EMERALD_EBHRM_ebhrm158014 41..59

0 downloads 0 Views 130KB Size Report
Abstract. Purpose – The ongoing debate about the effects of bonuses on managers' performance and the role of reward systems in organizations has still not led ...
The current issue and full text archive of this journal is available at www.emeraldinsight.com/2049-3983.htm

The bonus as hygiene factor: the role of reward systems in the high performance organization Andre´ de Waal

The bonus as hygiene factor

41

Maastricht School of Management, Maastricht, The Netherlands, and

Paul Jansen Faculty of Economics & Business Administration, VU University, Amsterdam Abstract Purpose – The ongoing debate about the effects of bonuses on managers’ performance and the role of reward systems in organizations has still not led to a unanimous conclusion among academics and practitioners. Those in favor of bonuses state that applying bonuses and putting emphasis on monetary rewards increases productivity and organizational performance, while those against bonuses claim that use of bonuses and monetary rewards leads to counterproductive results. A key question often overlooked in the discussion is: How important is handing out bonuses for an organization to become and stay successful for a longer period of time? This paper seeks to address these issues. Design/methodology/approach – This paper describes the results of research into the characteristics of “high performance organizations” (HPOs) and the role of bonuses and reward systems in creating and maintaining HPOs. Findings – The research results show that use of bonuses or implementation of certain types of reward systems have neither a positive nor a negative effect on organizational performance. This may be explained by the fact that reward systems are a hygiene factor for an organization. If an organization does not have an appropriate reward system (whether or not including bonuses), it will run into trouble with its employees and have difficulty improving its performance. If it does – a situation which employees expect and consider to be normal – it can start working on becoming an HPO. Originality/value – The results of this study further the discussion about the role of bonuses. Keywords High performance organizations, Promotion and compensation, Work performance and productivity, Bonuses, Organizational performance Paper type Research paper

1. Introduction Ever since the financial scandals that rocked the business world and the worldwide financial crisis that followed, the debate on the effects of bonuses on the performance of especially managers and the role of reward systems in organizations has divided academics and practitioners alike (Sikula, 2001). The divergence of opinion among academics becomes clear when studying scientific research into bonuses and reward systems. On the one side are the proponents of bonuses who state that use of bonuses and emphasis on monetary rewards increases productivity and organizational performance. For instance, Yao (1997) studied the impact of profit sharing and bonus payment on the performance of Chinese state industries and concluded that over half of the value-added growth of these industries could be explained by bonus incentives. Further, Belfield and Marsden (2003) found, while studying the data of the 1998 Workplace Employee Relations Survey conducted in England, strong evidence that the use of performance related pay enhances performance outcomes, although this relationship is influenced by the structure of workplace monitoring environments.

Evidence-based HRM: A Global Forum for Empirical Scholarship Vol. 1 No. 1, 2013 pp. 41-59 r Emerald Group Publishing Limited 2049-3983 DOI 10.1108/20493981311318601

EBHRM 1,1

42

Hollowell (2005), looking at the relationship between high-incentive-based executive pay contracts and long-term firm performance found that organizations with a robust executive compensation structure exhibit commensurate superior long-term stock-price performance. In his view, his findings decide the question: “Is executive pay a function of performance or is executive performance a function of pay?” in favor of the latter. Finally, Lazear and Oyer (2009) recently provided an overview of research into the effect of incentives in organizations. Many of the studies reviewed by them showed that incentives can be a powerful managerial tool for affecting individuals’ behavior in a positive way. Specifically, productivity can be increased using incentives like piece rates. Yet, Lazear and Oyer (2009) also discussed studies that showed that even though incentives worked, in the sense that they had a positive effect on results, they did not always work consistently, or worked with prolonged effects and sometimes even had unintended and unwanted consequences like manipulation of results. On the other side are the opponents of bonuses and monetary rewards. For instance, Bloom (1999) showed that companies with higher pay inequality suffer from greater manager and employee turnover. He also found that major league baseball teams with larger gaps between the highest-paid and lowest-paid players lose more games; they score fewer runs and let in more runs than teams with more compressed pay distributions. It seems that the benefits to the high performers are outweighed by the costs to the low performers, who apparently feel unfairly treated and reduce their effort as a result. Also, Gneezy and Rustichini (2000) found that introducing new incentive schemes in which employees are offered monetary incentives could cause them to perform more poorly than those employees who were offered no compensation. Siegel and Hambrick (2005) showed that high-technology firms with greater pay inequality in their top management teams, because of the use of bonuses, have lower average market-to-book value and shareholder returns than firms with more equal management pay. Bruce et al. (2007), in their study of the relation between executive bonus and firm performance in UK firms, found that increased bonus scheme complexity tended to increase bonus pay-outs without an associated increase in shareholder returns. Some opponents looked at the relation between firm performance and bonuses. Tosi et al. (2000) found during a meta-analytical review of the empirical literature on the determinants of chief executive officer’s pay that firm performance accounted for o5 percent of pay variance. This finding was supported by Fattorusso et al. (2007) who found that the financial performance of UK firms showed no significant relation to the size of bonus pay. Duffhues and Kabir (2008) found the same result in regard to executive directors of Dutch-listed companies, and therefore challenged the conventional wisdom that executive pay helps to align shareholder interests with those of managers. Stone et al. (2010) plainly stated: financial incentive effects are unreliable. Finally, there are also studies with mixed results. One such example is Bonner et al. (2000) who found that the type of task being performed and the type of incentive scheme being employed affect the efficacy of financial incentives. Another is the study by Samuels and Whitecotton (2011) who found that the effects of incentives depend on contextual factors. In the polemic between proponents and opponents a key question regarding bonuses is often overlooked: How important is handing out bonuses for an organization to become and stay successful for a longer period of time? One way to obtain an answer to this question is by studying the results of research into the characteristics of “high-performance organizations” (HPOs). This research aimed at

