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The bonus as hygiene factor:

the role of reward systems in the
high performance organization
Andre de Waal

The bonus as
hygiene factor

41

Maastricht School of Management, Maastricht, The Netherlands, and

Paul Jansen
Faculty of Economics & Business Administration, VU University, Amsterdam
Abstract
Purpose The ongoing debate about the effects of bonuses on managers performance and the role
of reward systems in organizations has still not led to a unanimous conclusion among academics
and practitioners. Those in favor of bonuses state that applying bonuses and putting emphasis
on monetary rewards increases productivity and organizational performance, while those against
bonuses claim that use of bonuses and monetary rewards leads to counterproductive results.
A key question often overlooked in the discussion is: How important is handing out bonuses
for an organization to become and stay successful for a longer period of time? This paper seeks to
address these issues.
Design/methodology/approach This paper describes the results of research into the
characteristics of high performance organizations (HPOs) and the role of bonuses and reward
systems in creating and maintaining HPOs.
Findings The research results show that use of bonuses or implementation of certain types of
reward systems have neither a positive nor a negative effect on organizational performance. This
may be explained by the fact that reward systems are a hygiene factor for an organization.
If an organization does not have an appropriate reward system (whether or not including bonuses), it
will run into trouble with its employees and have difficulty improving its performance. If it
does a situation which employees expect and consider to be normal it can start working on
becoming an HPO.
Originality/value The results of this study further the discussion about the role of bonuses.
Keywords High performance organizations, Promotion and compensation,
Work performance and productivity, Bonuses, Organizational performance
Paper type Research paper

1. Introduction
Ever since the financial scandals that rocked the business world and the worldwide
financial crisis that followed, the debate on the effects of bonuses on the performance
of especially managers and the role of reward systems in organizations has divided
academics and practitioners alike (Sikula, 2001). The divergence of opinion among
academics becomes clear when studying scientific research into bonuses and reward
systems. On the one side are the proponents of bonuses who state that use of bonuses
and emphasis on monetary rewards increases productivity and organizational
performance. For instance, Yao (1997) studied the impact of profit sharing and bonus
payment on the performance of Chinese state industries and concluded that over half of
the value-added growth of these industries could be explained by bonus incentives.
Further, Belfield and Marsden (2003) found, while studying the data of the 1998
Workplace Employee Relations Survey conducted in England, strong evidence that
the use of performance related pay enhances performance outcomes, although this
relationship is influenced by the structure of workplace monitoring environments.

Evidence-based HRM: A Global

Forum for Empirical Scholarship
Vol. 1 No. 1, 2013
pp. 41-59
r Emerald Group Publishing Limited
2049-3983
DOI 10.1108/20493981311318601

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Hollowell (2005), looking at the relationship between high-incentive-based executive

pay contracts and long-term firm performance found that organizations with a
robust executive compensation structure exhibit commensurate superior long-term
stock-price performance. In his view, his findings decide the question: Is executive
pay a function of performance or is executive performance a function of pay? in favor
of the latter. Finally, Lazear and Oyer (2009) recently provided an overview of research
into the effect of incentives in organizations. Many of the studies reviewed by them
showed that incentives can be a powerful managerial tool for affecting individuals
behavior in a positive way. Specifically, productivity can be increased using
incentives like piece rates. Yet, Lazear and Oyer (2009) also discussed studies that
showed that even though incentives worked, in the sense that they had a positive
effect on results, they did not always work consistently, or worked with prolonged
effects and sometimes even had unintended and unwanted consequences like
manipulation of results.
On the other side are the opponents of bonuses and monetary rewards. For instance,
Bloom (1999) showed that companies with higher pay inequality suffer from greater
manager and employee turnover. He also found that major league baseball teams
with larger gaps between the highest-paid and lowest-paid players lose more games;
they score fewer runs and let in more runs than teams with more compressed pay
distributions. It seems that the benefits to the high performers are outweighed by the
costs to the low performers, who apparently feel unfairly treated and reduce their
effort as a result. Also, Gneezy and Rustichini (2000) found that introducing new
incentive schemes in which employees are offered monetary incentives could cause
them to perform more poorly than those employees who were offered no compensation.
Siegel and Hambrick (2005) showed that high-technology firms with greater pay
inequality in their top management teams, because of the use of bonuses, have lower
average market-to-book value and shareholder returns than firms with more equal
management pay. Bruce et al. (2007), in their study of the relation between executive
bonus and firm performance in UK firms, found that increased bonus scheme
complexity tended to increase bonus pay-outs without an associated increase in
shareholder returns. Some opponents looked at the relation between firm performance
and bonuses. Tosi et al. (2000) found during a meta-analytical review of the empirical
literature on the determinants of chief executive officers pay that firm performance
accounted for o5 percent of pay variance. This finding was supported by Fattorusso
et al. (2007) who found that the financial performance of UK firms showed no
significant relation to the size of bonus pay. Duffhues and Kabir (2008) found the same
result in regard to executive directors of Dutch-listed companies, and therefore
challenged the conventional wisdom that executive pay helps to align shareholder
interests with those of managers. Stone et al. (2010) plainly stated: financial incentive
effects are unreliable. Finally, there are also studies with mixed results. One such
example is Bonner et al. (2000) who found that the type of task being performed and the
type of incentive scheme being employed affect the efficacy of financial incentives.
Another is the study by Samuels and Whitecotton (2011) who found that the effects
of incentives depend on contextual factors.
In the polemic between proponents and opponents a key question regarding
bonuses is often overlooked: How important is handing out bonuses for an
organization to become and stay successful for a longer period of time? One way to
obtain an answer to this question is by studying the results of research into the
characteristics of high-performance organizations (HPOs). This research aimed at

