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Area of Science:

  • Organizational Behavior
  • Human Resource Management
  • Economics

Background:

  • Individualized employment arrangements, particularly pay-for-performance idiosyncratic deals (PFP i-deals), are increasingly common.
  • The impact of these customized pay structures on peers not receiving such deals remains largely unexplored.
  • Understanding these peer effects is crucial for evaluating the overall impact of PFP systems on unit performance.

Purpose of the Study:

  • To investigate the consequences of PFP i-deals on the performance of peers within the same business unit.
  • To identify boundary conditions that moderate the relationship between PFP i-deals and peer performance.
  • To challenge the assumption that PFP universally enhances unit performance.

Main Methods:

  • Utilized multilevel random-coefficient discontinuous growth models.
  • Analyzed data from 451 peers nested within 117 business units in a for-profit health-care organization.
  • Examined peer responses and performance trends before and after PFP i-deal implementation.

Main Results:

  • Peer performance levels were negatively affected immediately following the implementation of PFP i-deals.
  • Peer performance trends showed a decline after the introduction of PFP i-deals compared to pre-implementation levels.
  • Contextual factors were identified as significant moderators of peer responses to PFP i-deals.

Conclusions:

  • The implementation of PFP i-deals can lead to detrimental effects on the performance of non-recipients.
  • The assumption that PFP arrangements inherently boost unit performance needs re-evaluation in light of peer effects.
  • Further research into contextual factors is necessary to optimize the implementation of individualized pay systems.