China Europe International Business School (CEIBS), China
Understanding when and how individual pay-for-performance (PFP) can help achieve an organization’s goals, objectives, and priorities is strategically important. By integrating the sensemaking and resource perspectives, this study introduces a new conceptualization to understand PFP’s effects on firm-level performance. Using multi-source data collected from employees and customers of three large restaurant chains, we demonstrate that the effects of perceived PFP on firm performance (service quality at the store-level) are transmitted through employees’ customer oriented behaviors (COBs) and further that such effects are moderated by two organizational levers in different ways. Specifically, when (i) autonomous job design is low and/or (ii) shared vision is high, the positive effects of PFP on COBs are strengthened. Our results reveal that in order for PFP to be effective for firm performance, its implementation must be viewed by simultaneously considering the impact of other organizational levers and their associated resource implications. Implications to theory and practice are discussed.