identifying characteristics that explain the sustainable success of an organization (de Waal, 2012). This paper discusses the set-up and the results of this HPO research, and describes in more detail the findings in the field of reward systems and bonuses. The consequences of the research results for the role of reward systems in creating and maintaining HPOs are also discussed. Finally a conclusion, practical implications and limitations of the research are given. 2. The HPO research study The HPO research study (de Waal, 2006/2010, 2012) aimed to identify the determining factors that explain sustainable success of organizations. An HPO is defined as an organization that achieves financial and non-financial results that are better than those of its peer group over a period of time of at least five to ten years (de Waal, 2012). To identify the elements that make up an HPO, a two-phased study was undertaken. It started in phase 1 with a literature review that focussed on identifying characteristics of high performance and excellence that were subsequently tested in an empirical study in phase 2. 2.1 Phase 1: descriptive literature review The first phase, the descriptive literature review, consisted of selecting the studies on high performance and excellence that were to be included in the empirical study. Criteria for including studies in the research were that the study was aimed specifically at identifying HPO factors or best practices; consisted of either a survey with a sufficient large number of respondents so that its results could be assumed to be (fairly) generic, or of in-depth case studies of several companies so the results were at least valid for more than one organization; employed triangulation by using more than one research method (e.g. a questionnaire and interviews); and had written documentation containing an account and a justification of the research method, research approach and selection of the research population, an analysis of the research data, and traceable conclusions and results so that the quality of the research method could be assessed. The studies to be reviewed were collected by searching the databases of Business Source premier, Emerald and Science Direct, and by Google searches for the words high performance, excellence, financial performance, organizational results, high-performing organizations, high-performance managers, high-performance workforce, accountable organization, adaptive enterprise, agile corporation, agile virtual enterprise, democratic enterprise, flexible organization, high-performance work system, high-reliability organization, intelligent enterprise, real-time enterprise, resilient organization, responsive organization, robust organization and sustainable organization. In addition, business and management books were included in the review. The literature search yielded 290 studies which satisfied all or some of the four criteria. The studies were grouped into three categories: (A) studies which satisfied all four criteria. These studies formed the basis for the identification of the HPO characteristics. Category A comprised 105 studies. (B) Studies which satisfied Criteria 1 and 2 but not Criterion 3 and Criterion 4 only partly, because the research approach appeared thorough but no exact description and justification of the method used were given. These studies provided additional input for the identification of HPO characteristics. Category B comprised 66 studies. (C) Studies which satisfied Criteria 1 and 2 but not Criteria 3 and 4, so there was no basis for generalizing the study findings. These studies were used as a reference to support the HPO characteristics that were identified in categories A and B studies. Category C comprised 119 studies.

The bonus as hygiene factor

43

EBHRM 1,1

44

The identification process of the HPO characteristics consisted of a number of steps. First those items were extracted from each of the 290 publications that the authors regarded essential for high performance. Because authors used different terminologies in their publications, the items were grouped according to similarity and each group – later to be named “characteristic” – was given an appropriate description. To test the reliability of this classification procedure, this process was reviewed and repeated by an external academic for the first 90 studies and immediate agreement on the characteristics was 90 percent. The results of this independent review were extensively discussed until agreement on the categorization and the formulation of the characteristics was reached. A total of 189 characteristics were identified. After that, the “weighted importance” (i.e. the number of times a characteristic occurred in the studies; where studies in category A weighted more than those in category B, which in turn weighted more than studies in category C) was calculated for each characteristic. Finally, the characteristics with a weighted importance of at least 9 percent were considered to be the characteristics that potentially made up a HPO. A cut-off percentage 9 percent was chosen as there was a distinct gap around this percentage: several characteristics scored considerably below 9 percent while the next closest scoring characteristics scored considerably higher than 9 percent, namely 14 percent. The relatively low cut-off percentage of nine was also chosen because such a lower limit made testing many characteristics possible, which is important in exploratory research. The cut-off resulted in a list of 53 potential HPO characteristics. 2.2 Phase 2: empirical study Phase 2 of the HPO research consisted of an empirical study. The 53 potential HPO characteristics were included in a questionnaire that was administered during lectures and workshops for managers in Europe, North-America, Asia, Africa and SouthAmerica. Respondents were asked to grade how well their organization performed on the various HPO characteristics on a scale of 1 (very poor) to 10 (excellent) and also how the organizational results compared to those of their competitors/peer groups. Two types of competitive performance were distinguished (Matear et al., 2004): relative performance (RP) vs competitors: RP ¼ 1([RPTRPW]/[RPT]), in which RPT is the total number of competitors and RPW the number of competitors with worse performance; historic performance (HP) of the past five years (possible answers: worse, the same or better). These subjective measures of organizational performance are generally accepted indicators of real performance (Dawes, 1999; Devinney et al., 2005; Jing and Avery, 2008). All respondents were working, some of them taking classes on the side, and no selection was made according to sex or age. The questionnaire yielded in total 2,015 valid responses from 1,470 organizations. In the first step of the statistical analysis a principal component analysis with oblimin rotation was performed. This yielded 40 characteristics with a loading higher than 0.300, in six factors. These were then put in a non parametric Mann-Whitney test which resulted in 35 characteristics in five factors that showed a statistically significant correlation with competitive performance. The factor scales showed acceptable reliability (Hair et al., 1998) with Cronbach’s a values close to or above 0.60. As the data set contained responses from approximately 50 countries, 15 industries (profit, non-profit and government), and different types of organizations (small, large, family-owned, quoted on the stock market) the statistical analysis was repeated for all these sub-sets, with the same outcome of 35 characteristics. In Appendix 1 the results of this statistical analysis can be found.

2.3 Results of the empirical study Many different definitions of HPOs can be found in the literature. They are often described in the sense of what they have achieved or consist of: strong financial results, satisfied customers and employees, high levels of individual initiative, productivity and innovation, aligned performance measurement and reward systems and strong leadership (Collins and Porras, 1994; Brown and Eisenhardt, 1998; Hodgetts, 1998; Mische, 2001; Zook and Allen, 2001; Annunzio, 2004; Bruch and Ghoshal, 2004). As stated above, researchers approach the topic of high performance from different backgrounds and angles and with different goals. It is therefore not surprising that there is not a univocal definition of an HPO available yet. In this study, the definitions found in the category A studies were combined to arrive at the following definition: a HPO is an organization that achieves financial and non-financial results that are better than those of its peer group over a period of time of at least five to ten years. The study results showed there was a direct relation between the HPO factors and competitive performance. Organizations which paid more attention to HPO factors and scored high on these consistently achieved better results than their peers, in every industry, sector and country in the world. Conversely, organizations which scored low on HPO factors ranked performance-wise at the bottom of their industry. The five HPO factors are described underneath. The detailed characteristics can be found in Appendix 2. 2.3.1 HPO factor “management quality”. In an HPO, management maintains trust relationships with people on all organizational levels by valuing employees’ loyalty, treating smart people with respect, creating and maintaining individual relationships with employees, encouraging belief and trust in others, and treating people fairly. Managers at an HPO work with integrity and are a role model by being honest and sincere, showing commitment, enthusiasm and respect, having a strong set of ethics and standards, being credible and consistent, maintaining a sense of vulnerability and by not being self-complacent. They apply decisive, action-focussed decision making by avoiding over-analysis but instead coming up with decisions and effective actions, while at the same time fostering action taking by others. HPO managers coach and facilitate employees to achieve better results by being supportive, helping them, protecting them from outside interference and by being available. Management holds people responsible for results and is decisive about nonperformers by always focussing on the achievement of results, maintaining clear accountability for performance and making tough decisions. Managers at an HPO develop an effective, confident and strong management style by communicating the values and by making sure the strategy is known to and embraced by all organizational members. 2.3.2 HPO factor “openness and action orientation”. Apart from having an open culture, an HPO uses the organization’s openness to achieve results. In an HPO, management values the opinion of employees by frequently seeking a dialogue with them and involving them in all important business and organizational processes. HPO management allows experiments and mistakes by permitting employees to take risks, being prepared to take risks themselves and seeing mistakes as an opportunity to learn. In this respect, management welcomes and stimulates change by continuously striving for renewal, developing dynamic managerial capabilities to enhance flexibility and being personally involved in change activities. People in an HPO spend a lot of time on dialogue, knowledge exchange and learning in order to obtain new ideas to improve their work and make the complete organization performance-driven.