identifying characteristics that explain the sustainable success of an organization

(de Waal, 2012). This paper discusses the set-up and the results of this HPO research,
and describes in more detail the findings in the field of reward systems and bonuses.
The consequences of the research results for the role of reward systems in creating and
maintaining HPOs are also discussed. Finally a conclusion, practical implications
and limitations of the research are given.
2. The HPO research study
The HPO research study (de Waal, 2006/2010, 2012) aimed to identify the determining
factors that explain sustainable success of organizations. An HPO is defined as an
organization that achieves financial and non-financial results that are better than
those of its peer group over a period of time of at least five to ten years (de Waal, 2012).
To identify the elements that make up an HPO, a two-phased study was undertaken.
It started in phase 1 with a literature review that focussed on identifying
characteristics of high performance and excellence that were subsequently tested in an
empirical study in phase 2.
2.1 Phase 1: descriptive literature review
The first phase, the descriptive literature review, consisted of selecting the studies on
high performance and excellence that were to be included in the empirical study.
Criteria for including studies in the research were that the study was aimed specifically
at identifying HPO factors or best practices; consisted of either a survey with a
sufficient large number of respondents so that its results could be assumed to be (fairly)
generic, or of in-depth case studies of several companies so the results were at least
valid for more than one organization; employed triangulation by using more than one
research method (e.g. a questionnaire and interviews); and had written documentation
containing an account and a justification of the research method, research approach
and selection of the research population, an analysis of the research data, and
traceable conclusions and results so that the quality of the research method could
be assessed. The studies to be reviewed were collected by searching the databases
of Business Source premier, Emerald and Science Direct, and by Google searches for
the words high performance, excellence, financial performance, organizational results,
high-performing organizations, high-performance managers, high-performance
workforce, accountable organization, adaptive enterprise, agile corporation, agile
virtual enterprise, democratic enterprise, flexible organization, high-performance work
system, high-reliability organization, intelligent enterprise, real-time enterprise,
resilient organization, responsive organization, robust organization and sustainable
organization. In addition, business and management books were included in the
review. The literature search yielded 290 studies which satisfied all or some of the four
criteria. The studies were grouped into three categories: (A) studies which satisfied
all four criteria. These studies formed the basis for the identification of the HPO
characteristics. Category A comprised 105 studies. (B) Studies which satisfied Criteria
1 and 2 but not Criterion 3 and Criterion 4 only partly, because the research approach
appeared thorough but no exact description and justification of the method used were
given. These studies provided additional input for the identification of HPO
characteristics. Category B comprised 66 studies. (C) Studies which satisfied Criteria 1
and 2 but not Criteria 3 and 4, so there was no basis for generalizing the study findings.
These studies were used as a reference to support the HPO characteristics that were
identified in categories A and B studies. Category C comprised 119 studies.

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The identification process of the HPO characteristics consisted of a number of steps.

