Culture, Competencies and Compensation: A Framework for Pay for Performance Incentives

Abstract

The extant literature on pay for performance (PFP) compensation either focuses on factors dealing with the implementation of those programs, or the viability of PFP as a universal ‘best practice’. Alternatively we suggest that different organizational culture types align with unique firm competencies, and are supported by specific pay systems. We contend that a ‘clan’ culture might best foster the employee competencies of adaptability, innovation and technical expertise, and best be supported by a skill-based pay (SBP) compensation system. Alternatively, a ‘market’ culture might best foster the competencies of customer orientation and performance orientation, and be best supported by PFP.