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The psychological costs of pay‐for‐performance: Implications for the strategic compensation of employees
Open accessAbstract
Most research linking compensation to strategy relies on agency theory economics and focuses on executive pay. We instead focus on the strategic compensation of nonexecutive employees, arguing that while agency theory provides a useful framework for analyzing compensation, it fails to consider several psychological factors that increase costs from performance‐based pay. We examine how psychological costs from social comparison and overconfidence reduce the efficacy of individual performance‐based compensation, building a theoretical framework predicting more prominent use of team‐based, seniority‐based, and flatter compensation. We argue that compensation is strategic not only in motivating and attracting the worker being compensated but also in its impact on peer workers and the firm's complementary activities. The paper discusses empirical implications and possible theoretical extensions of the proposed integrated theory. Copyright © 2012 John Wiley & Sons, Ltd.
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Cites
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Cited by
Cleaning House: The Impact of Information Technology Monitoring on Employee Theft and Productivity
Pierce, L., Snow, D. C., & McAfee, A. (2015) · Management Science · doi:10.1287/mnsc.2014.2103 · Cited by 251
Self-citationBal, P. M., & de Jong, S. B. (2017) · Dignity and the Organization · doi:10.1057/978-1-137-55562-5_9 · Cited by 60
Seeing Where You Stand: From Performance Feedback to Performance Transparency
Bernstein, E. S., & Li, S. (2017) · Academy of Management Proceedings · doi:10.5465/ambpp.2017.14752abstract · Cited by 12
Metadata
- Authors
- Larkin, I., Pierce, L., & Gino, F.
- Venue
- Strategic Management Journal
- Publisher
- Wiley
- Published
- 2012-03-12
- Volume
- 33
- Issue
- 10
- Pages
- 1194-1214
- ISSN
- 0143-2095 (ISSN-L)
- 1097-0266
- OpenAlex
- W3124528338
- Cited by
- 291
- References
- 10
- FWCI
- 35.31
- Type
- journal article
- Language
- en
- Open access
- green
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