Does contingent pay encourage positive employee attitudes and intensify work?

• Published date: 01 January 2017
• Author: Chidiebere Ogbonnaya,Kevin Daniels,Karina Nielsen
• DOI: http://doi.org/10.1111/1748-8583.12130
• Date: 01 January 2017

Does contingent pay encourage positive employee

attitudes and intensify work?

Chidiebere Ogbonnaya and Kevin Daniels, Norwich BusinessSchool, University of

East Anglia

Karina Nielsen,Institute of Work Psychology, The Universityof Sheffield

Human Resource Management Journal, Vol 27,no 1, 2017, pages 94–112

This article explores the relationships between three dimensions ofcontingent pay –performance-related pay,

profit-related pay and employeeshare-ownership –and positiveemployee attitudes (job satisfaction, employee

commitmentand trust in management). The articlealso examines a conflictingargument that contingentpay

may intensify work, and this can detract from its positive impact on employee attitudes. Of the three

contingent pay dimensions, only performance-related pay had direct positive relationships with all three

employee attitudes. Profit-related pay and employee share-ownership had a mix of negative and no significant

direct relationships with employee attitudes, butprofit-related pay showedU-shaped curvilinear relationships

with all three employee attitudes. The results also indicated that performance-related pay is associated with

work intensification, and this offsets some of its positive impact on employee attitudes.

Contact: Chidiebere Ogbonnaya, Norwich Business School, University of East Anglia, Norwich

Research Park,Norwich NR4 7TJ, UK. Email: c.ogbonnaya@uea.ac.uk

Keywords:contingent pay; job satisfaction; commitment;trust in management; workintensification

INTRODUCTION

Contingentpay, variouslycalled incentive pay (Greenand Heywood, 2008) and variable

pay (Curran and Walsworth, 2014), has becomeincreasingly important for motivating

employeesto perform productively at work (Pendletonet al., 2009). It representsone of

the key elements of HRM systems aimed at achieving sustainable competitive success for an

organisation (Appelbaum et al., 2000; Gould-Williams, 2003). Various types of contingent

pay, including performance-related pay, profit-related pay and employee share-ownership,

are identified as strategic tools for shaping positive employee attitudes such asjob satisfaction

(Heywood and Wei,2006), organisational commitment(Bayo-Moriones and Larraza-Kintana,

2009) and trust in management (Coyle-Shapiro et al., 2002). These pay arrangements provide

important incentives that reinforce employees’willingness to put forth discretionary effort,

leading to higher levels of achievement and meaningful work-related goals.

Despite reports to suggest a positive relationship between contingent pay and employee

attitudes, thereare indications that differentcontingent pay arrangements mayintensify work

(Weitzman andKruse, 1990; Gallie et al., 1998; Green,2004). Weitzman and Kruse (1990,p. 98),

for example, noted the use of profit-sharing arrangements may prompt employees to expend

greater work effort because of increased pressure to adopt modes of behaviours that enhance

labour output. Under such circumstances, employees are induced to work too hard and too

much, leading to work-related stress or poorwell-being. To date, little progresshas been made

in gathering empirical evidence on whether contingent pay is in fact associated with the

perception that work is more intense, and how this might impact on employees’workplace

attitudes. The current study presents a unique opportunity to advance our knowledge of

Pleasecite this article in pressas: Ogbonnaya, C., Daniels,K. and Nielsen, K.(2017) ‘Does contingentpay encourage positive employeeattitudes and

intensify work?’.Human ResourceManagementJournal 27: 1, 94–112

94 HUMAN RESOURCEMANAGEMENT JOURNAL, VOL27, NO 1, 2017

©2017 John Wiley& Sons Ltd

doi: 10.1111/1748-8583.12130

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how employees under different contingent pay arrangements are induced to work too hard

and too much in response to high job demands.

The contributionof our study is to provide important insights intothe relationships between

three forms of contingent pay (performance-related pay, profit-related pay and employee

share-ownership) and employees’job satisfaction, commitment and trust in management.

Our set of employee attitudes represents key determinants of the quality of employees’

functioning at work, which is crucial for understanding the productivity gains of contingent

pay (Caramelli and Briole, 2007). Unlike individual-based contingent pay (e.g. performance-

related pay),the attitudinal effects of organisation-wide pay schemesmay depend on coverage

and accessibility. For example, employees under profit-related pay and employee share-

ownership arrangements are more likelyto respond positively if theyare eligible to participate

and profits are fairly distributed across organisational levels (Coyle-Shapiro et al., 2002).

Surprisingly, this important characteristic of organisation-wide incentives has received scant

attention in previous research. We fill this gap by examining U-shaped curvilinear effects for

profit-related pay and employee share-ownership on employee attitudes. We also add to the

literature by examining the extent to which all three forms of contingent pay are associated

with employees’experience of work intensification, and the role of work intensification in

explaining any unfavourable association between contingent pay and employee attitudes.

Our study sets out to determine whether high work intensification arising from the use of

particular types of contingent pay may offset any positive impact on employee attitudes.

CONTINGENT PAY, THEORY AND PREVIOUS EVIDENCE

Contingent pay represents workplace arrangements where some or all of employees’

remuneration are dependent on some measure of performance (Pendleton et al., 2009).

Contingent pay may be determined by individual employees’performance in relation to their

level of contribution to organisational performance (individual-based incentive), or profit

gained by the organisation in which the employee works (organisation-wide incentive). The

present study focuses on performance-related pay (an individual-based incentive), profit-related

pay and employee share-ownership (both organisation-wide incentives). This set of contingent

pay is by no means exhaustive, but it gives an indication of financial incentives central to debates

around HRMsystems and their impacton organisationalperformance (Appelbaum et al., 2000;

Macky and Boxall, 2008). Moreover, this set of pay programs illustrates the kinds of contingent

pay that organisations tend to use concurrent ly. For such organisations, a combination of

individual-based and organisation-wide incentive programs serves to maximise the benefits

associated with each program and minimise the potential weaknesses (Kuvaas, 2006).

Performance-related pay is an individual-based incentive offered by an assessment of

individual employees’work effort in relation to their contribution to organisational goals

(Pendleton et al., 2009). Profit-related pay is an organisation-wide incentive concerned with

earnings accruable froma measure of organisational profitability. Employee share-ownership

is an organisation-wide incentive throughwhich employers offer their shares at reducedrates

to employees.It is often grouped together with profit-related pay underthe generic heading of

‘financial participation schemes’(Pendleton et al., 2009), but may differ in terms of eligibility

and distribution ofprofit (Bryson and Freeman, 2014). We operationalise all three dimensions

of contingent pay at the organisational level using management data on how each payment

system is applied in the workplace. This allows us to examine the extent to which contingent

pay, measured at the workplace level, might be associated with work-related attitudes at the

level of individual employees. A cross-level investigation such as this is uncommon in HRM

ChidiebereOgbonnaya, Kevin Danielsand Karina Nielsen

HUMAN RESOURCEMANAGEMENT JOURNAL, VOL27, NO 1, 2017 95

©2017 John Wiley& Sons Ltd.