First those items were extracted from each of the 290 publications that the authors
regarded essential for high performance. Because authors used different terminologies
in their publications, the items were grouped according to similarity and each
group later to be named characteristic was given an appropriate description.
To test the reliability of this classification procedure, this process was reviewed and
repeated by an external academic for the first 90 studies and immediate agreement
on the characteristics was 90 percent. The results of this independent review were
extensively discussed until agreement on the categorization and the formulation of the
characteristics was reached. A total of 189 characteristics were identified. After that,
the weighted importance (i.e. the number of times a characteristic occurred in the
studies; where studies in category A weighted more than those in category B, which in
turn weighted more than studies in category C) was calculated for each characteristic.
Finally, the characteristics with a weighted importance of at least 9 percent were
considered to be the characteristics that potentially made up a HPO. A cut-off
percentage 9 percent was chosen as there was a distinct gap around this percentage:
several characteristics scored considerably below 9 percent while the next closest
scoring characteristics scored considerably higher than 9 percent, namely 14 percent.
The relatively low cut-off percentage of nine was also chosen because such a lower
limit made testing many characteristics possible, which is important in exploratory
research. The cut-off resulted in a list of 53 potential HPO characteristics.
2.2 Phase 2: empirical study
Phase 2 of the HPO research consisted of an empirical study. The 53 potential HPO
characteristics were included in a questionnaire that was administered during lectures
and workshops for managers in Europe, North-America, Asia, Africa and SouthAmerica. Respondents were asked to grade how well their organization performed on
the various HPO characteristics on a scale of 1 (very poor) to 10 (excellent) and also
how the organizational results compared to those of their competitors/peer groups.
Two types of competitive performance were distinguished (Matear et al., 2004): relative
performance (RP) vs competitors: RP 1([RPTRPW]/[RPT]), in which RPT is the
total number of competitors and RPW the number of competitors with worse
performance; historic performance (HP) of the past five years (possible answers: worse,
the same or better). These subjective measures of organizational performance are
generally accepted indicators of real performance (Dawes, 1999; Devinney et al., 2005;
Jing and Avery, 2008). All respondents were working, some of them taking classes on
the side, and no selection was made according to sex or age. The questionnaire yielded
in total 2,015 valid responses from 1,470 organizations.
In the first step of the statistical analysis a principal component analysis with
oblimin rotation was performed. This yielded 40 characteristics with a loading higher
than 0.300, in six factors. These were then put in a non parametric Mann-Whitney
test which resulted in 35 characteristics in five factors that showed a statistically
significant correlation with competitive performance. The factor scales showed
acceptable reliability (Hair et al., 1998) with Cronbachs a values close to or above 0.60.
As the data set contained responses from approximately 50 countries, 15 industries
(profit, non-profit and government), and different types of organizations (small, large,
family-owned, quoted on the stock market) the statistical analysis was repeated for all
these sub-sets, with the same outcome of 35 characteristics. In Appendix 1 the results
of this statistical analysis can be found.

2.3 Results of the empirical study

Many different definitions of HPOs can be found in the literature. They are often
described in the sense of what they have achieved or consist of: strong financial results,
satisfied customers and employees, high levels of individual initiative, productivity
and innovation, aligned performance measurement and reward systems and strong
leadership (Collins and Porras, 1994; Brown and Eisenhardt, 1998; Hodgetts, 1998;
Mische, 2001; Zook and Allen, 2001; Annunzio, 2004; Bruch and Ghoshal, 2004). As
stated above, researchers approach the topic of high performance from different
backgrounds and angles and with different goals. It is therefore not surprising that
there is not a univocal definition of an HPO available yet. In this study, the definitions
found in the category A studies were combined to arrive at the following definition: a
HPO is an organization that achieves financial and non-financial results that are better
than those of its peer group over a period of time of at least five to ten years.
The study results showed there was a direct relation between the HPO factors and
competitive performance. Organizations which paid more attention to HPO factors
and scored high on these consistently achieved better results than their peers, in
every industry, sector and country in the world. Conversely, organizations which
scored low on HPO factors ranked performance-wise at the bottom of their industry.
The five HPO factors are described underneath. The detailed characteristics can be
found in Appendix 2.
2.3.1 HPO factor management quality. In an HPO, management maintains trust
relationships with people on all organizational levels by valuing employees loyalty,
treating smart people with respect, creating and maintaining individual relationships
with employees, encouraging belief and trust in others, and treating people fairly.
Managers at an HPO work with integrity and are a role model by being honest and
sincere, showing commitment, enthusiasm and respect, having a strong set of ethics
and standards, being credible and consistent, maintaining a sense of vulnerability and
by not being self-complacent. They apply decisive, action-focussed decision making by
avoiding over-analysis but instead coming up with decisions and effective actions,
while at the same time fostering action taking by others. HPO managers coach
and facilitate employees to achieve better results by being supportive, helping
them, protecting them from outside interference and by being available.
Management holds people responsible for results and is decisive about nonperformers by always focussing on the achievement of results, maintaining clear
accountability for performance and making tough decisions. Managers at an HPO
develop an effective, confident and strong management style by communicating
the values and by making sure the strategy is known to and embraced by all
organizational members.
2.3.2 HPO factor openness and action orientation. Apart from having an
open culture, an HPO uses the organizations openness to achieve results. In an HPO,
management values the opinion of employees by frequently seeking a dialogue with
them and involving them in all important business and organizational processes.
HPO management allows experiments and mistakes by permitting employees to take
risks, being prepared to take risks themselves and seeing mistakes as an opportunity
to learn. In this respect, management welcomes and stimulates change by continuously
striving for renewal, developing dynamic managerial capabilities to enhance flexibility
and being personally involved in change activities. People in an HPO spend a lot of
time on dialogue, knowledge exchange and learning in order to obtain new ideas to
improve their work and make the complete organization performance-driven.

