Collective Pay for Performance: A Cross-Disciplinary Review and Meta-Analysis

Abstract

Rewarding collective outcomes has become an increasingly important strategic motivational tool for driving collective success, reflecting the insight that paying employees for individual contributions does not always optimize performance in collective endeavors. Research into different types of collective pay for performance (PFP), or pay that is contingent on collective outcomes, has been studied in diverse academic fields (e.g., economics, strategy, psychology), but the compartmentalization between these academic disciplines hinders conceptual coordination. To advance this research and its related insights, this article provides a review of the theory and evidence pertaining to the relationships between different collective PFP types and collective outcomes. We also provide a meta-analysis that shows that collective PFP has desirable outcomes (e.g., meta-analysis shows an overall ρ = 0.11; p < .001), substantiating the value of studying collective PFP separately from individual PFP. The review also reveals a lack of empirical and theoretical development and highlights the need for a comprehensive theory of collective PFP. Our cross-disciplinary review of 106 empirical articles builds a foundation for advancing common pursuits, integrating knowledge, and creating theory. The consolidated perspectives point to promising directions for future research.

Crowding‐out or crowding‐in? Direct voice, performance‐related pay, and organizational innovation in European firms

“…In this system, employees cannot always see clearly how their performance has directly related to the firm's profits. This was supported by the recent meta‐analysis from Nyberg et al () on the outcomes of different forms of collective PRP, which shows that “in contrast to other collective PFP types based on firm‐level outcomes […], theoretical treatments of profit‐sharing focus more on attitudinal and behavioral effects than on performance. Evidence generally supports the efficacy of these plans for improving employee attitudes and teamwork and offers limited evidence of a productivity effect […] These plans work by enhancing employees' sense of psychological ownership […] or increasing their positive behaviors, including managerial knowledge transfer […] and organizational citizenship behaviors” (p. 2444).…”

“…Finally, our study also speaks to compensation literature on mixing individual and collective rewards. Such literature is characterized by two alternative theoretical positions recommending, on the one side, that the combination results in a “best of both worlds” scenario, and, on the other side, that under mixed compensation systems employees get into a “social dilemma” leading them to focus more on the individual work than on the collective (Barnes, Hollenbeck, Jundt, DeRue, & Harmon, ; Nyberg et al, ). Our findings show that the effects of mixed PRP may depend on contextual conditions.…”

“…Second, it contributes to compensation research by considering PRPs as extrinsic rewards, which may have differential effects according to the characteristics that they assume. Given the different logic behind individual and collective forms of PRP (Gerhart, Rynes, & Fulmer, ; Nyberg, Maltarich, Abdulsalam, Essman, & Cragun, ), this article distinguishes between task‐focused and profit‐sharing plans. In so doing, it contributes to the debate on the relationship between individual and collective forms of PRP (e.g., Pendleton, ; Pendleton & Robinson, ) by offering a clearer and detailed picture of the potential trade‐offs between intrinsic and extrinsic rewards when innovation is considered (Amabile & Pillemer, ).…”

“…Second, it contributes to compensation research by considering PRPs as extrinsic rewards, which may have differential effects according to the characteristics that they assume. Given the different logic behind individual and collective forms of PRP (Gerhart, Rynes, & Fulmer, 2009;Nyberg, Maltarich, Abdulsalam, Essman, & Cragun, 2018), this article distinguishes between task-focused and profit-sharing plans.…”

The Influences of Independent and Female Directors on the Use Non-Financial Measures in the Evaluation of CEO Performance in Malaysia

“…However, previous studies documented that generally BODs evaluate and compensate their CEOs mainly based on financial measures which are short-term oriented, not strategic and could be manipulated (Epstein and Roy, 2005a;Nyberg et al, 2018;Siciliano, 2002); (Kaufman, 2008). Hence, most previous studies which examined the influences of corporate governance variables on the use non-financial measures in the evaluation of CEO performance assume that board characteristics such as independence and size would increase the use of non-financial measures (Balsam et al, 2010;Bushman et al, 1996;Ibrahim S. and Lloyd, 2010;Schiehll and Bellavance, 2009); (Eduardo and Paul, 2003;Itter et al, 1997).…”