The effectiveness of incentive payment systems: An empirical test of individualism as a boundary condition.

Incentive payment systems became more widely used by companies in the 1980s; their acceptance was supported by the predictions of theorists in disciplines such as economics and social psychology. These theoretical traditions have for the most part proceeded separately, but we argue, there is potential for combining these insights of different traditions to improve the predictive power of models of incentive pay. To this end, this study demonstrates the potential of an interdisciplinary approach to modelling incentive pay. Closer inspection of current models finds that they are founded on assumptions of rational economic man, including calculative individualism. In practice, however, these assumptions often do not hold. We hypothesize that explicitly specifying individualistic values among employees as a boundary condition for the successful operation of incentive pay systems can improve models' predictive power. Our hypotheses are tested by reference to a data set of the opinions of 1240 employees in 14 companies across England and Wales. An incentive pay model was found to have greater predictive power among relatively individualistic employees than among those of relatively collectivistic value sets. In addition, the incidence of an incentive pay system was associated with more effort being supplied among individualistic employees, but there was no significant difference in the effort supplied by collectivistic employees whether or not they are covered by an incentive pay system