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Does Pay‐for‐Performance Strain the Employment Relationship? The Effect of Manager Bonus Eligibility on Nonmanagement Employee Turnover
Author(s) -
Pohler Dionne,
Schmidt Joseph A.
Publication year - 2015
Publication title -
personnel psychology
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.076
H-Index - 142
eISSN - 1744-6570
pISSN - 0031-5826
DOI - 10.1111/peps.12106
Subject(s) - equity theory , principal–agent problem , compensation of employees , perspective (graphical) , compensation (psychology) , equity (law) , agency (philosophy) , context (archaeology) , turnover , panel data , business , set (abstract data type) , empirical research , empirical evidence , psychology , microeconomics , economics , management , social psychology , finance , econometrics , corporate governance , philosophy , artificial intelligence , law , computer science , biology , paleontology , epistemology , political science , programming language , economic justice
We tested the organization‐level effects of manager pay‐for‐performance practices on nonmanagement employee turnover within the context of agency theory and equity theory—two frameworks commonly applied to understand compensation policy and practice. We also propose an alternative theoretical perspective that predicts that managerial pay‐for‐performance policies may strain the employment relationship and increase nonmanagement employee turnover, unless there are HR practices that train and incentivize managers to treat employees well. We compare these alternative models to establish how well each framework explains the observed effects. Agency theory and equity theory receive limited empirical support in our lagged panel data set of organizations, whereas broader empirical support is established for the strain effect of manager pay‐for‐performance on the employment relationship. We discuss the implications of our findings for compensation theory, research, and practice.