The bonus as hygiene factor

45

EBHRM 1,1

46

2.3.3 HPO factor “long-term orientation”. In an HPO, long-term is far more important than short-term gain. This long-term orientation is extended to all stakeholders of the organization, that is shareholders as well as employees, suppliers, clients and society at large. An HPO continuously strives to enhance customer value creation by learning what customers want, understanding their values, building excellent relationships and having direct contact with them, involving them in the organization’s affairs, being responsive to them and focussing on continuously enhancing customer value. An HPO maintains good long-term relationships with all stakeholders by networking broadly, taking an interest in and giving back to society, and creating mutual, beneficial opportunities and win-win relationships. An HPO also grows through partnerships with suppliers and customers, thereby turning the organization into an international network corporation. Management of an HPO is committed to the organization for the long haul by balancing common purpose with self-interest, and teaching organizational members to put the needs of the enterprise as a whole first. They grow new management from the own ranks by encouraging staff to become leaders, filling positions with internal talent and promoting from within. An HPO creates a safe and secure workplace by giving people a sense of safety (physical and mental) and job security and by not immediately laying off people (dismissal is a last resort). 2.3.4 HPO factor “continuous improvement”. The process of continuous improvement starts with an HPO adopting a strategy that will set the company apart by developing many new alternatives to compensate for dying strategies. After that, an HPO will do everything in its power to fulfil this unique strategy. It continuously simplifies, improves and aligns all its processes to improve its ability to respond to events efficiently and effectively and to eliminate unnecessary procedures, work and information overload. The organization also measures and reports everything that matters, so it measures progress, monitors goal fulfilment and confronts the brutal facts. It reports these facts not only to management but to everyone in the organization so that all organizational members have the financial and non-financial information needed to drive improvement at their disposal. People in an HPO feel a moral obligation to continuously strive for the best results. The organization continuously innovates products, processes and services, constantly creating new sources of competitive advantage by rapidly developing new products and services to respond to market changes. It also masters its core competencies and is an innovator in them by deciding and sticking to what the company does best, keeping core competencies inside the firm and outsourcing non-core competencies. 2.3.5 HPO factor “workforce quality”. An HPO makes sure it assembles a diverse and complementary workforce and recruits people with maximum flexibility to help detect problems in business processes and to incite creativity in solving them. An HPO continuously works on the development of its workforce by training staff to be both resilient and flexible, letting them learn from others by going into partnerships with suppliers and customers, inspiring them to work on their skills so they can accomplish extraordinary results and holding them responsible for their performance so they will be creative in looking for new productive ways to achieve the desired results. 3. Results with respect to bonuses and reward systems In 55 of the 290 studies reviewed in phase 1, elements in relation to bonuses and reward systems could be identified. This meant that in nineteen percent of the sources bonuses and reward systems were found to be potentially important in creating and sustaining

an HPO. The HPO research yielded 12 potential HPO characteristics with respect to bonuses and reward systems: (1)

A fair reward and incentive structure: in a worldwide study into the correlation between employee attitudes and financial success, Maister (2001) found that these employee attitudes are positively influenced by reward systems that pay out a fair compensation. In research of Taiwanese highperforming organizations, Huang (2000) concluded that these perform better than low-performing organizations among others because they stress internal equity when designing their compensation systems. Corby and White (2003) discovered, while researching the introduction of performance pay in England’s National Health Service, that the new reward system in theory was viewed favorably but that there was a big fear that the system would not be used fairly and equitably and therefore would be ineffective. Underwood (2004) found that good performing international companies used reward systems that value their employees. Sirota et al. (2005) in their research of what motivates employees to excel, discovered that equity was very important to them: to be treated justly in relation to the basic conditions of employment and having a sense of elemental fairness in the way they are treated, which could be achieved by for employees satisfactory compensation and fringe benefits. Holbeche (2005) called this “a fair employee deal” which is important for creating the impression of a fair compensation system among employees, as Prinsloo et al. (2007) also found. Burney et al. (2009) found that tying the reward structure directly to a strategic performance measurement system increases the feeling of fairness employees have toward the reward system.

(2)

Reward systems that reinforce core values and strategy: Montemayor (1996) found that American high-performing firms although they used many different types of pay policies, yet these policies always were congruent with their strategy, while inferior firm performance was associated with the lack of fit between pay policy and business strategy. Lewis (2000) discovered the same during his research at a bank. Lawler (2003) stated in his overview of HRM practices of companies that the best organizations devised and implemented reward systems that reinforced their core values and strategies.

(3)

Pay and incentives linked to long-term performance: in a literature review into characteristics of high-performing organizations, Kling (1995) found that linking employee pay and incentives to long-term performance of the organization had a positive relationship with productivity. Weller and Reidenbach (2011) argue that, in the light of the recent recession and ponderous economic recovery, a better balance in the incentives for short-run and long-run performance has to be achieved as currently corporate managers have stronger incentives to pursue short-term profit-seeking activities than to invest in longer-term productive activities This is also an issue in the public sector as Bebchuk and Fried (2010) state.

(4)

Rewards based on RP: one of the key components of the beyond budgeting concept is rewarding success based on RP vs competitors, as Hope and Fraser (2003) state. Another form of RP is discussed by Guojin et al. (2011), which is peer performance within an organization, in which incentives are paid out

The bonus as hygiene factor

47

EBHRM 1,1

after a comparison of an individual’s performance with that of his peers in the same function. Matsumura and Shin (2006) found that financial performance improved following the implementation of an incentive plan that includes RP measures. (5)

Group compensation: Hammer (2001), while reviewing emerging business concepts developed by best companies to deal with the increasingly turbulent environment, found that these organizations employed reward systems that emphasized group performance over individual performance. In his research into productive companies, Jennings (2002) assumed that the pay plans of the companies were the reason they achieved high productivity. Instead he found that these pay plans, which were based on group productivitybased compensation, drove and reinforced the culture that in turn increased productivity. The same was found by Guthrie (2001) for New Zealand organizations. Pizzini (2010) found that productive benefits induced by group incentives used in medical partnerships offset reductions in output associated with free-riding and efforts devoted to monitoring.

