Tightening up the Performance-Pay Linkage: Roles of Contingent Reward Leadership and Profit-Sharing in the Cross-Level Influence of Individual Pay-for-Performance

Abstract

Drawing upon line-of-sight (Lawler, 1990, 2000; Murphy, 1999) as a unifying concept, we examine the cross-level influence of organizational use of individual pay-for-performance (PFP), theorizing that its impact on individual employees' performance-reward expectancy is boosted by the moderating effects of immediate group managers' contingent reward leadership and organizational use of profit-sharing. Performance-reward expectancy is then expected to mediate the interactive effects of individual PFP with contingent reward leadership and profit-sharing on employee job performance. Analyses of cross-organizational and cross-level data from 912 employees in 194 workgroups from 45 companies reveal that organizations' individual PFP was positively related to employees' performance-reward expectancy, which was strengthened when it was accompanied by higher levels of contingent reward leadership and profit-sharing. Also, performance-reward expectancy significantly transmitted the effects of individual PFP onto job performance under higher levels of contingent reward leadership and profit-sharing, thus delineating cross-level mediating and moderating processes by which organizations' individual PFP is linked to important individual-level employee outcomes. Several theoretical and practical implications are discussed.