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2.3.3 HPO factor long-term orientation. In an HPO, long-term is far more

important than short-term gain. This long-term orientation is extended to all
stakeholders of the organization, that is shareholders as well as employees, suppliers,
clients and society at large. An HPO continuously strives to enhance customer value
creation by learning what customers want, understanding their values, building
excellent relationships and having direct contact with them, involving them in the
organizations affairs, being responsive to them and focussing on continuously
enhancing customer value. An HPO maintains good long-term relationships with all
stakeholders by networking broadly, taking an interest in and giving back to society,
and creating mutual, beneficial opportunities and win-win relationships. An HPO
also grows through partnerships with suppliers and customers, thereby turning the
organization into an international network corporation. Management of an HPO is
committed to the organization for the long haul by balancing common purpose with
self-interest, and teaching organizational members to put the needs of the enterprise
as a whole first. They grow new management from the own ranks by encouraging
staff to become leaders, filling positions with internal talent and promoting from
within. An HPO creates a safe and secure workplace by giving people a sense of safety
(physical and mental) and job security and by not immediately laying off people
(dismissal is a last resort).
2.3.4 HPO factor continuous improvement. The process of continuous
improvement starts with an HPO adopting a strategy that will set the company
apart by developing many new alternatives to compensate for dying strategies.
After that, an HPO will do everything in its power to fulfil this unique strategy.
It continuously simplifies, improves and aligns all its processes to improve its ability
to respond to events efficiently and effectively and to eliminate unnecessary
procedures, work and information overload. The organization also measures and
reports everything that matters, so it measures progress, monitors goal fulfilment
and confronts the brutal facts. It reports these facts not only to management but to
everyone in the organization so that all organizational members have the financial
and non-financial information needed to drive improvement at their disposal. People
in an HPO feel a moral obligation to continuously strive for the best results. The
organization continuously innovates products, processes and services, constantly
creating new sources of competitive advantage by rapidly developing new products
and services to respond to market changes. It also masters its core competencies and is
an innovator in them by deciding and sticking to what the company does best, keeping
core competencies inside the firm and outsourcing non-core competencies.
2.3.5 HPO factor workforce quality. An HPO makes sure it assembles a diverse
and complementary workforce and recruits people with maximum flexibility to help
detect problems in business processes and to incite creativity in solving them. An HPO
continuously works on the development of its workforce by training staff to be both
resilient and flexible, letting them learn from others by going into partnerships with
suppliers and customers, inspiring them to work on their skills so they can accomplish
extraordinary results and holding them responsible for their performance so they will
be creative in looking for new productive ways to achieve the desired results.
3. Results with respect to bonuses and reward systems
In 55 of the 290 studies reviewed in phase 1, elements in relation to bonuses and reward
systems could be identified. This meant that in nineteen percent of the sources bonuses
and reward systems were found to be potentially important in creating and sustaining

an HPO. The HPO research yielded 12 potential HPO characteristics with respect
to bonuses and reward systems:
(1)

A fair reward and incentive structure: in a worldwide study into the

correlation between employee attitudes and financial success, Maister (2001)
found that these employee attitudes are positively influenced by reward
systems that pay out a fair compensation. In research of Taiwanese highperforming organizations, Huang (2000) concluded that these perform better
than low-performing organizations among others because they stress internal
equity when designing their compensation systems. Corby and White (2003)
discovered, while researching the introduction of performance pay in
Englands National Health Service, that the new reward system in theory was
viewed favorably but that there was a big fear that the system would not be
used fairly and equitably and therefore would be ineffective. Underwood
(2004) found that good performing international companies used reward
systems that value their employees. Sirota et al. (2005) in their research
of what motivates employees to excel, discovered that equity was very
important to them: to be treated justly in relation to the basic conditions of
employment and having a sense of elemental fairness in the way they are
treated, which could be achieved by for employees satisfactory compensation
and fringe benefits. Holbeche (2005) called this a fair employee deal
which is important for creating the impression of a fair compensation system
among employees, as Prinsloo et al. (2007) also found. Burney et al. (2009)
found that tying the reward structure directly to a strategic performance
measurement system increases the feeling of fairness employees have toward
the reward system.

(2)

Reward systems that reinforce core values and strategy: Montemayor (1996)
found that American high-performing firms although they used many
different types of pay policies, yet these policies always were congruent with
their strategy, while inferior firm performance was associated with the lack
of fit between pay policy and business strategy. Lewis (2000) discovered the
same during his research at a bank. Lawler (2003) stated in his overview
of HRM practices of companies that the best organizations devised and
implemented reward systems that reinforced their core values and strategies.

