Performance-based Compensation Systems Research Articles

Employees’ performance-based remuneration (Korean and Chinese practices)

In world practice, tariff-free and flexible remuneration systems are used. Remuneration systems based on the results of employee performance evaluation are becoming especially relevant. The author has believed that such an experience would be useful for Ukraine, as there is an unfair distribution of the salary fund at domestic enterprises.
 The author has argued that the basis of remuneration should be based on the labour results of employees, their achievements and high qualifications and professionalism. It has long been necessary to move away from “equalization” in remuneration, because everyone performs the same duties differently, and therefore remuneration should be different. That is why I turned to the experience of Japan and China, because it is in these countries that such an approach has always been used, and therefore their practice can be useful for Ukraine. 
 In Japan and China remuneration has been based on the results of employee performance appraisals for a long time. These countries have developed special methods of calculating wages, which take into account many indicators.
 Raising flexibility of compensation system is emerging as a big social issue.
 Korea is facing rapidly aging population and deteriorating corporate competitiveness. Companies in Korea attempted to improve the pay structure by increasing the performance-based factors within the existing pay structure, the best example being the “annual salary system.” For individual companies, converting the current automatic pay raise scheme into a performance-based scheme will help ease the rigidity of the current pay structure. The prerequisite is that fairness must be ensured when evaluating performance. Responsibilities should also be allocated appropriately to allow equal opportunities for all individuals to make the best use of their skills and talents and adequate investment should be made to develop necessary human resources. Improvement in the overall work system should precede the move toward broader implementation of the performance-based pay structure.
 Pay for performance programs in China are compensation plans that pay employees on the basis of some performance measure. This performance measures might include such things as individual productivity, team or work group productivity, department productivity, or the overall organization’s profits for a given period. Performance measure and management is essential for implementing performance-based compensation system effectively and efficiently.

The relationship between CEO compensation and company performance measurements of listed South African firms

Some commentators argue that increased chief executive officer (CEO) compensation may lead to increased company performance, while others argue that increased CEO compensation does not necessarily lead to increased company performance. These different opinions led to several pay-performance studies to identify and analyse the relationship, if any, between CEO compensation and company performance. The motivation for the present study was to determine whether different performance measurements in a pay-performance study would provide different results, as well as to determine whether certain firms’ performance measurements correlate better to compensation than those of other firms. The main finding of the research was that there is a substantial difference in the correlational relationships identified between CEO compensation and company performance, depending on the performance measurement used. In this study earnings per share reported the strongest positive correlation at 0.89 and return on assets reported the strongest negative correlation at  -0.79 to CEO compensation. The findings suggest that researchers should carefully consider what performance measurement to use when conducting pay-performance studies as very different results could be delivered. In addition, stakeholders should take note of the specific performance measurement that they should apply if they want to negotiate a performance-based compensation system.

Approach of Family Physicians to Pediatric Eye Screening in Diyarbakır

Objectives:In Turkey, preventive medicine services are the responsibility of family physicians and vision screening is a key component of this responsibility. In this study, we aimed to investigate the approach of family physicians to vision screening in infants and children.Materials and Methods:Data were collected using a 16-item questionnaire administered to 100 family physicians working in the center and provinces of Diyarbakır.Results:The results indicated that 88 (88%) physicians declared knowing what the red reflex test was, while 12 physicians declared that they had never heard of it. Only 16 (16%) physicians performed the test routinely and 36 (36%) physicians performed it only in suspicious cases. Ten (10%) physicians indicated that they did not refer the patients to an ophthalmologist even though they did not perform the red reflex test. Moreover, 5 (5%) physicians did not have an ophthalmoscope and 12 (12%) physicians reported not knowing how to use an ophthalmoscope. Forty (40%) of the physicians measured preschool visual acuity at least once. Sixty-six (66%) physicians referred younger children who could not express their vision problems to an ophthalmologist. Four (4%) physicians declared that they would delay surgery in children with strabismus until they were old enough for surgery. Ninety-three (93%) physicians suggested that educational seminars about vision screening would be beneficial.Conclusion:Educational seminars about vision screening may have favorable outcomes. The medical devices in family medicine centers should be improved. Vision screening can be added to the negative performance-based compensation system in order to increase physicians’ attention to vision screening. To implement detailed eye screening programs like those in developed countries, an infrastructure should be established for this screening program.

