A multilevel analysis of the use of individual pay-for-performance systems

Compensation systems such as individualized pay for performance (I-PFP) schemes for employees represent an important approach to aligning employer-employee interests. However, the adoption of I-PFP is much less common in many countries than in the USA. Employing a multi-level analysis of over 4,000 firms in 26 countries, we explore determinants of its adoption. At the country level we distinguish between cultural and institutional (labor regulation institutions) influences. At the firm level, we distinguish firms that view HR as strategically important and firms that are foreign-owned. On the one hand, our findings indicate that both cultural and institutional effects at country level significantly influence the adoption of I-PFP. On the other hand, senior managers’ agency counts. We find the effect of labor regulation on I-PFP to be mediated by its effects on labor union influence and we find the effects of culture on I-PFP to be entirely mediated by labor regulation and (country level) union influence.

Paul Gooderham, Mark Fenton-O’Creevy, Richard Croucher, Michael Brookes, A Multilevel Analysis of the Use of Individual Pay-for-Performance Systems, Journal of Management,Vol 44, Issue 4, pp. 1479 - 1504. Copyright © The Author(s) 2015. Reprinted by permission of SAGE Publications.

Acknowledgements: the authors would like to acknowledge the helpful comments on previous versions of this manuscript provided by David Wilson, Patrick Wright (editor) and two anonymous reviewers. They also acknowledge the efforts and expertise of members of the CRANET network in collecting the data on which this study relied.
Published online before print October 21, 2015