Performance Contingent Pay
MANAGERIAL COMPENSATION BASED ON ORGANIZATIONAL PERFORMANCE: EVIDENCES IN VIET NAM BANKING SECTOR
ABSTRACT
Viet Nam banking sector was emerging rapidly after had joined WTO at the end of 2006 and performance contingent compensation is a widely accepted means for rewarding managers, but there is no empirical test of its effectiveness in Viet Nam banking sectors. Does managerial compensation to organizational performance lead to higher organizational performance? It appears to be a truism that if you want to motivate high performance, you will attach rewards to it. Several prominent theories of organization behavior (Fein, 1976; Lawler, 1971, 1981) support this common sense view. The study of John L. Pearce, et al (1985) applied a time series procedure to organizational performance data in the Social Security Administration to indicate that the merit pay program had no effect on organizational performance in social organizations. Although, merit pay and bonuses for managers are common forms of compensation, there have been lacks of tests of their effectiveness, especially in banking sectors (Dyer & Schwab, 1982).
In this study, the author will apply a Box and Jenkins (1976) time series procedure, which was used by Perry & Porter (1981) and Pearce, et al (1985), to determine whether or not implementing a merit pay plan that tied to managers salaries to organizational performance indicators resulted in improved organizational performance in Viet Nam’s banking sector. The results of the study will contribute to the improvement of conceptualization of human resource management and help human resource managers in Viet Nam banking sector planning compensation policy for managers more effectively.
LITERATURE REVIEW
Many theorists have discussed the motivational aspects of pay. Opsahl and Dunnette (1966) reviewed several prominent psychological theories and discussed their implications for organizational compensation, but their study did not discuss about
ABSTRACT
Viet Nam banking sector was emerging rapidly after had joined WTO at the end of 2006 and performance contingent compensation is a widely accepted means for rewarding managers, but there is no empirical test of its effectiveness in Viet Nam banking sectors. Does managerial compensation to organizational performance lead to higher organizational performance? It appears to be a truism that if you want to motivate high performance, you will attach rewards to it. Several prominent theories of organization behavior (Fein, 1976; Lawler, 1971, 1981) support this common sense view. The study of John L. Pearce, et al (1985) applied a time series procedure to organizational performance data in the Social Security Administration to indicate that the merit pay program had no effect on organizational performance in social organizations. Although, merit pay and bonuses for managers are common forms of compensation, there have been lacks of tests of their effectiveness, especially in banking sectors (Dyer & Schwab, 1982).
In this study, the author will apply a Box and Jenkins (1976) time series procedure, which was used by Perry & Porter (1981) and Pearce, et al (1985), to determine whether or not implementing a merit pay plan that tied to managers salaries to organizational performance indicators resulted in improved organizational performance in Viet Nam’s banking sector. The results of the study will contribute to the improvement of conceptualization of human resource management and help human resource managers in Viet Nam banking sector planning compensation policy for managers more effectively.
LITERATURE REVIEW
Many theorists have discussed the motivational aspects of pay. Opsahl and Dunnette (1966) reviewed several prominent psychological theories and discussed their implications for organizational compensation, but their study did not discuss about
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