Contract design in dynamic agency: An experimental analysis

This paper reports results from an experiment studying contract design in a dynamic 2‐period agency relationship with unobservable effort. A deferred compensation contract is theoretically optimal—it places all incentives on the outcomes in the second period. Observed contract choices offer a substantial part of the incentives for the high outcome in the first period suggesting a strong preference for timely rewards. Information about theoretically optimal bonuses and effort decisions shifts contract choices towards a deferred compensation contract. This contract structure is more profitable for principal participants.     

Performance Measurement and Incentive Compensation: An Empirical Analysis and Comparison of Chinese and Western Firms' Practices

This paper describes the findings of a study aimed at providing a replication and extension in China of studies focused on incentive compensation practices of automobile retailers in the USA and the Netherlands. Rich, detailed data-sets from all three countries are analysed together and in comparison. As theory is not well developed at the level of detail of the data collected, the purpose of this study was primarily exploratory, to provide empirics that can lead to the development of theory. The findings show that Chinese firms are much more likely to provide incentive compensation than are Dutch firms, and they are even somewhat more likely to provide them than are US firms. But Chinese bonus plans are more likely to be subjective, rather than formula-based. In the situations where incentive payments are based on pre-set formulas, the Chinese firms' systems are more like those used in the Netherlands than in the USA, with bonuses based on non-financial performance measures and with more complex performance–reward functions. Like managers in the US firms, but unlike managers in the Dutch firms, Chinese managers who receive some form of incentive compensation are more satisfied with their pay. The paper concludes with tentative explanations of the findings and suggestions for future research.     

Well It’s Only Fair: How Perceptions of Manager Discretion in Bonus Allocation Affect Intrinsic Motivation

Perceptions of manager discretion in incentive allocation are theoretically and practically important to help explain the much‐debated relationship between performance‐related bonuses and intrinsic motivation. We argue, and demonstrate, that perceived managerial discretion is a key moderator to this relationship because of its relevance to procedural fairness. In a first study, we developed a measure for perceived manager discretion and distinguished it from related concepts. In a second experiment, we found that higher bonuses associated with higher levels of perceived manager discretion enhanced procedural fairness but those based on lower discretion did not. In a third field study, we found that actual bonuses implemented by a service organization enhanced intrinsic motivation indirectly through procedural fairness, but only when employees perceived their bonus to be based on higher levels of perceived manager discretion. Conversely, when bonus level was associated with lower perceived manager discretion, it negatively predicted of intrinsic motivation.     

The taxation of bonuses and its effect on executive compensation and risk‐taking: Evidence from the UK experience

This paper explores the effects of a bonus tax adopted in the UK in December 2009 on the compensation structure of executives and on risk‐taking behavior in the financial sector. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the financial crisis. The British government attempted to reduce bonuses and accordingly bank risk taking by means of a special tax on cash‐based bonuses. Using a comprehensive dataset on executive compensation, we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 40%, accompanied, however, by a simultaneous increases in other forms of pay leaving total compensation as well as risk levels unaffected.     

Organizational culture and work–life integration: A barrier to employees’ respite?

Abstract

The management of work–life boundaries is portrayed in the literature as being a matter of individual choice. Accordingly, organizational influence has been underestimated. The first objective of this article is therefore to determine whether an organizational culture of integration (e.g. expectations about taking work home) can influence individuals’ ability to act on their personal preference for segmentation. The second objective is to determine whether a mismatch between culture and personal preferences can influence the emotional state of employees and, if so, in what way. A study of 243 employees showed that the perception of an organizational culture of integration reduced the effect of preference for segmentation on employees’ ability to detach themselves from work during rest periods. Further, a path analysis highlighted a moderated mediation, indicating that preference for segmentation was associated with reduced emotional exhaustion in employees by promoting a high level of psychological detachment, and this reduction was even stronger among those who perceived a weak culture of integration in their organization. This study proposes that jointly with individual preference for segmentation or integration, the norms and expectations of an organization have considerable influence on employees’ ability to detach and recover during non-work time.     