Performance-based equity incentives, vesting restrictions, and corporate innovation

PurposeBased on the institutional background of mandatory requirement of performance-based executive equity incentives, this paper aims to investigate the impacts of executive equity incentives, vesting periods and vesting performance conditions on corporate innovation.Design/methodology/approachThe empirical analysis is based on the detailed data of equity incentives in China’s listed companies from 2006 to 2014, the Tobit method is implemented to estimate the regression coefficients, and the instrumental variable (IV) approach, Heckman two stage regression, propensity score matching and difference-in-difference models are adopted to solve the problem of endogeneity in several robust tests.FindingsThis paper documents that equity incentives and vesting periods are significantly and positively related to corporate innovation measured by R&D investment and patent applications, yet requirements on vesting performance impede corporate innovative activities. Specifically, compared with non-equity incentive companies, the R&D investment and the number of patent applications of equity incentive companies are 40 and 46.2 per cent higher, respectively. A one year increase in equity incentive duration can correspondingly increase the R&D investment by 15 per cent and the patent applications by 18.3 per cent. However, a one standard deviation increase in industry-adjusted ROE target reduces corporate R&D investment by 5 per cent and the patent applications by 8.39 per cent. The main empirical findings still hold after several robust tests.Research limitations/implicationsThis paper confirms that the impact of performance-based compensation system on corporate innovation depends on its structure. Specifically, the empirical findings suggest that equity incentive plans being correctly designed can enhance corporate innovative activities, but myopic managers will damage the corporate innovation.Originality/valueThis paper investigates the influence of equity incentive structure on equity incentive effect based on the institutional background of mandatory requirement of performance-based executive equity incentives. It provides an opportunity to understand the mystery of equity incentives, which helps to enrich the structure of equity incentive theoretically. The empirical evidence confirms the importance of tolerating short-term failure and extending the horizon of managerial decision-making on promoting innovation. Overall, the research indicates that only well-designed equity incentive plans can promote innovation, which contributes to regulators and practitioners to form a rational understanding of the premise of equity incentives in promoting innovation and provides a reference for their decision-making.

Public employment in the Middle East and North Africa

Public sector hiring has been an essential component of the social bargains that have maintained political stability in the Middle East and North Africa (MENA). As these bargains eroded, public sector workforces contracted in relative terms owing to a partial freeze on hiring and the promise of lifetime job security for incumbent workers. This had profound effects on the age composition of the workforce. The upcoming retirement of many workers provides an opportunity to restructure public sector hiring to emphasize meritocratic recruitment processes and performance-based compensation systems.

Curvilinear effect of transformational leadership on innovative behavior among R&D teams in South Korea

