Wisconsin HR Summit. Pay-for-Performance as a Determinant of Employee Performance and Turnover. April 20, 2018

Transcription

1 Wisconsin HR Summit Pay-for-Performance as a Determinant of Employee Performance and Turnover April 20, 2018 Charlie Trevor Professor of Management and Human Resources Wisconsin School of Business University of Wisconsin-Madison AGENDA Brief summary of three studies of Payfor-Performance (PFP) More recent PFP study in detail Layoff brainstorming or referral hiring study Common theme HR levers to influence employee behaviors that matter 1

2 Compensation RESEARCH INTERESTS Voluntary Turnover Performance (individual and collective) Layoffs RESEARCH INTERESTS Compensation Voluntary Turnover Performance Pay-for-Performance (individual and collective) Layoffs 2

3 Three Pay and Behavioral Outcomes Studies That I Still Think Are Interesting The Relationship between Job Performance and Turnover Trevor, Gerhart, & Boudreau, 1997 JAP Turnover Curvilinear Negative linear Performance 3

4 Pay s Effect on the Relationship between Performance and Turnover Trevor, Gerhart, & Boudreau, 1997 JAP Low pay growth Turnover High pay growth The correlation between Performance performance and pay growth effects is.95 Do the Benefits Outweigh the Costs So What? 4

5 Is It Worth It To Win The Talent War Sturman, Trevor, Boudreau, & Gerhart 2003 P-Psych Is It Worth It To Win The Talent War Sturman, Trevor, Boudreau, & Gerhart 2003 P-Psych 5

6 Is It Worth It To Win The Talent War Sturman, Trevor, Boudreau, & Gerhart 2003 P-Psych Yes Pay Dispersion and Sorting Trevor, Reilly, & Gerhart, 2012 AMJ Conflicting theory/findings about pay dispersion (PD) (incentive v. disruptive) Conventional wisdom that PD in interdependent work is destructive We thought that was wrong; prior work: methodological and conceptual problems (inequity v. inequality) ignored sorting Different conceptual/methodological approach 6

7 Pay Dispersion Our Take Trevor, Reilly, & Gerhart, 2012 AMJ There are relevant inputs upon which we often base pay allocation: job held, performance, qualifications, potential PD unexplained by relevant inputs (i.e., dumb pay dispersion) is bad PD explained by relevant inputs (i,.e., smart pay dispersion) is fair, motivating, and, in particular, yields sorting advantages Most early work confused smart and dumb PD Pay Dispersion and Sorting Trevor, Reilly, & Gerhart, 2012 AMJ Overall Pay Dispersion (pay inequality) Relevant Inputs (job, performance, ability) Caveat: This assumes performance is reasonably visible Dumb Pay Dispersion (pay inequity) Smart Pay Dispersion (pay equity) High performers will be attracted to and want to remain with organizations with smart pay dispersion; hence, SPD will have a positive impact on organizational performance 7

8 Pay Dispersion and Sorting Trevor, Reilly, & Gerhart, 2012 AMJ Pay-for-Performance s Effect on Future Employee Performance: Integrating Psychological and Economic Principles Toward a Contingency Perspective With Anthony Nyberg and Jenna Pieper [2016 HR Division Scholarly Achievement Award for Best Published Manuscript] Charlie Trevor Professor of Management and Human Resources Wisconsin School of Business University of Wisconsin-Madison 8

9 PFP and Future Performance Nyberg, Pieper, and Trevor, 2016 JOM 1 st Back to School to (re)learn a little theory PFP and Future Performance Nyberg, Pieper, and Trevor, 2016 JOM 1 st Back to School For a Quick Theory Lesson: Expectancy or VIE Theory Motivation = f(v*i*e) V = valence (happiness with reward) I = instrumentality (perceived likelihood that performance will lead to reward) E = expectancy (perceived likelihood that effort will lead to performance) 9

10 PFP and Future Job Performance Does PFP work (i.e., motivate employees)? Research: overall, yes, but effects often weak Sometimes no; stated reasons include performance appraisal system, low salience (not enough payoff, so low V,I,SPD), hurts intrinsic motivation, fosters unwanted competition, implementation issues Research not easy to do; large data hurdles So devil is in the PFP details We wanted to see if we could find some contexts in which PFP works better 10

11 PFP and Future Job Performance U.S. insurance company Includes all jobs below director level and not paid on commission 11,939 ees from 517 departments in 574 locations, 22 job families Avg ee: 42 years of age, 12 years of tenure, $47K in base pay Roughly half exempt and three quarter female PFP and Performance - Measures Merit pay - % increase, based on year s performance, pay grade, and salary (performance correlated with future merit at.7) Bonus pay lump sum reward based on year s performance, pay grade, and salary (performance correlated with future bonus at.7) Job performance year t+1 supervisor rating based on 7 dimensions (employee achievement level, achievement importance, achievement difficulty, daily role behavior, skills, effectiveness, and consistency) 11

12 PFP Types and Future Performance Job Performance (year t+1) Nyberg, Pieper, and Trevor, 2016 JOM Q: Which PFP ($2400 merit or $2400 bonus) has stronger effect on job performance? (and why?) Bonus Pay Hint - rationality v. salience Merit Pay Salience => greater V, I Proximal reinforcement (Psych 101) Endowment effect (Behavioral Econ) PFP Amount bonus effect (b =.47) is significantly different (p <.001) from merit effect (b =.09) PFP Type Interdependence Nyberg, Pieper, and Trevor, 2016 JOM Q: No vacuums. When is bonus more motivating? When merit is high or low? High Merit Job Performance Low Merit Salience we are quite influenced by new data when trying to make sense of an unfavorable outcome (e.g., IE and EE) Bonus ALERT: For self-serving presentation purposes only; effect size actually pretty small 12

13 PFP, Job Type and Future Performance Nyberg, Pieper, and Trevor, 2016 JOM Which job type (sales or other) sees stronger PFP effects on future performance? (and why?) Sales Jobs Job Performance Other Jobs Performance measureability Instrumentality / line-of-sight Incentive intensity principle Merit or Bonus Amount Merit effect in sales (b =.21) greater (p<.001) than in nonsales (b =.12). Bonus effect in sales (b =.73) greater (p<.001) than in nonsales (b =.45). Sales strongest PFP effects in paper. PFP and Tenure predicting Future Performance Nyberg, Pieper, and Trevor, 2016 JOM Tenure Job Performance Tenure PFP (bonus or merit) Bonus Q: Merit Will effect PFP is affect stronger future when performance tenure is high low more ( high for low => about tenure 420 (newer) years). employees or for high tenure (more But experienced) why? employees? (and why?) 13

14 Takeaways from PFP Studies Evidence that PFP can influence job performance and turnover (and thus, in turn, influence org performance) Context matters Job performance levels degree to which PFP retains (works best for stars, who enjoy ease of movement) Smart v. dumb pay dispersion whether PD has sorting benefits that result in org performnce (SPD yes; DPD no) Performance measurability how well PFP works (i.e., better in sales jobs) (this measureability also may be a necessary condition for SPD effects) Bonus salience, relative to merit, larger PFP impact on future performance PFP matters, but detail (context) determines how much Thank You Charlie Trevor Professor of Management and Human Resources Wisconsin School of Business University of Wisconsin-Madison 14