Dynamic equity theory : modeling pay for performance's cross-level effect

• Main Author: Phang, Riyang
• Other Authors: Georgios Christopoulos
• Format: Theses and Dissertations
• Language: English
• Published: 2015
• Subjects: DRNTU::Business::Management::Organizational behavior; DRNTU::Business::Management::Division of labor and specialization; DRNTU::Social sciences::Sociology::Social elements, forces, laws; DRNTU::Engineering::Mathematics and analysis::Simulations
• Online Access: https://hdl.handle.net/10356/65643
• Institution: Nanyang Technological University

Productivity is a concern for firms facing manpower crunch in recent years. Of management tools, pay for performance (PFP) is one widely studied but remained controversial. Among motivation theories, Adams’s (1965) equity theory is one well used in total rewards research, but difficult to predict PFP’s effect on collective performance. To address these twin concerns, organizations were construed as complex systems and agent-based modelling (ABM) was employed. PFP’s cross-level incentive effect, along with several other effects, was found to emerge from localized equity-based comparisons and effort adjustments. This research built an ideal-type ABM model from Adams’s (1965) formulaic expression. Results of experiment 1 showed emergence of PFP’s cross-level incentive effect, and PFP to outperform pay for time (PFT) in generating higher collective performance (aggregate output). For this to manifest, substantial time periods must have lapsed, suggesting critical research design issues even for longitudinal studies. These stabilized and time-based patterns of collective performance were consistent across random initializations and robustness checks. To uncover possible individual-level explanations for PFP’s contradictory findings, basic cognitive and social psychological differences were considered, modifications to the base model made, and three more computational experiments performed. Experiment 2 showed memory capacity to negatively affect PFP’s positive effect on collective performance, such that aggregate output declines as agents recall information further into their past. Experiment 3 showed recency effect to support and extend the results of the base and previous experiment, with higher collective performance attained when agents give greater weights to information from recent than distant events. And Experiment 4 showed agents who compared with more others, rather than less others, led to PFP generating levels of collective performance higher than that achieved in experiment one’s base model. To better understand PFP as a reward scheme, PFT was simulated alongside PFP in all above experiments as a contrast. Amongst several additional insights gained, PFT was found capable of reversing its negative cross-level incentive effect to generate higher levels of collective performance under specific conditions. These combinatorial interactions indicate unexplored avenues for future studies on PFP and firm performance. By investigating an enduring controversy, this set of studies reconstructed a classic motivation theory to offer a new ABM model of comparison-adjustment-production to the research community. The paradigm employed enabled the observation of cross-level dynamics in-vitro, yielding implications for PFP and equity theory research. Most significantly, the findings here (1) illustrated the emergence of PFP’s cross-level incentive effect from mutual fairness restoration, (2) provided plausible explanations for controversies surrounding PFP, and (3) expanded the predictive and explanatory utility of equity theory.