Pay-for-Performance’s Effect on Future Employee Performance: Integrating Psychological and Economic Principles Toward a Contingency Perspective

Journal of Management

Volumn 42, Issue 7, 2016, Pages 1753-1783

  Nyberg, Anthony J ^a   Pieper, Jenna R ^b   Trevor, Charlie O ^c  

^a UNIVERSITY OF SOUTH CAROLINA   (United States)

^b UNIVERSITY OF NEBRASKA LINCOLN   (United States)

^c UNIVERSITY OF WISCONSIN MADISON   (United States)

Author keywords

bonus pay; contingency theory; employee performance; merit pay; pay trend; pay for performance; performance measurement

Indexed keywords

EID: 84988951730     PISSN: 01492063     EISSN: 15571211     Source Type: Journal    
DOI: 10.1177/0149206313515520     Document Type: Article

References (82)

1. Anderson E., Oliver R. L., 1987. Perspectives on behavior-based versus outcome-based salesforce control systems. Journal of Marketing, 51: 76-88.
2. Ariely D., 2009. Predictably irrational, revised and expanded edition: The hidden forces that shape our decisions. New York: HarperCollins.
3. Ariely D., Gneezy U., Loewenstein G., Mazar N., 2009. Large stakes and big mistakes. Review of Economic Studies, 76: 451-469.
4. Banker R., Lee S., Potter G., Srinivasan D., 2000. An empirical analysis of continuing improvements following the implementation of a performance-based compensation plan. Journal of Accounting and Economics, 30: 315-350.
5. Barkema H. G., Gomez-Mejia L. R., 1998. Managerial compensation and firm performance: A general research framework. Academy of Management Journal, 41: 135-145.
6. Becker G. S., 1965. A theory of the allocation of time. Economic Journal, 75: 493-517.
7. Bloom M., Milkovich G. T., 1998. Relationships among risk, incentive pay, and organizational performance. Academy of Management Journal, 41: 283-297.
8. Brockner J., Wiesenfeld B. M., 1996. An interactive framework for explaining reactions to decisions: Interactive effects of outcomes and procedures. Psychological Bulletin, 120: 189-208.
9. Chen G., Ployhart R. E., Thomas H. C., Anderson N., Bliese P. D., 2011. The power of momentum: A new model of dynamic relationships between job satisfaction change and turnover intentions. Academy of Management Journal, 54: 159-181.
10. Coase R. H., 1937. The nature of the firm. Economica, 4: 386-405.
11. Cohen K., 2006. The pulse of the profession: 2006-2007 salary budget survey. Workspan, September: 23-26.
12. Deci E. L., Ryan R. M., 1980. The empirical exploration of intrinsic motivational processes. Advances in Experimental Social Psychology, 13: 39-80.
13. Deming W., 1986. Out of the crisis: Quality, productivity and competitive position. Cambridge, MA: MIT Press.
14. Fulmer I. S., Gerhart B., Scott K. S., 2003. Are the 100 best better? An empirical investigation of the relationship between being a great place to work and firm performance. Personnel Psychology, 56: 965-993.
15. Gardner T. M., Wright P. M., Moynihan L. M., 2011. The impact of motivation, empowerment, and skill enhancing practices on aggregate voluntary turnover: The mediating effect of collective affective commitment. Personnel Psychology, 64: 315-350.
16. Gerhart B., Milkovich G. T., 1990. Organizational differences in managerial compensation and financial performance. Academy of Management Journal, 33: 663-691.
17. Gerhart B., Rynes S. L., 2003. Compensation: Theory, evidence, and strategic implications Thousand Oaks, CA: Sage.
18. Gerhart B., Rynes S. L., Fulmer I. S., 2009. Pay and performance: Individuals, groups, and executives. Academy of Management Annals, 3: 251-315.
19. Gerhart B., Trevor C. O., 1996. Employment variability under different managerial compensation systems. Academy of Management Journal, 39: 1692-1712.
20. Gomez-Mejia L. R., Balkin D. B., 1989. Effectiveness of individual and aggregate compensation strategies. Industrial Relations, 28: 431-445.
21. Green H., 2010. When money doesn’t talk. Fortune, January 8.
22. Greene W. H., 2003. Econometric analysis. Upper Saddle River, NJ: Pearson.
23. Halaby C. N., 2004. Panel models in sociological research: Theory into practice. Annual Review of Sociology, 30: 507-544.
24. Harrison D. A., Virick M., William S., 1996. Working without a net: Time, performance, and turnover under maximally contingent rewards. Journal of Applied Psychology, 81: 331-345.
25. Hausknecht J. P., Holwerda J. A., 2013. When does employee turnover matter? Dynamic member configurations, productive capacity, and collective performance. Organization Science, 24: 210-225.
26. Hausman J., 1978. Specification tests in econometrics. Econometrica, 46: 1251-1272.
