Evaluating Form and Functionality of Pay‐for‐Performance Plans: The Relative Incentive and Sorting Effects of Merit Pay,Bonuses, and Long‐Term Incentives

Using two‐year longitudinal data from a large sample of US employees from a service‐related organization, the present study investigates the relative effects of three forms of pay‐for‐performance (PFP) plans on employees’ job performance (incentive effects) and voluntary turnover (sorting effects). The study differentiates between three forms of pay: merit pay, individual‐based bonuses, and long‐term incentives. By definition, these PFP plans have different structural elements that distinguish them from each other (i.e., pay plan form) and different characteristics (functionality), such as the degree to which pay and performance are linked and the size of the rewards, which can vary both within and across plan types. Our results provide evidence that merit raises have larger incentive and sorting effects than bonuses and long‐term incentives in multi‐PFP plan environments where the three PFP plans are operating simultaneously. Only merit pay has both incentive and sorting effects among the three PFP plans. The implications for the PFP‐related theory, as well as for the design and implementation of PFP plans, are discussed. © 2015 Wiley Periodicals, Inc.     

A Cross‐National Study of Fairness in Asia: How Perceptions of a Lack‐of‐Group Bias and Transparency in the Performance Evaluation System Relate to Job Satisfaction

This study explored how managers’ fairness perceptions of performance evaluation systems differ across countries and relate to their job satisfaction. Lack‐of‐group bias and transparency were the constructs used to assess fairness perceptions. The data sample consisted of 903 Asian managers from the subsidiaries of a leading multinational corporation (MNC) strategically expanding its retail markets in Japan, China, Hong Kong, Malaysia, and Thailand. Results showed that the fairness perceptions of lack‐of‐group bias and transparency concerning the common performance evaluation system varied within these Asian countries. Furthermore, those fairness perceptions were significantly related to job satisfaction among Asian managers overall, as well as in each of the five geographical subgroups with the exception of Hong Kong, where the perception of a lack‐of‐group bias was only marginally related to job satisfaction. These findings offer theoretical implications regarding organizational justice, cross‐national management, and performance evaluation, as well as practical implications for leveraging organizational justice perceptions of performance evaluation systems for the effectiveness of MNCs. © 2015 Wiley Periodicals, Inc.