More than just the Mean: Moving to a Dynamic View of the Performance-based Compensation

• Main Authors: BARNES, Christopher M., REB, Jochen, ANG, Dionysius
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: compensation; dynamic performance; pay for performance; performance trend; Human Resources Management; Organizational Behavior and Theory
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3290; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4289/viewcontent/auto_convert.pdf
• Institution: Singapore Management University

Compensation decisions have important consequences for employees and organizations and affect factors such as retention, motivation, and recruitment. Past research has primarily focused on mean performance as a predictor of compensation, promoting the implicit assumption that alternative aspects of dynamic performance are not relevant. To address this gap in the literature, we examined the influence of dynamic performance characteristics on compensation decisions in the National Basketball Association (NBA). We predicted that, in addition to performance mean, performance trend and variability would also affect compensation decisions. Results revealed that performance mean and trend, but not variability, were significantly and positively related to changes in compensation levels of NBA players. Moreover, trend (but not mean or variability) predicted compensation when controlling for future performance, suggesting that organizations overweighted trend in their compensation decisions. Theoretical and practical implications are discussed.