27. Heneman R. L., 1992. Merit pay: Linking pay increases to performance ratings. New York: Addison-Wesley.
28. Hsee C., Abelson R., Salovey P., 1991. The relative weighting of position and velocity in satisfaction. Psychological Science, 2: 263-266.
29. Jenkins G. D., Jr. Mitra A., Gupta N., Shaw J. D., 1998. Are financial incentives related to performance? A meta-analytic review of empirical research. Journal of Applied Psychology, 83: 777-787.
30. Jensen M. C., Meckling W. H., 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 305-360.
31. Kahn L., Sherer P., 1990. Contingent pay and managerial performance. Industrial and Labor Relations Review, 43: 107S-120S.
32. Kahneman D., 2011. Thinking fast and slow. New York: Farrar, Straus and Giroux.
33. Kahneman D., Knetsch J., Thaler R., 1990. Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy, 98: 1325-1348.
34. Kahneman D., Tversky A., 1979. Prospect theory: An analysis of decision under risk. Econometrica, 47: 263-291.
35. Kopelman R. E., Reinharth L., 1982. Research results: The effect of merit-pay practices on white collar performance. Compensation & Benefits Review, 14(4): 30-40.
36. Lawler E. E., III. 1971. Pay and organizational effectiveness. New York: McGraw-Hill.
37. Lawler E. E., III. 2000. Rewarding excellence: Pay strategies for the new economy. San Francisco: Jossey-Bass.
38. Lazear E. P., 1992. Compensation, productivity and the new economics of personnel. In Lewin D., Mitchell O. S., Sherer P. D., (Eds.), Research frontiers in industrial relations and human resources: 341-380. Madison, WI: Industrial Relations Research Association.
39. Lepak D. P., Snell S. A., 1999. The human resource architecture: Toward a theory of human capital allocation and development. Academy of Management Review, 24: 31-48.
40. Liu D., Mitchell T., Lee T., Holtom B., Hinkin T., 2012. When employees are out of step with coworkers: How job satisfaction trajectory and dispersion influence individual-and unit-level voluntary turnover. Academy of Management Journal, 55: 1360-1380.
41. Locke E. A., Feren D., McCaleb V., Shaw K., Denny A., 1980. The relative effectiveness of four methods of motivating employee performance. In Duncan K. D., Gruenberg M. M., Wallis D., (Eds.), Changes in working life: 363-388. New York: John Wiley.
42. Maertz C., Campion M., 2004. Profiles in quitting: Integrating process and content turnover theory. Academy of Management Journal, 47: 566-582.
43. Maltarich M. A., Nyberg A. J., Reilly G., 2010. A conceptual and empirical analysis of the cognitive ability-voluntary turnover relationship. Journal of Applied Psychology, 95: 1058-1070.
44. Milgrom P., Roberts J., 1990. Bargaining and influence costs and the organization of economic activity. In Alt J., Shepsle K., (Eds.), Perspectives on positive political economy: 57-89. Cambridge, UK: Cambridge University Press.
45. Milgrom P., Roberts J., 1992. Economics, organization and management. Englewood Cliffs, NJ: Prentice Hall.
46. Milkovich G. T., Newman J. M., Gerhart B., 2011. Compensation. New York: McGraw-Hill Irwin.
47. Mitra A., Gupta N., Jenkins G. D., Jr. 1997. A drop in the bucket: When is a pay raise a pay raise? Journal of Organizational Behavior, 18: 117-137.
48. Neter J., Wasserman W., Kutner M., 1985. Applied linear statistical models: Regression, analysis of variance, and experimental designs. Homewood, IL: Irwin.
49. Nyberg A. J., 2010. Retaining your high performers: Moderators of the performance-job satisfaction-voluntary turnover relationship. Journal of Applied Psychology, 95: 440-453.
50. Nyberg A. J., Fulmer I. S., Gerhart B., Carpenter M. A., 2010. Agency theory revisited: CEO return and shareholder interest alignment. Academy of Management Journal, 53: 1029-1049.
51. Nyberg A. J., Moliterno T. P., Hale D., Lepak D. P., 2014. Resource-based perspectives on unit-level human capital: A review and integration. Journal of Management, 40: 316-346.
52. Nyberg A. J., Ployhart R. E., 2013. Context-emergent turnover (CET) theory: A theory of collective turnover. Academy of Management Review, 38: 109-131.
53. Park S., Sturman M. C., 2012. How and what you pay matters: The relative effectiveness of merit pay, bonuses and long-term incentives on future job performance. Compensation & Benefits Review, 44: 80-85.
54. Pearce J. J., Stevenson W. B., Perry J. L., 1985. Managerial compensation based on organizational performance: A time series analysis of the effects of merit pay. Academy of Management Journal, 28: 261-278.