PurposeThe purpose of this paper is to examine the potential consequences of transformational leadership on follower innovative behavior as well as to investigate the moderating effect of team learning on the relationship. It is argued that an excessive level of transformational leadership may even decrease the subordinates’ innovative behavior due to their negative emotions derived from the leadership, while an appropriate level of transformational leadership can positively influence innovative behavior. Furthermore, the situational factor of team learning, which reinforces the positive feelings of team members through their improved competency, can amplify the positive impact and diminish the negative impact of transformational leadership on innovative behavior.Design/methodology/approachData were collected from R&D teams of large- and mid-sized companies in Korean industries. Survey data from 307 team members and 51 team leaders from 51 project teams were tested using hierarchical linear modeling analysis. Team members evaluated the transformational leadership of their team leaders as well as the perceived level of learning in their teams, and team leaders evaluated the innovative behavior of their team members.FindingsMulti-level analysis confirmed a non-linear relationship (an inverted U shape) between transformational leadership of team leaders and innovative behavior of team members. It means innovative behavior was negatively related to excessive transformational leadership and positively related to a modest level of the leadership. Furthermore, statistical analysis confirmed the positive multi-level moderating effect of team learning.Research limitations/implicationsThe core dimension of transformational leadership, charisma, was the only measurement of the leadership in this study. Most South Korean companies adopted performance-based compensation systems and charisma is a prevailing leadership behavior at emerging market of the nation. As such, other dimensions of transformational leadership such as “individualized consideration” or “intellectual stimulation” are relatively neglected in most companies of South Korea. Future research needs to consider these other dimensions for the generalization in research.Practical implicationsLeaders in emerging markets, such as project team leaders or R&D team leaders, should avoid immoderate transformational leadership and should maintain a proper level of transformational leadership. The contemporary leaders also need to utilize team learning to maximize innovative behavior.Originality/valueThese findings illustrate the disadvantage of excessive transformational leadership and highlight the neutralization effect of team learning on the negative impact of the excessive leadership. Team learning has the potential to enhance members’ innovative behaviors, and it could moderate the perceptions of excessive transformational leadership.

Effects of CEOs’ Negative Traits on Corporate Social Responsibility

The dark triad, composed of Machiavellianism, psychopathy and narcissism, refers to negative personality traits, which may influence business processes. While negative traits could be an important factor explaining the relationship between a CEO’s immoral and unethical behavior and corporate social responsibility (CSR), there has been minimal research focusing on this relationship. This paper thus attempts to investigate how a CEO exhibiting these negative traits affects CSR, and if an employee’s perception of ethics and social responsibility would mediate the relationship. In addition, this paper considers the moderating effects of an individual performance-based compensation system (IPBCS) between employee’s CSR perception and CSR activities. The data are collected through a survey conducted on 165 employees (companies) in twelve industries. The regression result indicates an inverse relationship between the negative traits of a CEO and an employee’s perception of ethics and social responsibility and CSR activities, and the mediating effect of the perception in the relationship between the negative traits and CSR activities. It also indicates that an IPBCS moderates the relationship between CSR perception and activities. Implications for the study, future research directions, and management approach are discussed.

The influences of leaders\u2019 dark triad trait on their perception of CSR

The dark triad is a psychological term explaining individual negative dispositions. It is composed of Machiavellianism, which is a tendency to manipulate others to gain advantage, psychopathy, which is a general lack of empathy, and narcissism, which is excessive self-love. The negative effects of any leader’s unethical behaviors on society necessitate an examination of the relationship between the leader’s undesirable propensity and the corporate social responsibility (CSR). The literature reveals that the characteristics and traits of an organization’s leader affect the ethics of the organization and that the leader’s ethical perception and judgment can affect CSR. Accordingly, it is critical for a leader with the dark triad trait to check his or her perception of CSR.In addition, it is necessary to determine how the individual performance-based compensation system moderates the relationship between a leader’s dark triad trait and CSR perception. Although a compensation system is useful in enhancing performance, it can have negative effects due to excessive and exclusive emphasis on performance.Empirical results have shown that Machiavellianism and psychopathy negatively affect the perception of CSR as a prima facie duty. Especially in this relation, the individual performance-based compensation system improves the negative relationship between Machiavellianism and CSR perception, and exacerbates the negative relationship between psychopathy and CSR perception. However, the psychopathy trait has only a negative relationship with the perception of CSR as a top priority, and the other traits have no significant relationship with the perception of CSR as a top priority. The study conclusions are summarized as follows: 1) the leader’s perception of CSR is affected by his or her negative traits like Machiavellianism and psychopathy, 2) an organization needs to investigate the performance evaluation system and indicators for avoiding a negative influence of the system, and 3) it is necessary to find effective and practical managerial approaches capable of controlling the potential negative traits desirably.

