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The Impacts of Distribution Forms of PFP on Compensation Equity

Author: ZhengZuo
Tutor: ChenLiFen
School: Nanjing University of Technology and Engineering
Course: Business management
Keywords: individual-based performance pay collective-based performance pay compensation equity expected performance goal task interdependence
CLC: F272.92
Type: Master's thesis
Year: 2014
Downloads: 40
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Abstract

With the deepening of economic globalization and the advent of the knowledge economy era, high performance and low-cost human resources management system have become the key to maintaining a competitive advantage. In the entire management system, compensation management system is the most powerful tool to retain the talents. Employees has its own specific standards to judge the values and determine the fairness of a pay system, which have undergone a drastic change as the marketing competition and industrious development. Pay for Performance(PFP) has become one of the main ways among these forms, which links the pay and performance, and changes the original psychological contract. Generally, it is important for PFP to break the mode of "iron rice bowl " and encourage employees to work much harder.Based on the equity theory, expectancy theory and interpersonal interaction theory, the paper investigated the antecedents of the compensation equity (CE). we promoted variables of expected performance goal (EPG) and task interdependence (TI) to further study the relationship between the individual-based performance pay (IPP), collective-based performance pay (CPP) and CE. The paper conducted a questionnaire survey used the Internal Consistency Reliability Analysis and Confirmatory Factor Analysis firstly to investigate the reliability and validity of the scale, and then used Hierarchical Regression Analysis to verify the hypotheses, and empirically analyze the impacts of IPP and CPP on CE separately. The results show that:(1)Both the IPP and CPP have a significantly positive effect on CE;(2)The impact of IPP on CE is higher than that of CPP;(3) The EPG partially mediated the relationship between IPP and CE as well as the relationship between CPP and CE;(4) The TI has a significant and negative moderating effect on the relationship between IPP and CE, but has no significant moderating effect on the relationship between CPP and CE.The paper discusses the findings of compensation management practices. First, Both of the individual-based performance pay and collective-based performance pay can improve employees’compensation equity, there is no mutually alternative relationship between these two distributive forms. Choosing the appropriate combination of pay can reduce the risk of a particular distributive form of PFP. Secondly, for the organization using PFP as their distributive form, it is important to help the employees gain the sense of control, which provides employees with clear expectancy for gaining fair PFP and strengthens the compensation equity. Moreover, the organizations should take the task interdependence into consideration when making compensation design and distribution in different industries and enterprises. For organizations whose task interdependence is relatively independent than others should try to implement the individual-based performance pay.

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