Theorizing the relationship between discretionary employee benefits and individual performance

The literature on compensation has devoted little attention to the relationship between discretionary employee benefits and individual performance, perhaps because benefits are allocated equally to large groups of employees, are not tied to individual performance, and are viewed as entitlements. Discretionary benefits include all the benefits an employer provides to employees voluntarily (i.e., not legally required). Employees can use internet search tools to make comparisons between focal and referent firms of their expenditures on discretionary benefits, which can symbolize employer support for employee well-being or invoke perceptions of equity. In our paper, we provide a novel insight into the relationship between discretionary benefits and employee individual performance through a theoretical lens that combines insights from organizational support theory and equity theory shaped by perceptions of social and economic exchange relationships. In our conceptual model we develop theoretical logic that explains that perceived discretionary benefits, moderated by benefits satisfaction and mediated by perceived organizational support and perceived equity, are linked to individual performance. The paper concludes with a discussion of the theoretical implications and directions for future research.     

Utilization control in HMOs.

Health Maintenance Organizations (HMOs) have emerged as a major vehicle to reduce transaction costs associated with defining the limits of health insurance coverage and to provide appropriate provider incentives. This article explains the heterogeneous set of incentives used by HMOs to reimburse providers and performs empirical tests of their effectiveness. The empirical analyses reveal that utilization of health care services is reduced when (1) physician compensation is based on salary or capitation arrangements rather than some measure of output; (2) bonuses and paybacks are based on individual rather than group performance; and (3) when the HMO operates as a proprietary (for-profit) organization. Utilization is not significantly affected by incentives placed on the hospital. Finally, physician ownership of the HMO was found to lead to higher levels of utilization.     

Quota Bonuses as Localized Sales Bonuses

In this article, we compare quota bonuses to profit‐based evaluation and sales (quantity) bonuses in a duopoly setting with independent demand shocks. Contrary to the previous findings, we find that under certain circumstances, either quota bonuses or sales bonuses may be optimal compensation plans. This may explain the coexistence of different bonus schemes in situations where the strategic aspect of the incentive problems is relevant. Copyright © 2017 John Wiley & Sons, Ltd.     

Comparisons of the effects of individual and collective performance-related pay on performance: A review

Debate on whether performance-related pay enhances organizational performance has centred on individual-based systems. This paper reviews studies that compare these with collective-based systems such as team bonuses and profit-sharing. Analysis of such comparisons – both field and experimental studies – reveals that collective systems, either alone or in conjunction with individual systems, are associated with higher performance. In no study do individual incentives outperform collective systems. Tests for moderators were rare but suggest that task interdependency may enhance collective systems' effects. Tests of mediators are also rare but point to enhanced levels of cooperation and idea generation under collective systems. This review examines how the included studies contribute to our understanding of key issues in payment-systems research – the roles of sorting effects and free riding under collective systems, and whether financial incentives may undermine intrinsic motivation – and finds it is limited, suggesting future work should concentrate on these areas.     

Employee reactions to gainsharing under seniority pay systems: The mediating effect of distributive,procedural, and interactional justice

This study examines the effects of gainsharing under seniority‐based pay systems on employee attitudes in Korea. It is hypothesized that gainsharing, which emphasizes performance, employee participation, and cooperation enhances employee perceptions of distributive, procedural, and interactional justice, and that this, in turn, produces positive employee attitudes. The participants were a sample of individuals from five firms that combined seniority‐based pay and gainsharing incentives and five comparable firms that used only seniority‐based pay. The results supported the partial mediation model whereby distributive and interactional justice partially mediated the effects of gainsharing on employee attitudes, but procedural justice did not. The practical implications of this international compensation research include careful consideration of the integration of gainsharing with the total rewards mix in an organization. © 2008 Wiley Periodicals, Inc.     

Equal or equitable pay? Individual differences in pay fairness perceptions

This study examined how social comparison (i.e., comparing one's pay to similar others' pay) and deserved comparison (i.e., comparing one's pay to one's deserved pay) affect pay fairness perceptions, and the individual differences in the comparison processes. Results based on a field study with a sample of 167 employees showed pay fairness was low when employees received lower pay than a similar other (or what they deserved), increased as their pay exceeded that of a similar other (or deserved pay) to some extent, and then decreased when overpayment was considerable. Second, pay fairness increased as one's actual and similar others' pay levels both increased while pay fairness remained the same as one's actual and the deserved pay levels both increased. In addition, the “threshold” that people start to perceive overpayment as less fair occurred more quickly for those with higher preference for consistency in social comparison and for those with higher preference for the merit principle in deserved comparison. We also conducted experiments, and the results generally replicated the findings in the field study. These findings offer theoretical implications regarding organizational justice, as well as practical implications for designing and executing a compensation system.     

