Purpose: China has become a leading economic market. The competitiveness of production companies in China rests on an effective and efficient utilisation of its huge workforce. Designing and implementing suitable compensation systems are one major aspect toward achieving that objective. This study contributes new knowledge to create more effective worker compensation systems.
Approach/Methodology/Design: This research adopted a qualitative approach with a combined organization- and individual-level research orientation to contribute to a better understanding of the processes and the company-internal stakeholders that link performance-based wages with a firm’s performance. A comparative case study methodology with an initial survey obtained 14 manager interviews, 30 blue-collar responses and survey data from 20 firms with 82 wage systems and 7,322 workers.
Findings: The extent of performance-pay ranges widely, from zero to eighty percent of total wages. Money has been identified as the primary motivator for workers and a comprehensive model on workers’ pay attitude and motivation process has been proposed. Performance-based pay systems are assumed to have a strong impact on organisations’ performances. Among their elements, effective pay structures are of most importance, the design and implementation processes are means to an end. The processes are shaped by the dominant authority of the general managers, the limited decision-making powers of functional managers, and the rejection of supervisors’ and workers’ official involvement in pay-related decisions for fears that this could spark additional worker demands.
Limitations: The generalisation of the findings are restricted by the boundaries and the qualitative nature of the research. The findings may have been impacted by the use of other HR practices in the case companies that were not considered within this study.
Practical Implications: This research provides insights on constructs and stakeholders to design and implement effective worker pay systems in China.
Keywords: Compensation, performance-based pay, wage systems, workers, China