(6)

Creative and flexible rewards: in their study of companies which dealt successfully with creative destruction in the marketplace, Foster and Kaplan (2001) found that these companies used reward structures that reflected and increased the freedom these organizations needed to deal with flexibility in the market. Tuominen et al. (2004) found that the higher the level of adaptability of a firm the higher the level of environmental complexity that can be handled by that firm and the better the chances of its long-term survival, and an integral part of that adaptability was a flexible reward structure. Smith et al. (2005) mentioned that high-performing organizations have a wider repertoire of approaches toward reward management than lowperforming organizations.

(7)

Pay-for-performance: Bae and Lawler (2000) found that Korean organizations that used a high-involvement HRM strategy achieved better results than those that did not, and that performance-based pay was an integral part of that HRM strategy. The same results were found by Challis et al. (2005) and Knight-Turvey (2005) for Australian companies, de Kok and den Hartog (2006) for Dutch small- and medium-sized companies, Chang (2006) for South Korean firms and Origo (2009) for Italian metalworking firms. Joyce et al. (2003) identified that successful US companies used eight management practices, among which pay-for-performance systems. This finding was similar to that of Martel (2002) in a study of some of American best companies.

(8)

Emphasis on intrinsic rewards (fun, growth, teamwork, challenge, accomplishment): Katzenbach (2000) and O’Reilly and Pfeffer (2000) found in their studies of successful and well-known American companies that these constrained monetary rewards in favor of more meaningful intrinsic rewards. Annunzio (2004) discovered that organizations which employed many employees specifically used non-financial recognition for group performance to motivate people. In their study of family controlled businesses, Miller and Le Breton-Miller (2005) found that high-performing businesses put more emphasis on using intrinsic incentives than low-performing family controlled

48

businesses did. Prendergast (2008) even stated that it might be better for organizations to, instead of using monetary incentives, match the intrinsic motivations of employees with the tasks they need to do and as such emphasize the intrinsic nature and reward of the job itself. (9)

Employee stock as incentive: Guthrie (2001) in a study of New Zealand businesses which used high-involvement work practice found that rewarding employees with stock was used as an incentive instrument. The same was discovered by Knight-Turvey (2005) among successful Australian companies, and by Chen (2007) for Taiwanese companies. The research results in Taiwan were confirmed in a later study performed by Lin et al. (2010).

(10)

A minimum threshold for incentive pay and no cap on pay-outs of incentives: Zhou and Swan (2003) found that using bonus thresholds in executive compensation contracts is efficient in the sense that it mitigates agency cost. Hewitt (2004) discovered, in a study of high-growth high-profitable organizations, that these companies installed reward systems which had a minimum threshold below which no incentive was paid and at the same time had no cap on pay-outs either. Kelley and Hounsell (2007) identified that using a gain-sharing program without cap resulted in considerably increased profitability at the distribution warehouses where this scheme was used. Sohoni et al. (2011) found, in an experiment at dealerships, that using bonus thresholds reduced sales variance and increased sales performance.

(11)

Skill-based pay: Lawler et al. (1998) in their studies of Fortune 1,000 corporations discovered they designed their reward systems in such a way that they supported employees in strengthening their skills so they can take on more decision-making responsibility. Challis et al. (2005) and Knight-Turvey (2005) both found that well-performing Australian companies rewarded their employees for knowledge and skill development, which was also found by Guthrie (2001) for New Zealand organizations. Dierdorff and Surface (2008) found that skill-based pay had a positive influence on the rate of learning of employees. It has to be noted that Giancola (2009) remarked that in recent years skill-based pay is increasingly replaced by competency-based pay.

(12)

Rewards for results, not efforts or seniority: Quinn et al. (2000) concluded that for a company to become a responsive organization it among others has to install incentive systems that reward for performance and not for effort. Guthrie (2001) in a study of New Zealand businesses which used high-involvement work practice found that they specifically rewarded employees for their results, not for their seniority in the company. The same result was found by Knight-Turvey (2005) among successful Australian companies, and also by Goldsmith and Clutterbuck (1997) in a review of the world’s most admired companies. van der Berg and de Vries (2004), in their study of Dutch high-performing organizations, stated that these companies used incentive systems that specifically rewarded employees for their performance and punished them for poor results. Sirota et al. (2005), in their research of what motivates employees to excel, found that highperforming employees take pride in their accomplishments by doing things that matter and doing them well and then receiving the (financial) recognition for these accomplishments.

The bonus as hygiene factor

49

EBHRM 1,1

50

Although most pay-related HPO characteristics may be considered to be fairly independent from each other (e.g. 1, 3, 4, 5), some may be correlated positively (e.g. 1 and 2) or negatively (e.g. 8 and 9, 7 and 11 or 7 and 12). This suggests that there is not one systematic way to construct a reward system suitable for an HPO but that there could be many different types of reward systems that potentially lead to high performance. For the 12 characteristics the weighted importance was calculated and it became apparent that only one characteristic surpassed the threshold of the weighted importance of 9 percent: A fair reward and incentive structure. This was because the other 11 characteristics were not mentioned enough in Category A studies to surpass the 9 percent threshold. This means that previous researchers did not find enough evidence that characteristics with regard to bonuses and reward management play a major consistent role in creating and maintaining HPOs. Further, during the empirical study in phase 2, the remaining characteristic A fair reward and incentive structure did not show a significant correlation with competitive performance, which means that this characteristic in the end also was not related to organizational performance. This leads to the conclusion that bonuses and reward systems are not distinguishing factors for creating and sustaining HPOs. Thus, well-performing organizations are as likely to use bonuses or certain types of reward systems as they are not. Using bonuses will therefore not help nor hurt organizations in achieving sustained high performance. In the following section we discuss possible explanations for this research result. 4. Discussion How can the research result that bonuses and reward systems do not show a significant correlation with organizational performance be explained, especially in the light of the continuing interest in bonuses and reward systems? One explanation could be the very nature of the debate discussed in the introductionary section. In the field of reward management it seems that for every proponent there is an opponent, which means that for the 12 potential HPO characteristics discussed in the previous section there is also proof of the contrary. For instance, for the characteristic pay-forperformance Werner et al. (2011) compared the results of hospitals which used this payment scheme with those of hospitals without pay-for-performance and found that while performance initially improved in hospitals with pay-for-performance, after five years results in both types of hospitals were the same again This result was supported by the research of Mullen et al. (2010) in the same domain of hospitals. Weibel et al. (2010) explained the limited success of pay-for-performance in public sector organizations by stating that pay for performance is generally more costly than it first appears because it almost always produces hidden costs of rewards. In regard to the characteristic emphasize intrinsic rewards Mahaney and Lederer (2006), in their research of failures of information system implementations, stressed that there should not be an emphasis on one type of incentives but that there should be a reward system based on a combination of intrinsic and extrinsic incentives. For the characteristic rewards for results, not efforts or seniority Fischer (2008) actually found that economically successful organizations used seniority when making decisions about pay raises. When looking at the characteristic skill-based pay, Giancola (2009) categorically stated that this type of incentive scheme has failed because it did not improve results. All in all, we deduce that there is no theoretical and empirical consensus among academics about pay systems and long-term success, a conclusion which is also reached by Rynes et al. (2005, p. 590) in their meta-analysis of the pay-forperformance literature: “Every pay program has its advantages and disadvantages.