CONTROLLING BANKERS' BONUSES: EFFICIENT REGULATION OR POLITICS OF ENVY?

The positive relationship between bank CEO compensation and risk-taking is a well-established empirical fact. The global banking crisis has resulted in a chorus of demands to control bankers' bonuses and thereby curtail their risk-taking activities in the hope that the world can avoid a repeat in the future. However, the positive relationship is not a causative one. In this paper we argue that an implicit too-big-to-fail policy provides the incentive for banks to take excessive risks and design compensation packages to deliver high returns. A credible no-bailout policy will have a better chance of curbing excess risk-taking than controlling bankers' compensation.     

The effects of cultural orientations on preferred compensation policies

This study aims at examining the relationship between cultural orientations and preferences for compensation policies. The study involves two concepts: culture and compensation. In the first part of this article, these concepts are framed; and in the second part, after direct measurement of both cultural traits and compensation preferences, their relationships are tested and discussed. Our findings suggest that while culture represents an important factor in human resource management, its effects on compensation preferences should be viewed as partial and moderate. Further analysis reveals that the effects of culture on preferred compensations may vary from one orientation to another. While some cultural orientations are more likely to affect pay policies, others seem to be of lesser importance. Similarly, it is found that compensation policies are not affected equally by cultural orientations. By analyzing the extent and direction of cultural effects, the study provides some insights into designing compensation policies and points out the managerial implications.     

Fuzzy multi-linguistic preferences model of service innovations at wholesale service delivery

In group decision making, most researches often assume the linguistic ways with personal preferences have been given and ignore the linguistic evaluated formats involving their knowledge and experience. In practice, people contributing to the judgment tend generally to give ratings about their personal preferences depending on their background. Thus, problems in multiple linguistic preferences go undetected, resulting in the evaluation process not satisfying with decisions’ expectations. In this study, we provide a fuzzy multiple preference integrated model with two stages to better reduce the bias for group decision makings. The first stage focuses on making the information unify on the alternatives according to the individual linguistic preferences, then we compute collective performance values and solve the problems lacking on the integration of respective fuzzy choice subsets. The second stage, we choose the alternatives of retailing service innovations according to the collective performance values by stage one. The goal of the decision process is to reach the subjective fuzzy cognitions in terms of the preference values of all the decision makers. Finally, the survey data of the chain wholesale using multiple preference formats in service innovations determination is verified.     

On the effects of incentive framing on bribery: evidence from an experiment in Burkina Faso

While incentive framing has been shown to promote workers’ effort, little is known about how it affects other dimensions of the employer-employee relationship. This paper examines whether incentive framing can also influence workers propensity to engage in an activity disloyal to their employer: corruption. To do so, we conducted an experiment in which graders are offered a bribe to report a better grade. Three treatments are conducted by framing economically equivalent contracts as menus of bonuses, penalties, or bonuses and penalties. We find that graders are more corrupt when incentives are framed as a combination of bonuses and penalties, while no difference is found between the bonus and the penalty contracts. These results are inconsistent with both standard economic theory and labor reciprocity.     

Getting bang for your buck: the specificity of compensation and benefits information in job advertisements*

Even though some organizations are trying to attract high-level applicants through offering superior compensation and benefits, reward statements in job advertisements are sometimes rather general and vague. On the basis of person-environment fit theories, we examine whether providing more specific information on attractive reward packages in job advertisements leads to higher perceived person-reward fit and subsequent job pursuit intentions. Furthermore, based on signaling theory, we propose that person-reward fit allows job seekers to make inferences about broader person-organization fit. Applying an online experimental design among 283 experienced potential applicants, we find that more specific compensation and benefits information results in higher job pursuit intentions and that this relationship is fully mediated by person-reward fit perceptions. In turn, the effect of person-reward fit is partially mediated by perceptions of person-organization fit, indicating that people might use reward information as signals for other organizational attributes in early stages of recruitment.     

