Group incentives & financial performance: the moderating role of innovation

Introduction:Group incentives are HR practices that allow employees to share the companys financial outcomes. These practices include various forms of group-based, pay-for-performance plans, such as profit sharing and gain sharing plans. Since this study deals with organizational-level variables, it focuses on group incentives rather than individual incentives.

Research on group incentives has focused on the effects on organizational performance, especially productivity and financial performance. These studies support the idea that group incentives affect organizational performance positively by motivating employees to work harder and more efficiently because their earnings are tied to the organizations performance.

So, this study has two main objectives. First, it examines the underlying mechanisms through which group incentives affect financial performance, using organizational commitment as a mediator. Second, this study investigates the moderating roles of innovation in the relationships between (a) group incentives and organizational commitment, and (b) group incentives and financial performance. Thus, the findings of this study have implications for how group incentives can improve financial performance and which organizations in particular should provide their employees with group incentive practices.

Theory & Hypotheses:Here in this research, the researcher took one mediator and one moderator. The researcher took Organizational Commitment as a mediator that has a direct effect on the relationship between group incentives and organizational performance. And the researcher also took Innovation as a moderator that changes the relationship of group incentives with organizational commitment and the relationship of group incentives with organizational performance.Hypotheses:

Hypothesis 1: Organizational commitment will mediate the relationship between group incentives and organizational performance.

Hypothesis 2: The relationship of group incentives with organizational commitment will be greater in more innovative companies than in less innovative companies.

Hypothesis 3: The relationship of group incentives with organizational performance will be greater in more innovative companies than in less innovative companies.

Methodology:Sample:The sample was selected by stratified random sampling based on industry, size and public status, among companies with 100 employees or more in the KIS database. The survey team randomly selected the managers and employees. All of the selected companies and 92per cent of selected employees participated in the survey. A total of 454managers and 13,101 employees were surveyed using a self-report form. In each company, 392employees (29 on average) completed the survey.Instrument:The instrument that was used to collect data was a questionnaire. In this questionnaire the researcher measure Group Incentives by two codes (1 & 0). 1 represent they had group incentives and 0 represent they hadnt. And the researcher use 5-point likert-type scale ranging from 1 to 5for measuring Innovation & Organizational Commitment.Although financial performance has been measured by a number ofindices in the literature, we measured it by return on assets (ROA).Findings:The correlations result is showing that groupincentives were positively correlated with company size, average wage and level of innovation. Group incentives also had significant correlations with organizational commitment and ROA. Innovation was significantly correlated withorganizational commitment but not with ROA. Organizational commitmentwas significantly correlated with ROA.

Organizational Commitment as a Mediator:Here the researcher uses three models to test this variable. In Model 1, group incentives had a significant relationship with organizational commitment. Model 2 shows that group incentives had a significant relationship with ROA. These findings support a universal approach and suggest that providingemployees with group incentives is positively associated with organizational commitment andfinancial performance.

Model 3 examined whether organizational commitment was significantly relatedto financial performance after controlling for group incentives. Organizational commitment wassignificantly related to ROA. The relationship of group incentives with ROAwas lower in Model 3 than in Model 2. After doing all calculations the models satisfied all of the conditions, which confirmed that organizationalcommitment mediated the relationship between group incentives and financial performance.These results support Hypothesis 1. Since group incentives were still significantly related toROA in Model 3, organizational commitment played a role as a partial mediator.Innovation as a Moderator:Here the researcher uses two models to test this variable. Model 1 examines the moderating role of innovationin the relationship between group incentives and organizational commitment. The interactionbetween group incentives and innovation was significantly related to organizational commitment. That is, the relationship of group incentives with organizational commitment was greater in more innovative companies than in less innovative companies,which supports Hypothesis 2.

Model 2 investigates the moderating role of innovation in the relationship of groupincentives with financial performance. The interaction term indicated that group incentives hada greater relationship with ROA in more innovative companies, which supports Hypothesis 3. These results support a contingency approach, suggesting that therelationships of group incentives with organizational commitment and financial performancewere contingent on the degree of innovation of individual companies. Specifically, moreinnovative companies benefited more from providing their employees with group incentivesthan did less innovative companies.

Additional Analysis:The above results do not clearly support either the universal or contingency approach. From the 1st graph, we found that group incentives might not be a best practice for less innovative companies. So, this research did not examine the possibility that certain types of companies might not benefit fromthose practices.To examine the possibility, the researcher calculated the significance of the simple slopes of more and lessinnovative companies. The slopes of both dependent variables were significantly different fromzero in more innovative companies, but they were not significantly different from zeroin less innovative companies. Thus, results of this supplementary analysis support acontingency approach rather than a universal approach.So group incentives are not the best practice for all companies.

Conclusion:

This study provided evidence on the role ofinnovation as a moderator. The findings of this article provide implications on how groupincentives affect financial performance and which organizations in particular are likely tobenefit most from providing their employees with group incentive practices. These results wereobtained from analyses conducted with nationally representative and multiple-source data(managers, employees and financial data).This study suggests that group incentives may not be a best practice for lessinnovative companies. The significant relationships between group incentives andorganizational commitment and ROA resulted mainly from the strong relationships in moreinnovative companies.2Group incentives & financial performance: the moderating role of innovation

Group incentives & financial performance: the moderating role of innovation1