Programs differ in their sorting and incentive effects, their incentive intensity and risk, their use of behaviors versus results, and their emphasis on individual versus group measures of performance. Because of the limitations of any single pay program, organizations often elect to use a portfolio of programs, which may provide a means of reducing the risks of particular pay strategies while garnering most of their benefit.” Another explanation for the finding that bonuses and type of reward systems do not significantly correlate with performance could be that the reward system is simply a hygiene factor (LaBelle, 2005). The organization needs to have an appropriate reward system, (whether or not bonuses are included) which is considered to be fair and equitable. However, a reward system is not a distinctive characteristic with respect to superior performance. If a reward system is not in place, the organization will run into trouble and opposition with its employees, and becoming an HPO will then be virtually impossible. If such a system is in place – and it does not seem to really matter what type of reward system as long as it is appropriate for the organization in question – employees will consider it normal and will be content, so the organization can start thinking of turning itself into an HPO. The hygiene factor originates from the satisfaction theory of Herzberg (1987), which states that performing well on these hygiene factors does not necessarily lead to high performance, while performing badly will lead to demotivation and dissatisfaction. Therefore, Herzberg also referred to hygiene factors as demotivators or dissatisfiers. Thus, the reward system and bonuses can be seen as a form of dissatisfiers: if they are not in place, people will certainly not be motivated to excel. If reward systems and bonuses are considered to be hygiene factors, then organizations should make sure these factors do not cause any dissatisfaction among employees and with that hamper the organization in making the transition to HPO ( Jindal-Snape and Snape, 2006). 5. Conclusion, limitations and further research The literature review described in this paper showed that there are 12 characteristics, found in research studies into HPO, that have a bearing on the type of bonuses and reward systems that organizations can apply to achieve high performance. However, 11 of these 12 characteristics seem to have a minor role compared to other characteristics found in the literature review (which relate, among others, to organizational structure, quality of management, quality of workforce, information technology and communication) and did not make the cut into the empirical study. In the empirical study, the remaining characteristic A fair reward and incentive structure did not show a significant relation with organizational performance. The conclusion therefore is that using bonuses or implementing certain types of reward systems does not have a positive nor a negative effect on organizational performance. A possible explanation for this result is that reward systems are a hygiene factor for an organization. If the organization does not have an appropriate reward system, with or without bonuses, it will run into trouble with its employees. If it does, which employees expect and consider as normal, it can start working on improving its performance. This research result puts the ongoing debate on the use of bonuses and reward systems to improve the results of organizations in a different light. Putting a lot of effort in introducing bonuses or a certain type of reward system and then expecting the organization to improve its results and maybe become an HPO, is unrealistic. The reward system is not a determining factor for high performance. However, there may be other arguments for designing a reward system. For instance, an organization should not differ too much from other organizations in its sector

The bonus as hygiene factor

51

EBHRM 1,1

52

(Dimaggio and Powell, 1991) or, for equity reasons, internal pay dispersion should not be too large. The practical implication of this study is that organizations should not spend a great deal of time on designing and implementing elaborate and sophisticated reward systems to improve performance. They just have to make sure an appropriate reward system is installed that is considered to be fair and equitable by employees. This creates a good foundation for building an HPO. There are several limitations to this study. Despite the fact that the literature search was extensive, potentially valuable studies may not have been included. In this respect, it should also be noted that predominantly published studies were taken into account, which created a potential bias as unpublished studies may contain different outcomes (Ashworth et al., 1992). Another potential bias is the presence of subjectivity in the choice of literature sources that were included in the study (Ashworth et al., 1992). This problem has been alleviated by including literature from many different disciplines during the selection process. As common in questionnairebased research and self-reported scores, there is the possibility of attribution. Is it possible that the respondents reporting high performance and those reporting low performance make implicit attributions of characteristics, and in fact, causation. The studies used in the descriptive literature review, by definition, looked at what organizations did in the past and the results are therefore not necessarily valid for a dynamic future (Morton, 2003). References Annunzio, S.L. (2004), Contagious Success. Spreading High Performance Throughout Your Organization, Portfolio Penguin Books, London. Ashworth, S.D., Osburn, H.O., Callender, J.C. and Boyle, K.A. (1992), “The effects of unrepresented studies on the robustness of validity generalization results”, Personnel Psychology, Vol. 45, No. 2, pp. 341-360. Bae, J. and Lawler, J.J. (2000), “Organizational and HRM strategies in Korea: impact on firm performance in an emerging economy”, Academy of Management Journal, Vol. 43 No. 3, pp. 502-517. Bebchuk, L.A. and Fried, J.M. (2010), “Paying for long-term performance”, University of Pennsylvania Law Review, Vol. 158 No. 7, pp. 1915-1959. Belfield, R. and Marsden, D. (2003), “Performance pay, monitoring environments, and establishment performance”, International Journal of Manpower, Vol. 24 No. 4, pp. 452-471. Bloom, M. (1999), “The performance effects of pay dispersion on individuals and organizations”, Academy of Management Journal, Vol. 42 No. 1, pp. 25-40. Bonner, S.E., Hastie, R., Sprinkle, G.B. and Young, S.M. (2000), “A review of the effects of financial incentives on performance in laboratory tasks: implications for management accounting”, Journal of Management Accounting Research, Vol. 12, pp. 19-64. Brown, S.L. and Eisenhardt, K.M. (1998), Competing on the Edge. Strategy as Structured Chaos, Harvard Business School Press, Boston, MA. Bruce, A., Skovoroda, R., Fattorusso, J. and Buck, T. (2007), “Executive bonus and firm performance in the UK”, Long Range Planning, Vol. 40 No. 3, pp. 280-294. Bruch, H. and Ghoshal, S. (2004), A Bias for Action. How Effective Managers Harness Their Willpower, Achieve Results, and Stop Wasting Time, Harvard Business School Press, Boston, MA. Burney, L.L., Henle, C. and Widener, S.K. (2009), “A path model examining the relations among strategic performance measurement system characteristics, organizational justice, and extraand in-role performance”, Accounting, Organizations and Society, Vol. 34 Nos 3/4, pp. 305-321.