The effects of high performance work system on employee attitudes: A study of international organization

In the last three decades, a growing body of research has suggested that using a mix or system of Human Resources Management (HRM) practices would lead to superior organizational performance. These practices (such as selective recruitment and hiring procedures, performance-based compensation systems, employee participation, and training and development) have been referred to as High Performance Work Systems (HPWS) and originated from the study of Strategic Human Resource Management (SHRM), where researchers have examined the effects of adopting HPWS on organizational performance. Although there is a growing body of evidence demonstrating the effects of HPWS on organizational performance, there is less evidence evaluating the effects of adopting HPWS in international organization and particularly Intergovernmental Organization (IGO). IGOs, such as United Nations (UN), World Bank (WB), and International Monetary Fund (IMF), are international bodies that serve different mandates and aim at maintaining global socioeconomic stability between member states' governments. Despite the increasing interest among IGOs' managers in adopting HPWS, research in this unique organizational context lags behind which reveals significant gap in HRM literature. This mixed methods-research study seeks to address this gap by reporting the results of a staff survey and follow-up interviews conducted on a cross-section of one of the largest IGOs in the region. The results have shown different effects of the bundles of HPWS practices on organizational performance. The results are discussed in light of HRM theory to explore the importance of organizational context on the link between human resource management and organizational performance. The results raise issues about the universal applicability of HRM-performance research and have implications for the standardization of HRM policies and practices within intergovernmental organization.

Performance Pay or Redistribution? Cultural Differences in Just-World Beliefs and Preferences for Wage Inequality

We identify and test a specific psychological mechanism underlying cross-national differences in preferences for performance-based versus redistributive compensation systems. We posit that individuals’ beliefs in the inherent justness and deservedness of individual outcomes (i.e., just world beliefs: JWBs) can help explain individual and culture-level variation in preferences for these compensation systems. Study 1 demonstrates a general correlation between the JWBs of a culturally diverse sample of former managers and their preferences for performance versus equal pay for an individual task. Study 2 shows that American participants exhibit stronger preferences for individual performance pay versus redistributive pay than do French participants, a difference that is mediated by JWBs. Study 3 holds national culture constant and replicates these effects by experimentally manipulating JWBs, demonstrating the causal nature of JWBs in determining preferences for performance-based versus redistributive compensation systems. Implications for organizational incentive systems, culture, and work motivation are discussed.

성과주의 평가보상제도의 디커플링 현상의 선행변수와 결과변수에 관한 연구

성과주의 평가보상제도의 디커플링 현상의 선행변수와 결과변수에 관한 연구

In search of demanded competencies: designing superior compensation systems

Employees' competencies are decisive components in a firm's competitiveness. Accordingly, the purpose of this paper is to assess whether differences in strategy influence employees' competencies and how the design of compensation systems may best take into account the competencies required by a firm. An analysis was conducted on a sample of manufacturing firms using structural equation models. The findings support the existence of generic competencies, such as results and customer orientation, which are found in both prospector and defender strategic contexts, while other competencies – such as innovation, technical expertise and adaptability – are specific to the prospector strategy. In relation to compensation, the results show that skill-based pay is more strongly associated with competencies such as innovation, technical expertise and adaptability, whereas performance-based compensation systems encourage result-based competency. Therefore, the design of a compensation system should be guided by the competencies required as part of a firm's strategy.

It Could Work: Teacher Performance-based Compensation in a New York Charter School

Performance-based compensation systems have been under discussion for years and are now a required component of any state plan for Race to the Top funds. This article describes a system of performance-based compensation that has been in place at a K–12 school for the past four years. The system was developed by a team of teachers, union members, and administrators based on clear, schoolwide goals. Performance levels are set for teams of teachers who work collaboratively to meet goals. Effects on the professional culture of the school are explored, and suggestions are given for other schools interested in performance-based compensation.

