Performance benefits of reward choice: a procedural justice perspective

• DOI: http://doi.org/10.1111/1748-8583.12073
• Published date: 01 April 2015
• Author: Gregory B. Northcraft,Arran Caza,Matthew W. McCarter
• Date: 01 April 2015

Performance benefits of reward choice: a

procedural justice perspective

Arran Caza, Griffith University and University of Manitoba

Matthew W. McCarter, University of Texas at San Antonio and Chapman

University

Gregory B. Northcraft, University of Illinois

Human Resource Management Journal, Vol 25, no 2, 2015, pages 184–199

Reward choice – employees’ ability to exercise control over the formal rewards they receive from work

– is an important part of many HRM strategies. Reward choice is expected to increase employee

performance, but conflicting findings highlight the need to better understand how and when it will do

so. Based on fairness heuristic theory, we predicted that procedural justice mediates reward choice’s

influence on performance, and that choice attractiveness moderates that influence. A field study and an

experiment both had similar results, supporting our predictions. Reward choice can increase performance

by as much as 40 per cent, but only when the available choices are attractive to employees.

Contact: Arran Caza, Asper School of Business, Drake Centre, 181 Freedman Cr, Winnipeg,

MB, Canada R3T 5V4. Email: a.caza@griffith.edu.au; arran.caza@umanitoba.ca

Keywords: choice; organisational justice; employee performance; rewards

INTRODUCTION

An increasingly popular HRM strategy is giving employees reward choice, which provides

employees with the ability to choose the level or type of rewards they receive from work

(Miceli and Heneman, 2000; White, 2009; IOMA, 2011). In the US, for example, fewer

than 20 major employers allowed workers any control over how they were rewarded in 1980

(Hewitt Associates, 1993), but almost all major employers were offering some reward choice by

2007 (Employee Benefits, 2007). The use of reward choice in other countries shows the same

increasing trend (Rao, 2008; Koo, 2011). Allowing employees to exercise some control over the

nature of their rewards has become an important part of many organisations’ HRM strategy.

Organisations appear to have embraced reward choice for two reasons: to control costs by

only providing those rewards that employees actually value, and to benefit from improvements

in workers’ attitudes and behaviour (Kelliher and Anderson, 2008; Lovewell, 2010). The use of

choice reflects the fact that the traditional approach of offering standardised rewards has not

succeeded in controlling costs or enhancing performance; such generic reward plans have

tended to produce poor results (Beer and Cannon, 2004; Chiang and Birtch, 2006). Reward

choice allows organisations to provide rewards that are customised to the individual, and is

believed to help when competing to recruit and retain the best employees, as well as

contributing to their subsequent performance (Fay and Thompson, 2001; Koo, 2011; Nazir et al.,

2012). Consistent with the belief that reward choice benefits the worker and the organisation,

scholarship has linked reward choice with both increased task performance and

performance-related attitudes, such as organisational commitment (Lawler and Hackman, 1969;

Cooper et al., 1992; Cole and Flint, 2004).

However, despite the widespread use of reward choice and research evidence of its effect on

performance, two important gaps remain in the literature. The first gap concerns the

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doi: 10.1111/1748-8583.12073

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 25 NO 2, 2015184

© 2015 John Wiley & Sons Ltd.

Please cite this article in press as: Caza, A., McCarter, M.W. and Northcraft, G.B. (2015) ‘Performance benefits of reward choice: a procedural justice

perspective’. Human Resource Management Journal 25: 2, 184–199.

mechanism linking reward choice to performance, which has remained unknown. The second

gap concerns anecdotal and empirical evidence suggesting that employers do not always get

a positive response from introducing reward choice (Sullivan, 2009; IOMA, 2011; Shreeram,

2012). While some studies have found a positive relationship between reward choice and

performance (Lawler and Hackman, 1969; Cooper et al., 1992), at least one study (Morgeson

et al., 2001) found that reward choice was not beneficial. It seems that reward choice can

improve employee performance, but does not always do so. As such, the crucial next step for

theory and practice lies in understanding how reward choice affects performance, including the

mediating mechanism and boundary conditions.

In service of this goal, we report two studies that answer the two research questions: What

is the mediator of the relationship between reward choice and work performance? and What

are the boundary conditions of this relationship? Study 1 used a field survey to extend previous

research by showing that reward choice influences performance-related attitudes through the

mediating mechanism of procedural justice. Study 2 used an experimental design to replicate

the Study 1 findings and to examine boundary conditions for reward choice. Study 2 found that

reward attractiveness is an important moderator of the effect of reward choice (i.e. reward

choice only increases justice and performance if the available choices are attractive).

THEORETICAL BACKGROUND AND HYPOTHESES

To study the relationship between reward choice and performance, we used the total rewards

perspective (Nazir et al., 2012; Lin et al., 2014). This perspective defines rewards to include all

of the valued outcomes that employees derive from their work, including base pay, incentives,

non-salary benefits and perquisites (Fay and Thompson, 2001; Gross and Friedman, 2004;

Chiang and Birtch, 2006). Focusing on an employee’s total rewards is consistent with larger

trends in the study of HRM, which are recognising the need to move towards more holistic

views (Boxall, 2013). The total rewards perspective is based on the fact that different employees

value different types of rewards (Kinnie et al., 2005; Krausert, 2014), but their response to

having their desires satisfied will be similar. For example, imagine one worker who desires

more pay, and another who is most concerned with flexible work arrangements. Giving both

workers the same reward (e.g. more pay) would provoke differing responses, but if each worker

is given what s/he desires, s/he should have similarly positive responses (Cable and Edwards,

2004). The total rewards perspective focuses on compensation practices in general, so as to

accommodate such diversity in the workforce.

Reward choice and performance

Organisations are increasingly offering customised total rewards by allowing workers to control

some aspects of the level or type of rewards they receive. The specifics of the reward choice

vary from simple forms such as choosing among different package options to situations where

an employee’s entire reward package is idiosyncratic (e.g. Anand et al., 2010). Providing

employees with reward choice is expected to reduce organisational costs, increase worker

satisfaction and improve worker performance (Kelliher and Anderson, 2008; Lovewell, 2010).

The first two effects of reward choice – reduced cost and increased reward satisfaction – are

straightforward. It has been documented that introducing reward choice decreases the cost of

reward provision while simultaneously increasing workers’ satisfaction (Karoly and Panis,

2004; Dencker et al., 2007).

Beyond these two effects, however, there is some evidence that reward choice can also

improve performance. For example, one study found that workers who designed their own

Arran Caza, Matthew W. McCarter and Gregory B. Northcraft

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 25 NO 2, 2015 185

© 2015 John Wiley & Sons Ltd.