How to Increase Employee Performance with Incentives after Employees Participated in the Development of Operational Performance Indicators?


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Abstract

Involving employees in the development of operational performance indicators (PIs) has generally been found to lead to better employee performance. We examined how this happens by taking the perspective of supervisory managers who use PIs to measure the performance of their employees. We investigate the intervening role of PI quality and how the PIs were used to give incentives. The hypotheses are based on two theories: the agency and self-determination theories. Survey data was collected from 86 pairs of non-managerial employees and their supervisory managers in various jobs and industries. We used structural equation modelling to test the hypotheses. Most of them were supported. The results suggest that employee participation in the design of PIs is related to employee job performance in as much as how the manager rates the quality of the PIs and subsequently whether the manager uses the PIs for evaluation purposes. No support was found for the hypotheses on using PIs for monetary compensation or nonmonetary rewards to increase employee job performance. We discuss the implications for management research and practice and give suggestions for future research.  
 
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Paulo Perego

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