Differential impact of short-term and long-term group incentives
| Pages | 549-564 |
| Published date | 03 April 2018 |
| DOI | https://doi.org/10.1108/ER-10-2016-0202 |
| Date | 03 April 2018 |
| Author | Kyongji Han,Andrea Kim |
| Subject Matter | HR & organizational behaviour,Industrial/labour relations,Employment law |
Differential impact of short-term
and long-term group incentives
Kyongji Han
Hankamer School of Business, Baylor University,
Waco, Texas, USA, and
Andrea Kim
School of Business, Sungkyunkwan University, Seoul, Republic of Korea
Abstract
Purpose –The purpose of this paper is to investigate the additive and differential effects of short-term-
oriented group incentives (STOGIs) and long-term-oriented group incentives (LTOGIs) on psychological
ownership and organizational commitment.
Design/methodology/approach –This study analyzed data from 17,255 US employees inthe 2005 data set
of the National Bureau of Economic Research Shared Capitalism Research.
Findings –Both additive indices of group incentives have direct positive relationships with psychological
ownership and organizational commitment, as well as indirect positive relationships with organizational
commitment through psychological ownership. STOGIs have a stronger relationship with organizational
commitment and LTOGIs have a stronger relationship with psychological ownership.
Originality/value –The value of this research lies in exploring the differential effects of short-and long-term
group incentives, which provides new insight into the theory of group incentives and practical implications
for their effective utilization.
Keywords Psychological ownership, Organizational commitment, Gainsharing, Employee ownership,
Compensation, Profit sharing
Paper type Research paper
Given the prevalence of team or group-based work structures in organizations, a body of
research has found that group incentives are positively related to organizational
performance (Ladley et al., 2015; O’Boyle et al., 2016; Park and Kruse, 2013) as well as
diverse outcomes at the individual level (Garbers and Konradt, 2014; Gerhart et al., 2009),
including organizational commitment, job satisfaction, peer monitoring, retention and
organizational citizenship behavior (Chiu and Tsai, 2007; Klein, 1987). However, apart from
a few studies (e.g. Kim et al., 2017), previous research has mostly examined single group
incentive plans. This conventional approach is problematic, given that representative data
on the US working population from the General Social Survey 2006 indicated that
almost half (47 percent) of US employees participated in some form of group incentives
(i.e. profit sharing, gainsharing, employee ownership and stock options) and approximately
4-5 percent of employees engaged in two or more forms of these group incentives
(Kruse et al., 2010: Table 1.1, p. 47). A unitary index approach is also problematic, because
different forms of group incentives may have different effects on workplace outcomes due to
their unique mechanisms to generate economic and psychological effects (Cadsby et al.,
2007; Peterson and Luthans, 2006; Stajkovic and Luthans, 1997, 2001). Consequently, it is
worthwhile to examine the unique (i.e. specific links between particular group incentives
and particular work outcomes) and relative (i.e. stronger or weaker relationships between
Employee Relations
Vol. 40 No. 3, 2018
pp. 549-564
© Emerald PublishingLimited
0142-5455
DOI 10.1108/ER-10-2016-0202
Received 26 October 2016
Revised 25 July 2017
29 September 2017
26 October 2017
2 December 2017
Accepted 4 December 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0142-5455.htm
An earlier version of this manuscript was presented at the 71st annual meeting of the Academy of
Management, San Antonio, TX. The authors received the financial support from the Employee
Ownership Foundation and the Rosen Ownership Opportunity Fund. The authors truly appreciate
Douglas L. Kruse and Joseph R. Blasi for their valuable comments and assistance.
549
Short-term and
long-term
group
incentives
certain group incentives and certain work outcomes compared to other plans) effects of
various group incentives on work outcomes.
In order to fill the aforementioned gaps in the existing literature, this research
investigates how intensive use of diverse group incentives is related to employee attitude.
First, building on agency theory, expectancy theory and the satisfaction models of group
incentives, we suggest additive relationships between a set of group incentives and
employee attitude. Specifically, we draw on a time span perspective (Kruse et al., 2010;
Makri et al., 2006) to classify group incentives into short-term-oriented group incentives
(STOGIs) and long-term-oriented group incentives (LTOGIs). Also, we focus on the
intensity (i.e. the proportion of group incentives compared to the annual pay of employees)
of implementing group incentives rather than their presence. Exploring the impact of
group incentives on employee attitude is appropriate for an affective approach that
highlights the psychological benefits of group incentives as a determinant of
organizational effectiveness (Park, 2012), given that it is employees who actually carry
out organizational goals on the front lines (Liao et al.,2009).Amongdiverseattitudes,
we consider organizational commitment and psychological ownership because previous
research has reported somewhat inconsistent results regarding the former (Kaarsemaker
et al., 2010), while examination of the latter has been relatively sparse (Chi and Han, 2008).
We aim to complement prior research by investigating variation in conventional attitudes
as well as emerging attitudes under multiple group incentives. Second, in accordance with
the psychology of possession and prior group incentives research, we propose the
mediation of psychological ownership between group incentives and organizational
commitment. Third, combined with signaling and symbolism perspectives, we further
explore discrepancies in the psychological effects between STOGIs and LTOGIs. Finally,
in testing this th eoretical model , we analyze data from 17,255 emplo yees in eight firms in
the USA. This large-scale data set is advantageous to ensure the credibility and
generalizability of our findings, as it includes responses from employees at various levels
of rank in multiple organizations in representative industries (i.e. manufacturing, service,
finance and high-tech). Overall, our work provides insight into the effectiveness of group
incentives and offers practical suggestions for their effective utilization, which is a major
issue for managers who wish to benefit from effective human resource (HR) management
(Becker and Huselid, 2006; Wall and Wood, 2005).
Distinguishing between group incentives
Various types of group incentives have emerged with a common goal of promoting
collective performance (Gerhart et al., 2009), although with unique approaches to
implementation. Profit sharing, gainsharing and stock ownership plans are prevailing
schemes used in organizations (Kruse et al., 2010). Profit sharing and gainsharing are annual
cash bonus plans based on organizations’excess profits and saved costs, respectively.
Employee ownership plans allow employees to own stock, so that their financial benefits
from the plans hinge on organizational performance. The Employee Stock Ownership Plan
(ESOP) and Employee Stock Purchase Plan (ESPP) are the most popular forms of employee
ownership. In an ESOP, employees receive cash to buy company stock or the company stock
typically without buying the stock with their wages or savings. An ESPP provides
employees with opportunities to purchase their organizations’stock at a discounted price.
Stock options give employees the right to buy company stock at a specific exercise price,
typically the market price on the day the option was granted, for ten years and then to sell
the stock and pocket the difference between the exercise and future prices. A 401(k) is a
retirement savings plan in which some portion of employees’wages is invested in stocks or
bonds, or directly saved in their accounts for retirement. In many cases, employees also
receive company grants of stock that match their purchases.
550
ER
40,3
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