Challis, D., Samson, D. and Lawson, B. (2005), “Impact of technological, organizational and human resource investments on employee and manufacturing performance: Australian and New Zealand evidence”, International Journal of Production Research, Vol. 43 No. 1, pp. 81-107. Chang, E. (2006), “Individual pay for performance and commitment HR practices in South Korea”, Journal of World Business, Vol. 41 No. 4, pp. 68-381. Chen, M.L. (2007), “Incentive and dilution effects of employee stock bonuses and stock options: evidence from Taiwan”, Journal of Chinese Economic & Business Studies, Vol. 5 No. 1, pp. 65-73. Collins, J.C. and Porras, J.I. (1994), Built to Last. Successful Habits of Visionary Companies, Harper Business, New York, NY. Corby, S. and White, G. (2003), “Finding a cure? Pay in England’s national health service”, Employee Relations, Vol. 25 No. 5, pp. 502-516. Dawes, J. (1999), “The relationship between subjective and objective company performance measures in market orientation research: further empirical evidence”, Marketing Bulletin, Vol. 10, pp. 65-76. Devinney, T.M., Richard, P.J., Yip, G.S. and Johnson, G. (2005), “Measuring organizational performance in management research: a synthesis of measurement challenges and approaches”, research paper, available at: www.aimresearch.org (accessed February 14, 2008). Dierdorff, E.C. and Surface, E.A. (2008), “If you pay for skills, will they learn? Skill change and maintenance under a skill-based pay system”, Journal of Management, Vol. 34 No. 4, pp. 721-743. Dimaggio, P.J. and Powell, W.W. (Eds) (1991), The New Institutionalism in Organizational Analysis, University of Chicago Press, Chicago, IL. Duffhues, P. and Kabir, R. (2008), “Is the pay-performance relationship always positive? Evidence from the Netherlands”, Journal of Multinational Financial Management, Vol. 18 No. 1, pp. 45-60. de Kok, J. and den Hartog, D. (2006), “High performance work systems, performance and innovativeness in small firms”, SCALES Paper Series N200520, available at: http:// ideas.repec.org/p/eim/papers/n200520.html de Waal, A.A. (2006/2010), “The characteristics of a high performance organization”, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id¼931873 (accessed October 13, 2011). de Waal, A.A. (2012), “Characteristics of high performance organisations”, Business Management and Strategy, Vol. 3 No. 1, pp. 14-31. Fattorusso, J., Skovoroda, R., Buck, T. and Bruce, A. (2007), “UK executive bonuses and transparency – a research note”, British Journal of Industrial Relations, Vol. 45 No. 3, pp. 518-536. Fischer, R. (2008), “Rewarding seniority: exploring cultural and organizational predictors of seniority allocations”, Journal of Social Psychology, Vol. 148 No. 2, pp. 167-186. Foster, R. and Kaplan, S. (2001), Creative Destruction. Why Companies That are Built to Last Underperform the Market – And How to Successfully Transform Them, Doubleday, New York, NY. Giancola, F.L. (2009), “A framework for understanding new concepts in compensation management”, Benefits & Compensation Digest, Vol. 46 No. 9, pp. 1-16. Gneezy, U. and Rustichini, A. (2000), “Pay enough or don’t pay at all”, Quarterly Journal of Economics, Vol. 115 No. 3, pp. 791-810. Goldsmith, W. and Clutterbuck, D. (1997), The Winning Streak Mark II. How the World’s Most Successful Companies Stay on Top Through Today’s Turbulent Times, Orion Business Books, London.

The bonus as hygiene factor

53

EBHRM 1,1

54

Guojin, G., Li, L.Y. and Shin, J.Y. (2011), “Relative performance evaluation and related peer groups in executive compensation contracts”, Accounting Review, Vol. 86 No. 3, pp. 1007-1043. Guthrie, J.P. (2001), “High-involvement work practices, turnover, and productivity: evidence from New Zealand”, Academy of Management Journal, Vol. 44 No. 1, pp. 180-190. Hair, J.F., Anderson, R.E., Tatham R.L. and Black, W.C. (1998), Multivariate Data Analysis, Prentice-Hall, New Jersey, NJ. Hammer, M. (2001), The Agenda. What Every Business Must Do To Dominate the Decade, Random House, London. Herzberg, F. (1987), “One more time: how do you motivate employees?”, Harvard Business Review, Vol. 65 No. 5, pp. 109-120. Hewitt (2004), “Building the management and organizational disciplines to grow”, Research report, Hewitt Associates LLC, Lincolnshire, IL. Hodgetts, R.M. (1998), Measures of Quality & High Performance. Simple Tools and Lessons Learned from America’s Most Successful Corporations, Amacom, New York, NY. Holbeche, L. (2005), The High Performance Organization. Creating Dynamic Stability and Sustainable Success, Elsevier Butterworth Heinemann, Oxford. Hollowell, B. (2005), “An empirical examination of executive compensation”, Bank Accounting & Finance, Vol. 18 No. 1, pp. 45-47. Hope, J. and Fraser, R. (2003), Beyond Budgeting, Harvard Business Press, Boston, MA. Huang, T.C. (2000), “Are the human resource practices of effective firms distinctly different from those of poorly performing ones? Evidence from Taiwanese enterprises”, International Journal of Human Resource Management, Vol. 11 No. 2, pp. 436-451. Jennings, J. (2002), Less Is More. How Great Companies Improve Productivity Without Layoffs, Portfolio, New York, NY. Jindal-Snape, D. and Snape, J.B. (2006), “Motivation of scientists in a government research institute scientists’ perceptions and the role of management”, Management Decision, Vol. 44 No. 10, pp. 1325-1343. Jing, F.F. and Avery, G.C. (2008), “Missing links in understanding the relationship between leadership and organizational performance”, International Business & Economics Research Journal, Vol. 7 No. 5, pp. 67-78. Joyce, W., Nohria, N. and Roberson, B. (2003), What (Really) Works, the 4 þ 2 Formula for Sustained Business Success, HarperBusiness, New York, NY. Katzenbach, J.R. (2000), Peak Performance. Aligning the Hearts and Minds of Your Employees, Harvard Business School Press, Boston, MA. Kelley, P. and Hounsell, R.W. (2007), “Engaging associates and unleashing productivity: the case for simplified gain sharing”, Performance Improvement, Vol. 46 No. 2, pp. 30-34. Kling, J. (1995), “High performance work systems and firm performance”, Monthly Labour Review, Vol. 118 No. 5, pp. 29-36. Knight-Turvey, N. (2005), “High commitment management and organizational performance in Australia: a longitudinal investigation”, Paper British Academy of Management Conference 2005, Oxford, September. LaBelle, J.E. (2005), “The paradox of safety hopes & rewards”, Professional Safety, Vol. 50 No. 12, pp. 37-42. Lawler, E.E. III (2003), Treat People Right! How Organizations and Employees Can Create a Win/ Win Relationship to Achieve High Performance at All Levels, Jossey-Bass Publishers, San Francisco, CA. Lawler, E.E. III, Mohrman, S.A. and Ledford, G.E. Jr (1998), Strategies for High Performance Organizations – The CEO Report, Jossey-Bass Publishers, San Francisco, CA.

