University of Hertfordshire

A Multilevel Analysis of the Use of Individual Pay-for-Performance Systems

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Original languageEnglish
Number of pages26
Pages (from-to)1479-1504
JournalJournal of Management
Journal publication date1 Apr 2018
Early online date21 Oct 2015
Publication statusPublished - 1 Apr 2018


Compensation systems, such as individualized pay-for-performance (I-PFP) schemes for employees, represent an important approach to aligning employer-employee interests. However, the adoption of I-PFP is much less common in many countries than in the United States. Employing a multilevel analysis of over 4,000 firms in 26 countries, we explore determinants of its adoption. At the country level, we distinguish between cultural and institutional (labor regulation institutions) influences. At the firm level, we distinguish firms that view human resources as strategically important and firms that are foreign owned. On the one hand, our findings indicate that both cultural and institutional effects at the country level significantly influence the adoption of I-PFP. On the other hand, senior managers’ agency counts. We find the effect of labor regulation on I-PFP to be mediated by its effects on labor union influence, and we find the effects of culture on I-PFP to be entirely mediated by labor regulation and (country-level) union influence.


This is an Open Access article distributed in accordance with the Creative Commons Attribution Non Commercial (CC BY-NC 4.0) license .

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