An Empirical Examination on Organization's Adoption of Performance-based Pay System

Abstract

In this article, we, using data on 263 Japanese companies from a 1998 survey conducted in Aichi prefecture, examine what variables are associated with an organization's adoption of “performance-based pay system” and investigate the relationship between the adoption of “performance-based pay system” and the type of human resource systems.

The findings indicate that (1) some factors significantly positively associated with an organization's adoption of “performance-based pay system” are implementing “protector-oriented strategy” that emphasizes product development or market development rather than low cost, and having an organization's way of thinking to productivity that it helps to encourage some excellent employees for the organizational performance improvement; (2) the relationship between the adoption of “performance based pay system” and “external market-oriented human resource systems” is significantly positive.

These findings imply that (1) organizational characteristics rather than economic reasons and institutional pressures have a strong impact on an organization's adoption of “performance-based pay system” and (2) there are some degree of fitness between “performance-based pay system” and the other human resource practices.