The Effects of Deferred Compensation and Performance-based Compensation on Firm Value

This study empirically investigates the effects of two incentive systems: (i) the deferred compensation system, which involves paying lower (higher) compensation than the industry average during employees' early (later) service periods; and (ii) the performance-based compensation system. Empirical results using employee-wage data from Korean firms show that both the deferred compensation system and the performance-based compensation system have positive associations with firm value measured by Tobin's Q. However, the associations between the two types of incentive system and other value-relevant factors are not uniform. While the deferred compensation system contributes to the enhancement of ROA and an improvement in labor productivity, the performance-based compensation system stimulates sales growth.

Performance-Based Compensation: How an Oral History Can Inform Our Understanding of Accounting Partnership Income Allocation Models

This research explores how an oral history can inform our understanding of accounting partnership income allocation models. Forty oral history interviews of CPA firm partners indicated a widespread impact from unclear and instable role definitions in performance-based compensation arrangements. The oral history interviews suggested partnerships adopted performance-based compensation systems without consideration of the extent to which the success of such systems depended on stable role specificity. This research has implications for corporations where the interests of the entity may be best served when top management undertake diverse or previously unspecified roles and activities, on an ad-hoc or opportunistic basis.

Are Professors' Salaries too High?

Using the model by Vaihekoski (2005), this paper investigates whether professors are over- or underpaid. Empirical analysis is performed using tenured Finnish professors' salary data against the salary and unemployment data for comparable peer employee groups. The results suggest among other things that professors' salaries should vary according to their peer groups' salary. Professors in most of the analyzed disciplines have too low salary, although an example of the opposite was found. Finally, the model suggests that the professors should be compensated with a higher salary on average if their salary is changed to the performance-based compensation system as in Finland from the beginning of 2006.

Performance-Based Managerial Pay in the Federal Government: Does Agency Matter?

Do factors unique to particular agencies affect the design, implementation, and results of performance-based compensation systems? The research presented addresses this question, using the federal Performance Management and Recognition System (PMRS) as the focus of analysis. The findings show that agency does impact the design, implementation, and perceived outcomes of an expectancy-based compensation system. The research suggests that agency-based differences should be explored before implementing a pay-for-performance compensation system. Attention should be given to the adequacy of the organization's rewards for performance, the soundness of its performance appraisal device, the linkage between pay and performance, the geographic proximity or dispersion of employees included in award pools, and the level of trust in the agency. While the preceding listing is not exhaustive, it is a beginning toward determining the types of agencies that may be amenable to performance-based pay. This research takes on particular significance since recent federal legislation requires a feasibility study of extending a PMRS-like pay system to the entire federal workforce.

The 1980 Presidential Address: The Underdeveloped Concepts of Profitability and Dividend Payout Ratios for Mutual Life Insurers

This address has two related contentions. First, the financial performance of most mutual life insurers would improve as a result of their deeper exploration of the many facets of profit. Second, profit should be measured on a generally accepted accounting principles (GAAP) basis rather than by the far less revealing statutory income statements. The major beneficiaries of more emphasis on GAAP profitability and how it is distributed would be the executives and policyowners of mutuals. Many interesting questions arise when the subject of profit is discussed. Let us consider some of them. How should profit be defined'? When do profits really appear'? How should profits be shared by policyowners, retained earnings, and employees (through performance-based compensation systems)'? How does the speculative risk of life insurers compare with that of non-insurance enterprises'? How can stockholder-owned organizations make satisfactory returns in industries (e.g., hospital and life insurance) with strong not-for-profit competitors'? Should part of executive salaries be considered profit'? The list of intriguing questions appear endless. Before departing for his summer home in Montana this spring, my distinguished colleague James L. Athearn left a pearl of wisdom taped to his office door. The author was not named; it sounds like Athearn's work to me! In any