PAY SYSTEM EFFECTIVENESS IN ORGANIZATIONAL CHANGE: UNDERSTANDING HOW AND WHEN PERCEIVED PAY EQUITY AND PAY EQUALITY AFFECT ADAPTIVE TEAM PERFORMANCE

Abstract

In today’s fast-paced economy, organizations undergo changes almost constantly in order to survive or maintain competitive. Under such backdrop, it is important to understand how pay system can help teams adapt and perform well when organizational change disrupts existing ways of collective functioning. However, little theoretical effort has been given to this important topic. The main purpose of this dissertation is to develop theory that explains how pay system can be leveraged to facilitate adaptive team performance. I extend the management literature by clarifying 1) what pay system characteristics are important for promoting adaptive team performance, 2) how such pay system characteristics take effects to shape adaptive team performance and, 3) when such pay system characteristics are more or less instrumental for benefiting adaptive team performance. Specifically, I first propose that adaptive team performance is a function of two pay system characteristics: pay equity and pay equality. Next, I argue that pay equity and pay equality contribute to adaptive team performance through distinct mechanisms. That is, the pay equity operates through facilitating planned coordination; while pay equality operates through facilitating emergent coordination. Last, I predict that interdependence uncertainty serves as a boundary condition to weaken the effects of pay equity on team coordination and adaptive team performance, but strengthen the effects of pay equality on team coordination and adaptive team performance. I tested these hypotheses in a manufacturing firm during a period it went through a major organizational change. Using a sample of 207 production teams, I found evidence that largely supported my theoretical model. This dissertation not only offers a more sophisticated understanding of pay system effectiveness in organizational change, but also provides improved prescriptions for organizations and managers.