Lazear, E.P. and Oyer, P. (2009), “Personnel economics”, in Gibbons, R. and Roberts, J. (Eds), Handbook of Organizational Economics, Princeton University Press, Princeton, NJ, pp. 479-519. Lewis, P. (2000), “Exploring Lawler’s new pay theory through the case of Finbank’s strategy for managers”, Personnel Review, Vol. 29 Nos 1/2, pp. 10-28. Lin, W.H., Ko, P.S., Chien, H.F. and Lee, W.C. (2010), “An empirical study on issues in Taiwanese employee reward plans”, Review of Pacific Basin Financial Markets & Policies, Vol. 13 No. 1, pp. 45-69. Mahaney, R.C. and Lederer, A.L. (2006), “The effect of intrinsic and extrinsic rewards for developers on information systems project success”, Project Management Journal, Vol. 37 No. 4, pp. 42-54. Maister, D.H. (2001), Practice What You Preach. What Managers Must Do To Create a High Achievement Culture, Free Press, New York, NY. Milgrom, P. and Roberts, J. (1990), “The economics of modern manufacturing: technology, strategy, and organization”, American Economic Review, Vol. 80 No. 3, pp. 511-528. Milgrom, P. and Roberts, J. (1995), “Complementaries and fit: strategy, structure, and organizational change in manufacturing”, Journal of Accounting and Economics, Vol. 19 Nos 2-3, pp. 179-208. Martel, L. (2002), High Performers. How the Best Companies Find and Keep Them, Jossey-Bass Publishers, San Francisco, CA. Matear, S., Gray, B.J. and Garrett, T. (2004), “Market orientation, brand investment, new service development, market position and performance for service organisations”, International Journal of Service Industry Management, Vol. 15 No. 3, pp. 284-301. Matsumura, E.M. and Shin, J.Y. (2006), “An empirical analysis of an incentive plan with relative performance measures: evidence from a postal service”, Accounting Review, Vol. 81 No. 3, pp. 533-566. Miller, D. and Le Breton-Miller, I. (2005), Managing for the Long Run. Lessons in Competitive Advantage from Great Family Businesses, Harvard Business School Press, Boston, MA. Mische, M.A. (2001), Strategic Renewal. Becoming a High-Performance Organisation, Prentice Hall, Upper Saddle River, NJ. Montemayor, E.F. (1996), “Congruence between pay policy and competitive strategy in highperforming firms”, Journal of Management, Vol. 22 No. 6, pp. 889-908. Morton, C. (2003), By the Skin of Our Teeth. Creating Sustainable Organizations Through People, Middlesex University Press, London. Mullen, K.J., Frank, R.G. and Rosenthal, M.B. (2010), “Can you get what you pay for? Pay-forperformance and the quality of healthcare providers”, RAND Journal of Economics, Vol. 41 No. 1, pp. 64-91. O’Reilly, C.A. III and Pfeffer, J. (2000), Hidden Value. How Great Companies Achieve Extraordinary Results with Ordinary People, Harvard Business School Press, Boston, MA. Origo, F. (2009), “Flexible pay, firm performance and the role of unions. New evidence from Italy”, Labour Economics, Vol. 16 No. 1, pp. 64-78. Pizzini, M. (2010), “Group-based compensation in professional service firms: an empirical analysis of medical group practices”, Accounting Review, Vol. 85 No. 1, pp. 343-380. Prendergast, C. (2008), “Intrinsic motivation and incentives”, American Economic Review, Vol. 98 No. 2, pp. 201-205. Prinsloo, M., Ba¨ckstro¨m, L. and Salehi-Sangari, E. (2007), “The impact of incentives on interfunctional relationship quality: views from a South African firm”, Total Quality Management, Vol. 18 No. 8, pp. 901-913.

The bonus as hygiene factor

55

EBHRM 1,1

56

Quinn, R.E., O’Neill, R.M. and St Clair, L. (Eds) (2000), Pressing Problems in Modern Organizations (That Keep Us Up At Night). Transforming Agendas for Research and Practice, Amacom, New York, NY. Rynes, S.L., Gerhart, B. and Parks, L. (2005), “Personnel psychology: performance evaluation and pay for performance”, Annual Review of Psychology, Vol. 56 No. 1, pp. 571-600. Samuels, J.A. and Whitecotton, S.M. (2011), “An effort based analysis of the paradoxical effects of incentives on decision-aided performance”, Journal of Behavioral Decision Making, Vol. 24 No. 4, pp. 345-360. Siegel, P.A. and Hambrick, D.C. (2005), “Pay disparities within top management groups: evidence of harmful effects on performance of high-technology firms”, Organization Science, Vol. 16 No. 3, pp. 259-274. Sikula, A. Sr (2001), “The five biggest HRM lies”, Public Personnel Management, Vol. 30 No. 3, pp. 419-428. Sirota, D., Mischkind, L.A. and Meltzer, M.I. (2005), The Enthusiastic Employee. How Companies Profit by Giving Workers What They Want, Wharton School Publishing, Upper Saddle River, NJ. Smith, P., Tyson, S. and Brough, S. (2005), “HP policies in high performing organizations: UK evidence and a critique of the RBV”, paper presented at the British Academy of Management Conference 2005, Oxford. Sohoni, M.G., Chopra, S., Mohan, U. and Sendil, N. (2011), “Threshold incentives and sales variance”, Production & Operations Management, Vol. 20 No. 4, pp. 571-586. Stone, D.N., Bryant, S.M. and Wier, B. (2010), “Why are financial incentive effects unreliable? An extension of self-determination theory”, Behavioral Research in Accounting, Vol. 22 No. 2, pp. 105-132. Tosi, H., Werner, S., Katz, J. and Gomez-Mejia, L. (2000), “How much does performance matter? A meta-analysis of CEO pay studies”, Journal of Management, Vol. 26 No. 2, pp. 301-339. Tuominen, M., Rajala, A. and Mo¨ller, K. (2004), “How does adaptability drive firm innovativeness”, Journal of Business Research, Vol. 57 No. 5, pp. 495-506. Underwood, J. (2004), What’s Your Corporate IQ?, Dearborn Trade Publishing, Chicago, IL. van der Berg, C. and de Vries, R. (2004), High Performing Organizations, Wolters-Noordhoff, Groningen. Weibel, A., Rost, K. and Osterloh, M. (2010), “Pay for performance in the public sector – benefits and (hidden) costs”, Journal of Public Administration Research & Theory, Vol. 20 No. 2, pp. 387-412. Weller, C. and Reidenbach, L. (2011), “On uneven ground”, Challenge, 5, Vol. 4 No. 3, pp. 5-37. Werner, R.M., Kolstad, J.T., Stuart, E.A. and Polsky, D. (2011), “The effect of pay-for-performance in hospitals: lessons for quality improvement”, Health Affairs, Vol. 30 No. 4, pp. 690-698. Yao, S. (1997), “Profit sharing, bonus payment, and productivity: a case study of Chinese stateowned enterprises”, Journal of Comparative Economics, Vol. 24 No. 3, pp. 281-296. Zhou, X. and Swan, P.L. (2003), “Performance thresholds in managerial incentive contracts”, Journal of Business, Vol. 76 No. 4, pp. 665-696. Zook, C. and Allen, J. (2001), Profit from the Core. Growth Strategy in an Era of Turbulence, Harvard Business Press, Boston, MA. Further reading de Waal, A.A. (2008), “The secret of high performance organizations”, Management Online Review, April, available at: www.morexpertise.com/download.php?id¼88 (accessed December 30, 2010).

