incentives. Jenkins et al. speculate that weaker laboratory results may be partly
attributable to the smaller incentives typically used in these settings. Jenkins et al.
conclude by saying: ‘These results also question the... argument that people do not
value money. If money is not important,Wnancial incentives should show no
systematic relationship with performance. Obviously, the research evidence
amassed over three and a half decades shows otherwise’ ( 1998 : 783 ).
Other important studies include Lazear ( 1999 ) (reviewed below) and Gerhart and
Milkovich ( 1990 ). Using data on approximately 14 , 000 top and middle-level execu-
tives and managers across aWve-year time frame, Gerhart and Milkovich ( 1990 )
examined a number of research questions related to managerial base and contingent
pay. TheWrst importantWnding of this study is that organizations appear to be
‘strategic’—they exhibit stable and systematic diVerences across time in terms of
both pay level and pay mix (relative use of base vs. contingent pay). The second
importantWnding from this study is that organizational diVerences in contingent
pay (but not pay level) predict organizational proWtability.
Research evidence also suggests that group-based pay-for-performance plans can
be eVective. In general, group incentive systems include plans in which payouts are
contingent upon the achievement of group or unit goals. The best-known forms of
these types of pay plans are proWt-sharing and gain-sharing plans. Gain-sharing
plans are group-based reward plans which pay a bonus based upon productivity
improvements or cost reduction. These plans also often include a formal employee
involvement component. ProWt-sharing plans are another group-based reward
option. While all proWt-sharing plans pay a bonus based upon the achievement
of proWtability, these plans vary substantially in terms of frequency of payout,
deferred versus cash payouts, size of the proWt share, etc. Other forms of group-
based pay plans include goal- or win-sharing plans and employee stock ownership
plans (ESOPs).
While the mechanics of plans such as gain-sharing, proWt-sharing, and ESOPs
are obviously distinct, from an economic or psychological perspective they are
generically more similar than diVerent (Weitzman and Kruse 1990 ). They seek to
enhance productivity by aligning employer and employee interests and motivating
employees to contribute to organizational eVectiveness. As with individual pay-
for-performance plans, group pay plans can be viewed from a variety of theoretical
perspectives, including goal-setting theory (Guthrie and Hollensbe 2004 ;
Hollensbe and Guthrie 2000 ) and expectancy theory (Lawler 2000 ). Although
generally applied to executive compensation, agency theory can also be applied,
with group-based pay plans designed to align managers and employees’ interests
(Welbourne and Gomez-Mejia 1995 ).
Studies indicate that group performance-based pay plans can positively impact
organizational outcomes (e.g. Kruse 1993 ; Mangan and St-Onge 2005 ; Pritchard
et al. 1988 ). Due to concerns with ‘line of sight’ and instrumentality perceptions
(e.g. Lawler 2000 ), proWt-sharing plans are often viewed as a less eVective form of
348 james p. guthrie