(3)

Pay and incentives linked to long-term performance: in a literature review

into characteristics of high-performing organizations, Kling (1995) found
that linking employee pay and incentives to long-term performance of the
organization had a positive relationship with productivity. Weller and
Reidenbach (2011) argue that, in the light of the recent recession and
ponderous economic recovery, a better balance in the incentives for short-run
and long-run performance has to be achieved as currently corporate
managers have stronger incentives to pursue short-term profit-seeking
activities than to invest in longer-term productive activities This is also an
issue in the public sector as Bebchuk and Fried (2010) state.

(4)

Rewards based on RP: one of the key components of the beyond budgeting
concept is rewarding success based on RP vs competitors, as Hope and Fraser
(2003) state. Another form of RP is discussed by Guojin et al. (2011), which is
peer performance within an organization, in which incentives are paid out

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after a comparison of an individuals performance with that of his peers

in the same function. Matsumura and Shin (2006) found that financial
performance improved following the implementation of an incentive plan
that includes RP measures.
(5)

Group compensation: Hammer (2001), while reviewing emerging business

concepts developed by best companies to deal with the increasingly turbulent
environment, found that these organizations employed reward systems that
emphasized group performance over individual performance. In his research
into productive companies, Jennings (2002) assumed that the pay plans of
the companies were the reason they achieved high productivity. Instead
he found that these pay plans, which were based on group productivitybased compensation, drove and reinforced the culture that in turn increased
productivity. The same was found by Guthrie (2001) for New Zealand
organizations. Pizzini (2010) found that productive benefits induced by group
incentives used in medical partnerships offset reductions in output associated
with free-riding and efforts devoted to monitoring.

(6)

Creative and flexible rewards: in their study of companies which dealt

successfully with creative destruction in the marketplace, Foster and Kaplan
(2001) found that these companies used reward structures that reflected
and increased the freedom these organizations needed to deal with flexibility
in the market. Tuominen et al. (2004) found that the higher the level of
adaptability of a firm the higher the level of environmental complexity that
can be handled by that firm and the better the chances of its long-term
survival, and an integral part of that adaptability was a flexible reward
structure. Smith et al. (2005) mentioned that high-performing organizations
have a wider repertoire of approaches toward reward management than lowperforming organizations.

(7)

Pay-for-performance: Bae and Lawler (2000) found that Korean organizations

that used a high-involvement HRM strategy achieved better results than
those that did not, and that performance-based pay was an integral part
of that HRM strategy. The same results were found by Challis et al. (2005)
and Knight-Turvey (2005) for Australian companies, de Kok and
den Hartog (2006) for Dutch small- and medium-sized companies, Chang
(2006) for South Korean firms and Origo (2009) for Italian metalworking
firms. Joyce et al. (2003) identified that successful US companies used
eight management practices, among which pay-for-performance systems.
This finding was similar to that of Martel (2002) in a study of some of
American best companies.

(8)

Emphasis on intrinsic rewards (fun, growth, teamwork, challenge,

accomplishment): Katzenbach (2000) and OReilly and Pfeffer (2000) found
in their studies of successful and well-known American companies that these
constrained monetary rewards in favor of more meaningful intrinsic rewards.
Annunzio (2004) discovered that organizations which employed many
employees specifically used non-financial recognition for group performance
to motivate people. In their study of family controlled businesses, Miller and
Le Breton-Miller (2005) found that high-performing businesses put more
emphasis on using intrinsic incentives than low-performing family controlled

48

businesses did. Prendergast (2008) even stated that it might be better for
organizations to, instead of using monetary incentives, match the intrinsic
motivations of employees with the tasks they need to do and as such
emphasize the intrinsic nature and reward of the job itself.
(9)

Employee stock as incentive: Guthrie (2001) in a study of New Zealand

businesses which used high-involvement work practice found that rewarding
employees with stock was used as an incentive instrument. The same was
discovered by Knight-Turvey (2005) among successful Australian companies,
and by Chen (2007) for Taiwanese companies. The research results in Taiwan
were confirmed in a later study performed by Lin et al. (2010).

(10)

A minimum threshold for incentive pay and no cap on pay-outs of incentives:

Zhou and Swan (2003) found that using bonus thresholds in executive
compensation contracts is efficient in the sense that it mitigates agency
cost. Hewitt (2004) discovered, in a study of high-growth high-profitable
organizations, that these companies installed reward systems which had a
minimum threshold below which no incentive was paid and at the same time
had no cap on pay-outs either. Kelley and Hounsell (2007) identified that using
a gain-sharing program without cap resulted in considerably increased
profitability at the distribution warehouses where this scheme was used.
Sohoni et al. (2011) found, in an experiment at dealerships, that using bonus
thresholds reduced sales variance and increased sales performance.

