FindingsIn both studies, the author found the hypothesized direct association between PFIP and WE; indirect association between PFIP and WE via pay satisfaction; and a joint indirect association between PFIP and WE via pay level and pay satisfaction.Research limitations/implicationsGiven its limited cross-sectional design, future longitudinal research in this area is needed to test the model of relations presented in this paper.Practical implicationsThe association between PFIP and WE is weak, and partially mediated by pay satisfaction; thus, it seems that to promote WE, it is not solely sufficient to introduce PFIP into remuneration systems, but that, in addition, PFIP should be aligned with employee pay expectations.Originality/valueThis study contributes to the career development literature by proposing and initially testing a model describing the three ways PFIP may be related to WE, one of the most crucial factors in achieving career success.

1 アメリカにおける人的資源管理の変容(テーマ別分科会1=アメリカ雇用社会の実像,II テーマ別分科会=報告論文と座長報告)

1 アメリカにおける人的資源管理の変容(テーマ別分科会1=アメリカ雇用社会の実像,II テーマ別分科会=報告論文と座長報告)

Group versus Individual Performance Pay in Relational Employment Contracts when Workers are Envious

I compare group to individual performance pay when workers are envious and performance is nonverifiable. Avoiding payoff inequity, the group reward scheme is optimal as long as the firm faces no credibility problem. The individual reward scheme may, however, become superior albeit introducing the prospect of unequal pay. This is due to two reasons: Group incentives are relatively low‐powered compared to individual incentives, requiring higher incentive pay and impeding credibility of the firm. Moreover, with individual rewards, the firm benefits from the incentive‐strengthening effect of envy, allowing for yet smaller overall incentive pay and further softening the credibility constraint. I also show that contracts combining both individual and group rewards are often optimal, depending on the firm's credibility problem. These contracts include joint and relative performance pay schemes.

Pay for (individual) performance: Issues, claims, evidence and the role of sorting effects

We address two broad questions: how much pay for individual performance (PFIP) is there and what are the positive and negative effects of PFIP? We consider specific claims, including that PFIP does not motivate (or even de-motivates), that it is ineffective in teams, and that it is ineffective in some national cultures. We demonstrate how incorporating sorting effects of PFIP into conceptual treatments of PFIP can change how one views the likely effectiveness of PFIP across contexts.

The Rise of Individual Performance Pay

Existing empirical evidence suggests that individual performance pay is more prevalent in human‐capital‐intensive industries. We introduce a model that can contribute to explain this. In a repeated game model of relational contracting, we analyze the conditions for implementing peer‐dependent incentive regimes when agents possess indispensable human capital. We show that the larger the share of values that the agents can hold up, the lower is the implementable degree of peer‐dependent incentives. In a setting with complementary tasks, we show that although team‐based incentives are optimal if agents are dispensable, it may be costly, and, in fact, suboptimal, to provide team incentives when the agents become indispensable.

Does pay for performance diminish intrinsic interest?

One concern with pay for individual performance (PFIP) is that it may undermine intrinsic interest, thus having little or no positive net influence on performance. A major basis for this concern is cognitive evaluation theory [CET; Deci and Ryan (1985), Intrinsic Motivation and Self-Determination in Human Behavior, New York: Plenum Press]. Most evidence on CET, however, comes from non-work settings and, even in that arena, there is debate regarding the undermining effect of PFIP. There is little workplace-based evidence on the validity of the undermining hypothesis and none that makes use of data on between-employer differences in PFIP. Also, a close reading of CET, reinforced by recent developments, suggests that PFIP plans could, under common workplace conditions, have a positive, rather than negative, influence on intrinsic interest. To our knowledge, there is no research that examines between-organization differences in PFIP and how they relate to employee intrinsic interest. There is also no research on whether employees having a preference for PFIP plans are likely to gravitate to organizations using such plans. To the extent such attraction–selection–attrition or sorting processes take place, the likelihood of detrimental consequences (e.g. diminished intrinsic interest) of PFIP plans due to mismatches between how the organization pays and how the employees are motivated should be less likely. We find no evidence of a detrimental effect of PFIP plans on intrinsic interest. Instead, intrinsic interest is actually higher under PFIP. We also find that organizations placing greater emphasis on PFIP plans tend to have employees with motivation orientations matching their PFIP plans, which may reduce the probability of a detrimental effect of PFIP.

Promotion Tournaments and Individual Performance Pay

We analyze the optimal combination of promotion tournaments and linear individual performance pay in an employment relationship. An agent's effort is nonobservable and he has private information about his suitability for promotion. Thus, the two incentive schemes need to be combined to serve both incentive and selection purposes. If harder working agents respond less to intensified effort incentives, we find that the principal puts less emphasis on individual performance pay when selection becomes more important. Thus, we provide a possible explanation as to why, in practice, individual performance pay is less prevalent than promotion‐based incentives.

Promotion Tournaments and Individual Performance Pay

We analyze the optimal combination of promotion tournaments and linear individual performance pay in an employment relationship. An agent's effort is non-observable and he has private information about his suitability for promotion. Thus, the two incentive schemes need to be combined to serve both incentive and selection purposes. If harder working agents respond less to intensified effort incentives, we find that the principal puts less emphasis on individual performance pay when selection becomes more important. Thus, we provide a possible explanation as to why, in practice, individual performance pay is less prevalent than promotion-based incentives.

Group vs. Individual Performance Pay in Relational Employment Contracts when Workers Are Envious

I compare group to individual performance pay when workers are envious and performance is non-verifiable. Avoiding payoff inequity, the group bonus contract is superior as long as the firm faces no credibility problem. The individual bonus contract may, however, become superior albeit introducing the prospect of unequal pay. This is due to two reasons: The group bonus scheme is subject to a free-rider problem requiring a higher incentive pay and impeding credibility of the firm. Moreover, with individual bonuses the firm benefits from the incentive-strengthening effect of envy, allowing for yet smaller incentive pay and further softening the credibility constraint.

The Rise of Individual Performance Pay

Why does individual performance pay seem to prevail in human-capital-intensive industries where teamwork is so common? We present a model that aims to explain this. In a repeated game model of relational contracting, we analyze the conditions for implementing peerdependent incentive regimes when agents possess indispensable human capital. We show that the larger the share of values that the agents can hold-up, the lower is the implementable degree of peer-dependent incentives. In a setting with team effects - complementary tasks and peer pressure, respectively - we show that while group-based incentives are optimal if agents are dispensable, it may be costly, and in fact suboptimal, to provide team incentives once the agents become indispensable.