Pay‐for‐Performance, Employee Participation, and SME Performance

Taiyuan Wang, Stewart Thornhill and Bin Zhao

Journal of Small Business Management, 2018, vol. 56, issue 3, 412-434

Abstract: This study examines how pay‐for‐performance (PFP) systems affect the performance of small‐ and medium‐sized enterprises (SMEs). We decompose PFP into two dimensions: scope and depth. PFP scope captures the variety of performance measures and reward types included in a firm's PFP system, and PFP depth reflects the relative amount of performance‐based pay compared with total pay. We posit that PFP scope has a positive whereas PFP depth has an inverted U‐shaped effect on employee participation, which in turn enhances SME performance. Analysis of data collected at both employee and firm levels of 444 SMEs during 1999–2006 supported these hypotheses.

Date: 2018
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DOI: 10.1111/jsbm.12268

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