Dealing with differences: the impact of perceived diversity outcomes on selection and assessment of minority candidates

Although many strategies have been employed to specifically recruit and select minority employees, the selection rates for designated minority groups are often lower than those for the majority group. Minority candidates with high cultural maintenance (CM) are particularly vulnerable to cultural bias in selection procedures, a process which has proved difficult to change. This paper aims to examine whether these effects may be moderated by recruiters’ perceived diversity outcomes; whether they view diversity as beneficial or threatening to the organization's performance. In an experimental study, participants belonging to a cultural majority group played the role of recruiters (n = 99). Their diversity perceptions were manipulated by asking them to think about, and discuss, either positive or negative outcomes of cultural diversity in the workplace. They were then asked to rate fictional profiles of minority candidates for a job opening. The results confirm that CM of minority candidates has a negative main effect on the ratings they receive in assessment procedures. However, as predicted, this effect is moderated by diversity perceptions. Recruiters who perceive individual differences in the workplace as positive and beneficial, give higher ratings to candidates who maintain their own culture. This provides a promising insight in possible ways to reduce cultural bias in selection procedures.     

Performance appraisal,employee development and organizational justice: exploring the linkages

Much has been written about performance appraisal (PA) in such a manner as to suggest that the process is politically driven, even though one of its primary purposes is said to be the development of the individual employee. Our examination of a cross-section of workers' perceptions of this process was therefore motivated by the need to determine whether they believed that they experienced fair outcomes from PA, and whether its usage was seen to contribute toward their career advancement.

Given the role unions are expected to play in shaping human resource outcomes, we hypothesized that workers in the non-union environment would experience lower levels of procedural and interactional justice than their trade-union counterparts. We also hypothesized that, since unions might be asked to walk a tightrope in contesting PA decisions affecting different persons who were union members, employers would be able to exercise much discretion in making those decisions, with the result that there would not be any appreciable difference in justice perceptions between union member and non-union member. A third hypothesis that informed the research was that workers' perceptions about the treatment received from performance appraisal were likely to influence their expectations regarding career advancement, as expressed through opportunities for training and development, pay for performance and promotions.

No significant differences in perception were found among union and non-union respondents' perceptions about the vast majority of procedural elements used in this study. Contrary to our hypothesis, non-union respondents expressed less unfavourable perceptions about the interactional elements than their trade-union counterparts. The results confirmed the hypothesis that workers who believed that performers were not treated fairly as a result of performance appraisal would also agree that their expectations regarding development and advancement were not being met. We found significant, but relatively moderate relationships between perceptions about treatment of performers and their expectations about career advancement.     

Repatriation and short-term assignments: an exploration into expectations,change and dilemmas

The aim of this research was to use in-depth interviews and discourse analysis to explore talk about repatriation expectations by 22 participants who were currently on, or had recently completed a short-term assignment within a single MNC. This study is one of the first to focus specifically on repatriation connected to short-term assignments and present findings that stem solely from the expatriates' perspective. Through discourse analysis, this paper outlines a framework with which to understand the relevance and meaning of individual change associated with career-based expectations of repatriation. For some of the participants, expectations of short-term assignment repatriation meant a desired change in work based on perceptions of themselves as changed as a result of their experience. For others, expectations of consistency as opposed to change between pre-and post-assignment work roles emerged through discourses of resistance. These findings raise a number of distinctively novel HR challenges.     

Linking Belgian employee performance management system characteristics with performance management system effectiveness: exploring the mediating role of fairness

Based on expectancy theory, goal-setting theory and control theory, we propose a model in which perceived fairness mediates the relationship between characteristics of employee performance management (PM) systems and their perceived effectiveness by employees. PM system characteristics we propose are the frequency and length of formal reviews, the frequency of informal reviews and feedback, whether the formal conversation focused on evaluation or development and finally the degree of participation. The model was tested on a cross-industry sample of 3192 employees in Belgium. The measurement and structural models were simultaneously tested using structural equation modeling, and we used a bootstrapping approach to test the mediation hypothesis. Our findings indicate that performance review focus and employee participation strongly relate to perceptions of appraisal fairness and PM system effectiveness and that the frequency of informal performance reviews is stronger related to PM system effectiveness than the frequency of formal performance reviews. This suggests that the manifest expressions of PM have more impact on PM system effectiveness rather than the more latent characteristics of PM systems. The findings advance research to the role and functionality of PM systems by showing that (a) the manner in which PM systems are shaped and executed is of fundamental importance for their effectiveness, (b) fairness partially mediates the relationship between PM system characteristics and their effectiveness and (c) the three motivational theories appear useful for understanding the consequences of PM practices on individual employees.