Appendix 1. Results of the statistical analysis In order to verify whether the potential HPO factors were correlated with competitive performance, a correlation matrix was constructed. As Table AI shows, five of initial six factors correlated with RP and HP. As the potential HPO factor “autonomy” did not show a correlation with RP and only a weak correlation with HP, it was eliminated as an HPO factor. Interestingly, the correlation with HP was a negative one, which indicates that too much autonomy has a negative effect on performance. It seems that a certain degree of coordination and control in the organization is required for being competitive. To test whether organizations with a high HPO score showed better performances than organizations with a low HPO score, we divided the respondents in three groups according to their RP score. Group 1 had a RP below 0.33, Group 2 a score between 0.34 and 0.65 and Group 3 a score above 0.66. Using t-tests for differences in group means between Groups 1 (low) and 3 (high), we

Relative performance Correlation Significance Autonomy Continuous improvement and renewal Openness and action orientation Management quality Workforce quality Long-term orientation

Autonomy Continuous improvement And renewal Openness and Action orientation Management Quality Workforce Quality Long term Orientation

Management quality (MQ) Openness and action Orientation (OAO) Long term Orientation (LTO) Continuous Improvement (CI)

0.040 0.212 0.165 0.248 0.227 0.327

0.412 0.000 0.001 0.000 0.000 0.000

57

Historical performance Correlation Significance 0.124 0.299 0.137 0.289 0.151 0.333

0.012 0.000 0.006 0.000 0.002 0.000

RP group

n

Mean

D (31)

Significance (two-tailed)

1 3 1 3 1 3 1 3 1 3 1 3

100 242 100 242 100 242 100 242 100 242 100 242

0.071 0.150 0.200 0.345 0.075 0.464 0.367 0.349 0.278 0.245 0.303 0.498

0.079

0.514 0.534 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Correlation Significance Correlation Significance Correlation Significance Correlation Significance

The bonus as hygiene factor

0.545 0.539 0.716 0.523 0.801

Table AI. Correlation between potential HPO factors and competitive performance (relative performance and historical performance)

Table AII. t-test of the differences between respondent groups (1 ¼ RP score o0.33; 3 ¼ RP score 40.66)

MQ

OAO

LTO

CI

WQ

1

0.391 0.001 1

0.378 0.000 0.317 0.000 1

0.527 0.000 0.367 0.000 0.324 0.000 1

0.348 0.000 0.110 0.000 0.209 0.000 0.279 0.000

Table AIII. Correlation matrix of the HPO factors (n ¼ 1,740; all correlations are significant at the 0.01 level, two-tailed)

EBHRM 1,1

58

found statistically significant differences between these groups for the five HPO factors (po0.000), but not for the factor autonomy. Table AII gives the statistics. These show that the biggest difference can be found in the HPO factor long-term orientation, meaning that HPOs pay considerably more attention to the aspects belonging to this factor than non-HPOs do. This also holds true for the other factors, except for autonomy which shows that better performing organizations give less autonomy (the mean for Group 3 is more negative than for Group 1). To test whether the HPO factors were correlated with each other, a correlation matrix was constructed. Table AIII shows that all factors were correlated with each other, meaning that when an organization works on improving one of the factors, the other factors will also be improved. Thus the HPO framework may be denoted to be a system of complementary (Milgrom and Roberts, 1990, 1995) in which the return on one HPO factor becomes higher in the presence of the other HPO factors. Thus an organization should concentrate not on improving one HPO factor but on all of them to receive maximum benefit for the HPO framework. Appendix 2

Table AIV. The five HPO factors with their 35 characteristics

Continuous improvement and renewal 1. The organisation has adopted a strategy that clearly sets it apart from other organisations 2. In the organisation processes are continuously improved 3. In the organisation processes are continuously simplified 4. In the organisation processes are continuously aligned 5. In the organisation what matters to the organisation’s performance is explicitly reported 6. In the organisation both financial and non-financial information is reported to organisational members 7. The organisation continuously innovates its core competencies 8. The organisation continuously innovates its products, processes and services Openness and action orientation 9. Management of the organisation frequently engages in a dialogue with employees 10. Organisational members spend much time on communication, knowledge exchange and learning 11. Organisational members are involved in important processes 12. Management of the organisation allows mistakes to be made 13. Management of the organisation welcomes change 14. The organisation is performance driven Management quality 15. Management of the organisation is trusted by organisational members 16. Management of the organisation has integrity 17. Management of the organisation is a role model for organisational members 18. Management of the organisation applies fast decision making 19. Management of the organisation applies fast action taking 20. Management of the organisation coaches organisational members to achieve better results 21. Management of the organisation focuses on achieving results 22. Management of the organisation is very effective 23. Management of the organisation applies strong leadership 24. Management of the organisation is confident 25. Management of the organisation is decisive with regard to non-performers 26. The management of the organisation always holds organisational members responsible for their results

(continued)

Workforce quality 27. The management of the organisation inspires organisational members to accomplish extraordinary results 28. Organisational members are trained to be resilient and flexible 29. The organisation has a diverse and complementary workforce 30. The organisation grows through partnerships with suppliers and/or customers Long-term orientation 31. The organisation maintains good and long-term relationships with all stakeholders 32. The organisation is aimed at servicing the customers as best as possible 33. Management of the organisation has been with the company for a long time 34. New management is promoted from within the organisation 35. The organisation is a secure workplace for organisational members

About the authors Andre´ de Waal is Academic Director of the Center for Organizational Performance, Associate Professor of Maastricht School of Management and guest lecturer performance management at the Free University, Amsterdam, The Netherlands. Andre´ de Waal is the corresponding author and can be contacted at: [email protected] Paul Jansen is Professor of Industrial Psychology at the VU University, Amsterdam, The Netherlands.

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

The bonus as hygiene factor

59

Table AIV.