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Pay-for-performance, employee participation, and SME performance

TitlePay-for-performance, employee participation, and SME performance
Year of Publication2018
AuthorsWang, T., Thornhill S., and Zhao B.
JournalJournal of Small Business Management
Pages412 - 434

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.

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