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COPYRIGHT 2000 Academy of Management
Despite the increasing popularity of group pay-for-performance plans, relatively little theory exists regarding the dynamics of these plans. We integrate goal setting, pay plan characteristics, and group factors to explain and predict the effectiveness of what we call "open-goal" group pay plans. We introduce spontaneous goal setting as a process explanation and propose antecedents that affect a group's propensity to set goals, the goal level chosen, and goal commitment. Finally, we discuss implications of our propositions for future research.
Many firms have implemented group-based pay-for-performance plans--a trend that is likely to continue (Flannery, Hofrichter, & Platten, 1996). In a recent survey Gross (1995) found that 51 percent of companies either had group pay programs or were considering instituting them. This trend is supported by impressive results, including increased productivity (Hansen, 1997; Kaufman, 1992), teamwork (Hatcher & Ross, 1991), pay satisfaction (Welbourne & Cable, 1995), group communication (Hanlon & Taylor, 1991), and decreases in grievances (Hatcher & Ross, 1991) and monitoring costs (Cooke, 1994). Group pay plans take on many names and forms, including profit sharing, gainsharing, team incentives, goal sharing, achievement sharing, winsharing, and results sharing (Belcher, 1996; Lissy, 1993; McNutt, 1990; Schuster & Zingheim, 1993).
The defining characteristic of group pay-for-performance plans is that compensation varies as a function of performance achieved by a group of employees. As we define it, a "group of employees" consists of any number of individuals engaged in interdependent work for interdependent rewards. In practice, groups under pay plans vary from small to plant wide, with the latter often comprising multiple, interdependent subgroups. Although much is known about how group pay plans are structured, little is known about how and why they are successful (Hatcher & Ross, 1991). As put succinctly by authors of a recent review, current practice regarding group rewards has "moved ahead of its basis in empirical research" (DeMatteo, Eby, & Sundstrom, 1998: 142).
In previous work authors have linked specific group pay plans to motivational theories (see Welbourne & Gomez-Mejia, 1995, for a review), identity theory (Welbourne & Cable, 1995), equity (Cooper, Dyck, & Frohlich, 1992), agency theory/organizational justice (Welbourne, Balkin, & Gomez-Mejia, 1995), and Deutsch's theory of cooperation (DeMatteo et al., 1998; Hatcher & Ross, 1991). However, although researchers have recently begun to study the linkages among individual incentives, goal setting (e.g., Lee, Locke, & Phan, 1997), and behavioral choice (e.g., Sundby, Dickinson, & Michael, 1996), no authors have examined possible linkages between group pay plans and goal setting. We delineate why and how goal setting offers an explanation for the effectiveness of group pay plans, as well as insight into areas for future research.
As explained below, for some forms of group pay plans--those in which predetermined goals are specified--the role of goal setting is fairly intuitive. However, even when group pay plans have no predetermined goals or targets, we believe goals and goal setting still play a vital role. A principal proposal is that in these latter plans, referred to here as "open-goal" plans, the promise of rewards motivates group members to specify and pursue challenging performance goals, even when none formally exists. Borrowing from Locke and Latham (1990), we describe this behavior as "spontaneous" goal setting, and consistent with Locke and Latham (1990), we conceptualize spontaneous goal setting as a process in which goals are set not as part of a pay plan architecture but, rather, by group members stimulated by the prospect of financial rewards.
The particular focus of this work is specifying the role of spontaneous goal setting in open-goal plans. We begin by presenting a brief treatment of goal-setting theory as applied to group settings. This is followed by a general description of group pay-for-performance plans. We then develop propositions relating group factors and group pay plan characteristics to goal setting within groups.
GOAL-SETTING THEORY AS APPLIED TO GROUP SETTINGS
Goals affect performance by directing attention and action, mobilizing effort, and motivating individuals to develop goal-attainment strategies (Locke, Shaw, Saari, & Latham, 1981). In groups goals likely cause members to work both "smarter and harder" in cooperative pursuit of the goals. Locke and Latham define a goal as "a specific standard of proficiency on a given task, usually within a time limit" (1990:26). "Goal difficulty" specifies a particular level of proficiency as measured against a standard. Goal-setting theorists most often propose a linear relationship between goal difficulty and performance (Locke, in press; Locke & Latham, 1990; O'Leary-Kelly, Martocchio, & Frink, 1994); in cases in which subjects reach the limits of their ability with difficult goals, however, this relationship levels off (Locke & Latham, 1990). Based on its equivalent in individuals, a group's goal commitment is its "attachment to or determination to reach a goal" (Locke & Latham, 1990: 125). Locke, Latham, and Erez (1988 ) identify goal commitment as an antecedent to performance, as do others (Wofford, Goodwin, & Premack, 1992).
We accept as a given the basic tenets of goal-setting theory regarding goal difficulty or level and commitment and do not restate them here. Rather, we hope to move beyond standard goal-setting propositions in examining group pay-for-performance plans using a goal-setting framework.
GROUP-BASED PAY-FOR-PERFORMANCE PLANS
In some pay-for-performance plans both the reward structure and the performance goals are specified prior to performance. Goal-sharing pay plans are a prototypical example (Belcher, 1996). In goal sharing, goals are established for each performance metric in the plan, and group members receive the associated bonus if the goal is achieved. Along with goals, bonus amounts are specified in advance so that employees understand what they will receive for goal achievement. With bonuses yoked to specific targets,...
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