(11)

Skill-based pay: Lawler et al. (1998) in their studies of Fortune 1,000

corporations discovered they designed their reward systems in such a way
that they supported employees in strengthening their skills so they can take
on more decision-making responsibility. Challis et al. (2005) and Knight-Turvey
(2005) both found that well-performing Australian companies rewarded their
employees for knowledge and skill development, which was also found by
Guthrie (2001) for New Zealand organizations. Dierdorff and Surface (2008)
found that skill-based pay had a positive influence on the rate of learning of
employees. It has to be noted that Giancola (2009) remarked that in recent years
skill-based pay is increasingly replaced by competency-based pay.

(12)

Rewards for results, not efforts or seniority: Quinn et al. (2000) concluded
that for a company to become a responsive organization it among others
has to install incentive systems that reward for performance and not
for effort. Guthrie (2001) in a study of New Zealand businesses which used
high-involvement work practice found that they specifically rewarded
employees for their results, not for their seniority in the company. The same
result was found by Knight-Turvey (2005) among successful Australian
companies, and also by Goldsmith and Clutterbuck (1997) in a review of the
worlds most admired companies. van der Berg and de Vries (2004), in their
study of Dutch high-performing organizations, stated that these companies
used incentive systems that specifically rewarded employees for their
performance and punished them for poor results. Sirota et al. (2005), in
their research of what motivates employees to excel, found that highperforming employees take pride in their accomplishments by doing things
that matter and doing them well and then receiving the (financial) recognition
for these accomplishments.

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Although most pay-related HPO characteristics may be considered to be fairly

independent from each other (e.g. 1, 3, 4, 5), some may be correlated positively
(e.g. 1 and 2) or negatively (e.g. 8 and 9, 7 and 11 or 7 and 12). This suggests that there
is not one systematic way to construct a reward system suitable for an HPO but that
there could be many different types of reward systems that potentially lead to high
performance. For the 12 characteristics the weighted importance was calculated and it
became apparent that only one characteristic surpassed the threshold of the weighted
importance of 9 percent: A fair reward and incentive structure. This was because the
other 11 characteristics were not mentioned enough in Category A studies to surpass
the 9 percent threshold. This means that previous researchers did not find enough
evidence that characteristics with regard to bonuses and reward management play a
major consistent role in creating and maintaining HPOs. Further, during the empirical
study in phase 2, the remaining characteristic A fair reward and incentive structure
did not show a significant correlation with competitive performance, which means that
this characteristic in the end also was not related to organizational performance. This
leads to the conclusion that bonuses and reward systems are not distinguishing factors
for creating and sustaining HPOs. Thus, well-performing organizations are as likely
to use bonuses or certain types of reward systems as they are not. Using bonuses will
therefore not help nor hurt organizations in achieving sustained high performance.
In the following section we discuss possible explanations for this research result.
4. Discussion
How can the research result that bonuses and reward systems do not show a
significant correlation with organizational performance be explained, especially in the
light of the continuing interest in bonuses and reward systems? One explanation could
be the very nature of the debate discussed in the introductionary section. In the field
of reward management it seems that for every proponent there is an opponent, which
means that for the 12 potential HPO characteristics discussed in the previous
section there is also proof of the contrary. For instance, for the characteristic pay-forperformance Werner et al. (2011) compared the results of hospitals which used this
payment scheme with those of hospitals without pay-for-performance and found that
while performance initially improved in hospitals with pay-for-performance, after five
years results in both types of hospitals were the same again This result was supported
by the research of Mullen et al. (2010) in the same domain of hospitals. Weibel et al.
(2010) explained the limited success of pay-for-performance in public sector
organizations by stating that pay for performance is generally more costly than it
first appears because it almost always produces hidden costs of rewards. In regard to
the characteristic emphasize intrinsic rewards Mahaney and Lederer (2006), in their
research of failures of information system implementations, stressed that there should
not be an emphasis on one type of incentives but that there should be a reward system
based on a combination of intrinsic and extrinsic incentives. For the characteristic
rewards for results, not efforts or seniority Fischer (2008) actually found that
economically successful organizations used seniority when making decisions about
pay raises. When looking at the characteristic skill-based pay, Giancola (2009)
categorically stated that this type of incentive scheme has failed because it did not
improve results. All in all, we deduce that there is no theoretical and empirical
consensus among academics about pay systems and long-term success, a conclusion
which is also reached by Rynes et al. (2005, p. 590) in their meta-analysis of the pay-forperformance literature: Every pay program has its advantages and disadvantages.

