Environmental Uncertainty, Comprehensive Performance Measurement Systems, Performance-Based Compensation, and Organizational Performance

Abstract

This study explores firms' use of comprehensive performance measures and performance-based compensation in response to the increasingly uncertain competitive environment. Data from a sample of 84 Taiwanese high-tech manufacturing firms revealed an increased use of such systems among firms facing higher perceived environmental uncertainty. We also found performance-based pay to fully mediate the relationship between comprehensive performance measures and employee effort. Finally, employee effort is significantly and positively associated with organizational performance and fully explains the effect of performance-based compensation in increasing organizational performance.