The Psychological Costs of Pay-for-Performance: Implications for the Strategic Compensation of Employees

Larkin, Ian; Pierce, Lamar; Gino, Francesca

doi:10.2139/ssrn.1836405

Cited by 70 publications

(107 citation statements)

References 107 publications

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“…This is an important line of inquiry because HR system differentiation has the potential to reduce perceptions of fairness (Lepak et al, ) and organizational commitment (Marescaux, De Winne, & Sels, ) among employees who receive lower investments. Human capital and cost–benefit models based on transaction and labor costs, and the marginal productivity of employees, do not account for the potential psychological and behavioral costs (e.g., Larkin, Pierce, & Gino, ; Pohler & Schmidt, ) associated with the adoption of a differentiated HR architecture within the organization. If employees perceive HR differentiation to be unfair, these costs may include lower performance, job withdrawal, decreased citizenship behaviors, and negative reactions including theft and other retaliatory behaviors (Colquitt, Conlon, Wesson, Porter, & Ng, ).…”

Section: Introductionmentioning

confidence: 99%

Strategic HR system differentiation between jobs: The effects on firm performance and employee outcomes

Schmidt

Pohler

Willness

2017

Human Resource Management

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The purpose of this research was to understand the extent to which firms apply different human resource management systems to different occupations within the same organization (HR differentiation), and how this influences both firm and employee outcomes. We conducted two studies pertaining to these questions. The first study was based on data collected from managers and the results showed that firms differentiate their HR investments based on the strategic value of occupations, which was further associated with the human capital of those occupations; differentiation in human capital was also associated with firm performance. The second study was based on data obtained from non-management employees. The findings of this study indicated that employees who were recipients of less HR system investment had lower fairness perceptions, which were further associated with turnover intentions and organizational citizenship behavior. Although the evidence from these studies suggests that firms may realize benefits from HR differentiation, managers should carefully consider how to balance the effects of differentiation on firm performance and employee well-being before implementing such systems.Keywords: human resource management; high performance work systems; human capital; turnover; fairness perceptions; organizational citizenship behavior EFFECT OF STRATEGIC HR DIFFERENTIATION 3 The Effects of Strategic HR System Differentiation on Firm Performance and Employee OutcomesA core objective of strategic human resource (HR) management research is to understand how firm investment in HR systems and practices affects organizational performance (Delery & Doty, 1996). However, one area that has received relatively little theoretical and empirical attention is the extent to which firms make differential investments across occupation groups within the same organization, and what impact this has on employee attitudes, behavioral intentions, and on firm performance. One of the earliest perspectives in strategic HR management, the universal approach, proposed that greater organizational investment in HR would unilaterally improve firm performance by increasing the ability and motivation of all employees in the organization (Huselid, 1995). In contrast, scholars emphasizing a contingency approach have shown that an important factor for understanding the HR-performance linkage is the alignment between the type and amount of HR investment with the firm's competitive environment and operational strategies (e.g., Datta, Guthrie, & Wright, 2005;Delery & Doty, 1996;Youndt, Snell, Dean, & Lepak, 1996). Theory in this latter tradition, as well as limited empirical research, has more recently focused on the application of different HR systems across different occupations within the same firm based on the strategic value of the occupational skill set required for each occupation, the firm-specific nature of the required skill sets, and the availability of the occupational skills in the labor market (Lepak & Snell, 1999;Lepak, Taylo...

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Section: Introductionmentioning

confidence: 99%

Strategic HR system differentiation between jobs: The effects on firm performance and employee outcomes

Schmidt

Pohler

Willness

2017

Human Resource Management

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“…See the critique inOsterloh and Frey 2000, Frey and Osterloh 2005, Rost and Osterloh 2009, Weibel et al 2010, Larkin et al 2012, Rost 2017 …”

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confidence: 99%

Research on Well-Being: Determinants, Effects, and its Relevance for Management

Frey¹

2017

Die Unternehmung

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“…Third‐party effects, including potential social comparison costs (e.g., envy), are largely absent from the empirical literature on awards, though they are crucial for the aggregate effectiveness of award programs. Social comparison processes have also not yet received much attention in the strategy literature more generally; but there is some recent research providing considerable advances (Larkin et al , ; Nickerson and Zenger, ) and giving a useful overview of research on the topic. These studies focus on the consequences of monetary compensation.…”

Section: Value Destructionmentioning

confidence: 99%

“…However, there is by now ample literature highlighting the limitations of monetary incentives. Not only is money shown to often be ineffective at sustaining employees' motivation; it may even backfire due to motivation crowding‐out (Deci, Koestner, and Ryan, ; Frey, ; Frey and Jegen, ), strategic behavior, and social comparison costs (Larkin, Pierce, and Gino, ; Nickerson and Zenger, ).…”

Section: Introductionmentioning

confidence: 99%

Awards: A strategic management perspective

Gallus

Frey

2015

Strategic Management Journal

104

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Research summary:Awards are a valuable strategic resource. Motivation theory and the emerging body of empirical literature suggest that awards can have a significant effect on employee motivation and corporate performance, though not always in the intended direction. Awards can also destroy value. The organizational award literature has so far largely neglected this important issue. We develop a synthesis of the dimensions critical for successful award bestowals, and analyze under which conditions awards generate firm-specific value that is sustained and difficult for competitors to imitate. The process of value creation and capture is contingent on the given firm's organizational characteristics and nature of production. The article concludes by laying out empirical implications. JEL codes: M52, M54, J24, J30. Managerial summary: Awards are widely used in the corporate sector. They fundamentally differ from monetary incentives, which risk crowding out employees' intrinsic motivation. Among the variety of awards, two general types can be distinguished: confirmatory awards based on explicit, pre-determined performance criteria, and discretionary awards, which rely on broad performance evaluations and may be used ex post to honor outstanding performance. Appropriately designed and adjusted to the specific firm's characteristics, awards enhance employees' motivation and corporate performance. They express recognition and support their recipients' perceived competence and social status. Awards help to retain valuable employees and to establish role models. However, awards may also backfire, for instance, when they provoke envy among coworkers. We propose when awards risk destroying value and when they are particularly useful.

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The Psychological Costs of Pay-for-Performance: Implications for the Strategic Compensation of Employees

Cited by 70 publications

References 107 publications

Strategic HR system differentiation between jobs: The effects on firm performance and employee outcomes

Strategic HR system differentiation between jobs: The effects on firm performance and employee outcomes

Research on Well-Being: Determinants, Effects, and its Relevance for Management

Awards: A strategic management perspective

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