Programs differ in their sorting and incentive effects, their incentive intensity and risk,
their use of behaviors versus results, and their emphasis on individual versus group
measures of performance. Because of the limitations of any single pay program,
organizations often elect to use a portfolio of programs, which may provide a means of
reducing the risks of particular pay strategies while garnering most of their benefit.
Another explanation for the finding that bonuses and type of reward systems do not
significantly correlate with performance could be that the reward system is simply a
hygiene factor (LaBelle, 2005). The organization needs to have an appropriate reward
system, (whether or not bonuses are included) which is considered to be fair and
equitable. However, a reward system is not a distinctive characteristic with respect to
superior performance. If a reward system is not in place, the organization will run into
trouble and opposition with its employees, and becoming an HPO will then be virtually
impossible. If such a system is in place and it does not seem to really matter what
type of reward system as long as it is appropriate for the organization in question
employees will consider it normal and will be content, so the organization can
start thinking of turning itself into an HPO. The hygiene factor originates from the
satisfaction theory of Herzberg (1987), which states that performing well on these
hygiene factors does not necessarily lead to high performance, while performing
badly will lead to demotivation and dissatisfaction. Therefore, Herzberg also referred
to hygiene factors as demotivators or dissatisfiers. Thus, the reward system and
bonuses can be seen as a form of dissatisfiers: if they are not in place, people will
certainly not be motivated to excel. If reward systems and bonuses are considered to be
hygiene factors, then organizations should make sure these factors do not cause any
dissatisfaction among employees and with that hamper the organization in making
the transition to HPO ( Jindal-Snape and Snape, 2006).
5. Conclusion, limitations and further research
The literature review described in this paper showed that there are 12 characteristics,
found in research studies into HPO, that have a bearing on the type of bonuses
and reward systems that organizations can apply to achieve high performance.
However, 11 of these 12 characteristics seem to have a minor role compared to other
characteristics found in the literature review (which relate, among others, to
organizational structure, quality of management, quality of workforce, information
technology and communication) and did not make the cut into the empirical study.
In the empirical study, the remaining characteristic A fair reward and incentive
structure did not show a significant relation with organizational performance. The
conclusion therefore is that using bonuses or implementing certain types of reward
systems does not have a positive nor a negative effect on organizational performance.
A possible explanation for this result is that reward systems are a hygiene factor for an
organization. If the organization does not have an appropriate reward system, with or
without bonuses, it will run into trouble with its employees. If it does, which employees
expect and consider as normal, it can start working on improving its performance.
This research result puts the ongoing debate on the use of bonuses and reward
systems to improve the results of organizations in a different light. Putting a lot of
effort in introducing bonuses or a certain type of reward system and then expecting
the organization to improve its results and maybe become an HPO, is unrealistic.
The reward system is not a determining factor for high performance. However,
there may be other arguments for designing a reward system. For instance, an
organization should not differ too much from other organizations in its sector

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51

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52

(Dimaggio and Powell, 1991) or, for equity reasons, internal pay dispersion should not
be too large. The practical implication of this study is that organizations should
not spend a great deal of time on designing and implementing elaborate and
sophisticated reward systems to improve performance. They just have to make sure an
appropriate reward system is installed that is considered to be fair and equitable by
employees. This creates a good foundation for building an HPO.
There are several limitations to this study. Despite the fact that the literature
search was extensive, potentially valuable studies may not have been included.
In this respect, it should also be noted that predominantly published studies were taken
into account, which created a potential bias as unpublished studies may contain
different outcomes (Ashworth et al., 1992). Another potential bias is the presence of
subjectivity in the choice of literature sources that were included in the study
(Ashworth et al., 1992). This problem has been alleviated by including literature from
many different disciplines during the selection process. As common in questionnairebased research and self-reported scores, there is the possibility of attribution. Is it
possible that the respondents reporting high performance and those reporting low
performance make implicit attributions of characteristics, and in fact, causation.
The studies used in the descriptive literature review, by definition, looked at what
organizations did in the past and the results are therefore not necessarily valid for
a dynamic future (Morton, 2003).
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Appendix 1. Results of the statistical analysis

In order to verify whether the potential HPO factors were correlated with competitive
performance, a correlation matrix was constructed. As Table AI shows, five of initial six factors
correlated with RP and HP. As the potential HPO factor autonomy did not show a correlation
with RP and only a weak correlation with HP, it was eliminated as an HPO factor. Interestingly,
the correlation with HP was a negative one, which indicates that too much autonomy has a
negative effect on performance. It seems that a certain degree of coordination and control in the
organization is required for being competitive.
To test whether organizations with a high HPO score showed better performances than
organizations with a low HPO score, we divided the respondents in three groups according to their
RP score. Group 1 had a RP below 0.33, Group 2 a score between 0.34 and 0.65 and Group 3 a score
above 0.66. Using t-tests for differences in group means between Groups 1 (low) and 3 (high), we

Relative performance
Correlation
Significance
Autonomy
Continuous improvement and renewal
Openness and action orientation
Management quality
Workforce quality
Long-term orientation

Autonomy
Continuous improvement
And renewal
Openness and
Action orientation
Management
Quality
Workforce
Quality
Long term
Orientation

Management quality (MQ)