55. Pfeffer J., 1998. The human equation: Building profits by putting people first. Boston: Harvard Business Press.
56. Pink D., 2009. Drive: The surprising truth about what motivates us. New York: Riverhead Books.
57. Porter L. W., Steers R. M., 1973. Organizational, work, and personal factors in employee turnover and absenteeism. Psychological Bulletin, 80: 151-176.
58. Reilly G., Nyberg A. J., Maltarich M. A., Weller I., in press. Human capital flows: Using context-emergent turnover (CET) theory to explore the process by which turnover, hiring, and job demands affect patient satisfaction. Academy of Management Journal.
59. Robinson S. L., Rousseau D. M., 1994. Violating the psychological contract: Not the exception but the norm. Journal of Organizational Behavior, 15: 245-259.
60. Ross S., 1973. The economic theory of agency: The principal’s problem. American Economic Review, 63: 134-139.
61. Rynes S. L., Gerhart B., Minette K. A., 2004. The importance of pay in employee motivation: Discrepancies between what people say and what they do. Human Resource Management, 43: 381-394.
62. Rynes S. L., Gerhart B., Parks L., 2005. Personnel psychology: Performance evaluation and pay for performance. Annual Review of Psychology, 56: 571-600.
63. Schaubroeck J. M., Shaw J. D., Duffy M. K., Mitra A., 2008. An under-met and over-met expectations model of employee reactions to merit raises. Journal of Applied Psychology, 93: 424-434.
64. Schenker N., Gentleman J. F., 2001. On judging the significance of differences by examining the overlap between confidence intervals. The American Statistician, 55, 182-186.
65. Schwab D. P., 1991. Contextual variables in employee performance-turnover relationships. Academy of Management Journal, 34: 966-975.
66. Schwab D. P., Olian-Gottlieb J. D., Heneman H. G., 1979. Between-subjects expectancy theory research: A statistical review of studies predicting effort and performance. Psychological Bulletin, 86: 139-147.
67. Schwab D. P., Olson C. A., 1990. Merit pay practices: Implications for pay-performance relations. Industrial and Labor Relations Review, 43: 237S-255S.
68. Shaw J. D., Dineen B. R., Fang R., Vellella R. F., 2009. Employee-organization exchange relationships, HRM practices, and quit rates of good and poor performers. Academy of Management Journal, 52: 1016-1033.
69. Shaw J. D., Gupta N., 2007. Pay system characteristics and quit patterns of good, average, and poor performers. Personnel Psychology, 60: 903-928.
70. Sturman M. C., Short J. C., 2000. Lump-sum bonus satisfaction: Testing the construct validity of a new pay satisfaction dimension. Personnel Psychology, 53: 673-700.
71. Sturman M. C., Trevor C. O., 2001. The implications of linking the dynamic performance and turnover literatures. Journal of Applied Psychology, 86: 684-696.
72. Sturman M. C., Trevor C. O., Boudreau J. W., Gerhart B., 2003. Is it worth it to win the talent war? Evaluating the utility of performance-based pay. Personnel Psychology, 56: 997-1036.
73. Tekleab A., Bartol K., Liu W., 2005. Is it pay levels or pay raises that matter to fairness and turnover? Journal of Organizational Behavior, 26: 899-921.
74. Thaler R. H., Sunstein C. R., 2008. Nudge: Improving decisions about health, wealth, and happiness: New York: Penguin.
75. Thibaut J., Walker L., 1975. Procedural justice: A psychological analysis. Hillsdale, NJ: Lawrence Erlbaum.
76. Trevor C. O., Gerhart B., Boudreau J. W., 1997. Voluntary turnover and job performance: Curvilinearity and the moderating influences of salary growth and promotions. Journal of Applied Psychology, 82: 44-61.
77. Trevor C. O., Nyberg A. J., 2008. Keeping your headcount when all about you are losing theirs: Downsizing, voluntary turnover rates, and the moderating role of HR practices. Academy of Management Journal, 51: 259-276.
78. Trevor C. O., Wazeter D. L., 2006. A contingent view of reactions to objective pay conditions: Interdependence among pay structure characteristics and pay relative to internal and external referents. Journal of Applied Psychology, 91: 1260-1275.
79. Van Eerde W., Thierry H., 1996. Vroom’s expectancy models and work-related criteria: A meta-analysis. Journal of Applied Psychology, 81: 575-586.
80. Vroom V., 1964. Work and motivation. San Francisco: Jossey-Bass.
81. Williamson O. E., 1981. The economics of organization: The transaction cost approach. American Journal of Sociology, 87: 548-577.
82. Wright P. M., Dunford B. B., Snell S. A., 2001. Human resources and the resource based view of the firm. Journal of Management, 27: 701-721.