Making Strategy Work : Sense and Sensibility of Results-Oriented Pay Systems

Kiisa Hulkko-Nyman

Research output: ThesisDoctoral ThesisMonograph

Abstract

Incentive systems are here to stay. They are meant to motivate employees and boost their performance - but often their impact is not quite what was expected. It is thus essential to study how their outcomes are generated and under what conditions systems work best. This dissertation sheds light on these topics. A model is built and tested to find out how results-oriented pay (ROP) systems influence satisfaction with the ROP system, performance and co-operation as perceived by the employees. The model combines propositions from the theories of contingency, expectancy, goal setting, and procedural justice in a novel way to build a midrange theory. It proposes that ROP system outcomes are generated by four antecedents - employees' knowledge of ROP and the importance they ascribe to it, along with their perceptions of fairness of ROP procedures and fit between the ROP system and the organizational goals. Further, the study contributes to our understanding of how this happens in the contexts of three types of ROP systems identified. The data (N = 1778) were collected from informants belonging to 35 different ROP systems in 18 organizations from Finnish private and public sectors. In addition, descriptions of the ROP systems were used. The data were analyzed with hierarchical regression analyses and correspondence analysis. The results show that the systems had on average only from modest to moderate outcomes – there is room for improvements. Positive ROP outcomes emerged when the respondents experienced that the ROP systems made sense, i.e., the link between ROP and goals was clear and the employees knew the system well, and had sensibility, i.e., the employees were fairly treated. The generation of outcomes was unique for each of the three contexts, thus the study emphasizes context-sensitive approaches. Ideally, incentive systems should be built to match organizational goals, and managers should communicate this strategic link so that systems make sense. The choice between individual and group bonuses should be made by taking into account that co-operation outcomes were lowest for individual bonuses. The managers of individual bonuses should strive for fairness and the managers of group-based bonuses should invest especially in active communication of the ROP system.
Translated title of the contributionJärkeä ja tunnetta palkitsemiseen : tulospalkkiojärjestelmät strategian tukena
Original languageEnglish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
Supervisors/Advisors
  • Vartiainen, Matti, Supervising Professor
  • Kira, Mari, Thesis Advisor
Publisher
Print ISBNs978-952-60-6775-9
Electronic ISBNs978-952-60-6776-6
Publication statusPublished - 2016
MoE publication typeG4 Doctoral dissertation (monograph)

Keywords

  • incentive systems
  • results-oriented pay systems
  • performance outcomes
  • co-operation outcomes
  • pay satisfaction
  • knowledge of pay
  • fairness of pay procedures
  • contingency perception
  • importance of a pay system

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