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Pay for performance in emerging markets: Insights from China

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Abstract

With the rapid increase in the application of Western HR practices in emerging markets, it is crucial to investigate how non-Western employees react to Western HR practices such as pay for performance (PFP). We investigate employee reactions to PFP in emerging markets using China as a case. Our multilevel analyses, based on data from 574 engineers in 22 domestic firms and eight foreign firms in China, demonstrated that PFP was positively associated with conscientiousness at the individual level. In contrast, PFP was negatively related to employees’ organizational commitment and interpersonal helping at the organization level. This study suggests that the impact of “culture distance” associated with Western HR practices may be more likely to manifest itself in the collective entity than at the individual level. Employees of domestic firms reported significantly higher levels of performance appraisal satisfaction and justice perceptions than employees of foreign firms, which might explain why PFP was more widely implemented in domestic firms in China. The present results demonstrated that, in addition to the culture distance, the “context distance” between domestic and foreign firms may play a critical role in accruing benefits from PFP, indicating that PFP can be more beneficial to domestic firms than to foreign firms. The present findings provide practical implications for foreign firms operating in emerging markets.

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Notes

  1. In the present research setting, engineers’ bonus or PFP was determined largely by the quantity of their output of a completed project. For example, imagine that structural engineer A was involved in Project 1 (2500 m2) with architectural engineer B and project manager C, whose job consisted principally of quality control. Simultaneously, C participated in Project 2 (2000 m2) as a regular structural engineer. In this case, structural engineer A's PFP might be calculated by quantity of output, per unit incentive rate, and the difficulty or complexity of the design task: 2500 m2 (quantity of output) × 2 CNY/m2 (per-unit incentive rate) × 0.8 (project complexity coefficient)=4000 CNY. Similarly, project manager C's PFP might be: 2500 m2 × 1.5 CNY/m2 (the project manager's per-unit incentive rate is low, owing to lower workload) × 0.8 plus 2000 m2 × 2 CNY/m2 × 1.0 (project complexity coefficient)=7000 CNY.

  2. According to the marker-variable technique, the size of the correlation (r M) between a study variable and the marker variable indicates the level of common method variance (CMV) in the survey data. As a post-hoc procedure to estimate r M, Lindell and Whitney (2001) proposed that “the smallest correlation among the manifest variables provides a reasonable proxy for CMV” (115). They further suggested that the second-smallest positive correlation can be used as a more conservative estimate of r M. Using this estimate of CMV, they developed formulae to compute CMV-adjusted correlations between the variables under investigation and their t-statistics for the purpose of significance tests. Using these equations, we can examine the impact of CMV on the magnitude and significance of correlations among study variables. Following this procedure, we computed CMV-adjusted correlations and their statistical significance, resulting in a new correlation matrix after controlling for the estimated CMV effect (r M) (the full correlation matrix is available upon request).

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Acknowledgements

This study was financially supported by grants from the Management Research Center of the College of Business Administration at Seoul National University and from the Social Sciences and Humanities Research Council of Canada. The first author also acknowledges Professor Jian Qiao Liao at Huazhong University of Science & Technology for his guidance and support in conducting the present study.

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  1. Economics and Management School, Wuhan University, Wuhan, China

    Jing Du

  2. College of Business Administration, Seoul National University, Seoul, South Korea

    Jin Nam Choi

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  1. Jing Du
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Correspondence to Jin Nam Choi.

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Accepted by Lorraine Eden, Editor-in-Chief, and Helen De Cieri, Departmental Editor, 17 March 2009. This paper has been with the authors for five revisions.

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Du, J., Choi, J. Pay for performance in emerging markets: Insights from China. J Int Bus Stud 41, 671–689 (2010). https://doi.org/10.1057/jibs.2009.40

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