The moderating effects of collective pay for performance on the total quality management-labour productivity relationship

Abstract

Using a sample of 450 Korean firms, this study investigates the moderating effects of collective pay-for-performance (PFP) on the relationship between total quality management (TQM) and firm performance. Specifically, we focus on the differential effects of three forms of collective PFP (team incentives, profit sharing, and stock ownership) on the TQM-labour productivity relationship, based on the premise that each form of collective PFP has different sets of characteristics. Our results provide evidence that team incentives have a negative moderating effect, while profit sharing and stock ownership have positive moderating effects on TQM and firm performance. Additionally, we found that the moderating effect of profit sharing is stronger than that of stock ownership when considering simultaneously. Our findings suggest that organizations should carefully consider the different forms and characteristics of collective PFP when designing a compensation system and allocating rewards to enhance the positive impact of collective PFP on the TQM-firm performance relationship.