Openness and action
Orientation (OAO)
Long term
Orientation (LTO)
Continuous
Improvement (CI)

0.040
0.212
0.165
0.248
0.227
0.327

0.412
0.000
0.001
0.000
0.000
0.000

57

Historical performance
Correlation
Significance
0.124
0.299
0.137
0.289
0.151
0.333

0.012
0.000
0.006
0.000
0.002
0.000

RP group

Mean

D (31)

Significance (two-tailed)

1
3
1
3
1
3
1
3
1
3
1
3

100
242
100
242
100
242
100
242
100
242
100
242

0.071
0.150
0.200
0.345
0.075
0.464
0.367
0.349
0.278
0.245
0.303
0.498

0.079

0.514
0.534
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

Correlation
Significance
Correlation
Significance
Correlation
Significance
Correlation
Significance

The bonus as
hygiene factor

0.545
0.539
0.716
0.523
0.801

Table AI.
Correlation between
potential HPO factors and
competitive performance
(relative performance and
historical performance)

Table AII.
t-test of the differences
between respondent
groups (1 RP score
o0.33; 3 RP
score 40.66)

MQ

OAO

LTO

CI

WQ

0.391
0.001
1

0.378
0.000
0.317
0.000
1

0.527
0.000
0.367
0.000
0.324
0.000
1

0.348
0.000
0.110
0.000
0.209
0.000
0.279
0.000

Table AIII.
Correlation matrix of the
HPO factors (n 1,740;
all correlations are
significant at the 0.01
level, two-tailed)

EBHRM
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58

found statistically significant differences between these groups for the five HPO factors (po0.000),
but not for the factor autonomy. Table AII gives the statistics. These show that the biggest
difference can be found in the HPO factor long-term orientation, meaning that HPOs pay
considerably more attention to the aspects belonging to this factor than non-HPOs do. This also
holds true for the other factors, except for autonomy which shows that better performing
organizations give less autonomy (the mean for Group 3 is more negative than for Group 1).
To test whether the HPO factors were correlated with each other, a correlation matrix
was constructed. Table AIII shows that all factors were correlated with each other, meaning that
when an organization works on improving one of the factors, the other factors will also be
improved. Thus the HPO framework may be denoted to be a system of complementary (Milgrom
and Roberts, 1990, 1995) in which the return on one HPO factor becomes higher in the presence of
the other HPO factors. Thus an organization should concentrate not on improving one HPO
factor but on all of them to receive maximum benefit for the HPO framework.
Appendix 2

Table AIV.
The five HPO factors with
their 35 characteristics

Continuous improvement and renewal

1. The organisation has adopted a strategy that clearly sets it apart from other organisations
2. In the organisation processes are continuously improved
3. In the organisation processes are continuously simplified
4. In the organisation processes are continuously aligned
5. In the organisation what matters to the organisations performance is explicitly reported
6. In the organisation both financial and non-financial information is reported to organisational
members
7. The organisation continuously innovates its core competencies
8. The organisation continuously innovates its products, processes and services
Openness and action orientation
9. Management of the organisation frequently engages in a dialogue with employees
10. Organisational members spend much time on communication, knowledge exchange
and learning
11. Organisational members are involved in important processes
12. Management of the organisation allows mistakes to be made
13. Management of the organisation welcomes change
14. The organisation is performance driven
Management quality
15. Management of the organisation is trusted by organisational members
16. Management of the organisation has integrity
17. Management of the organisation is a role model for organisational members
18. Management of the organisation applies fast decision making
19. Management of the organisation applies fast action taking
20. Management of the organisation coaches organisational members to achieve better results
21. Management of the organisation focuses on achieving results
22. Management of the organisation is very effective
23. Management of the organisation applies strong leadership
24. Management of the organisation is confident
25. Management of the organisation is decisive with regard to non-performers
26. The management of the organisation always holds organisational members responsible
for their results

(continued)

Workforce quality
27. The management of the organisation inspires organisational members to accomplish
extraordinary results
28. Organisational members are trained to be resilient and flexible
29. The organisation has a diverse and complementary workforce
30. The organisation grows through partnerships with suppliers and/or customers
Long-term orientation
31. The organisation maintains good and long-term relationships with all stakeholders
32. The organisation is aimed at servicing the customers as best as possible
33. Management of the organisation has been with the company for a long time
34. New management is promoted from within the organisation
35. The organisation is a secure workplace for organisational members

The bonus as
hygiene factor

59

Table AIV.

About the authors

Andre de Waal is Academic Director of the Center for Organizational Performance, Associate
Professor of Maastricht School of Management and guest lecturer performance management at
the Free University, Amsterdam, The Netherlands. Andre de Waal is the corresponding author
and can be contacted at: andredewaal@planet.nl
Paul Jansen is Professor of Industrial Psychology at the VU University, Amsterdam,
The Netherlands.

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