The role of the reward system for a total quality management based strategy

This study examines the impact of reward practices on the relationship between an organizational strategy based on the principles of total quality management (TQM) and perceptions of firm performance. Major findings include: higher levels of firm performance were significantly correlated with greater use of TQM practices, but not with greater use of quality rhetoric in either formal strategic documents or informal strategic discussions; the use of extrinsic reward practices ± including profit sharing, gainsharing, employment security, and comp time ± exhibited a significantly positive moderating effect on the relationship between TQM and perceived firm performance. Regarding implications for practitioners, it is insufficient to include quality rhetoric in the formal and informal strategy. As the anecdotal literature has often advocated, the current research provides empirical support that management must `̀ walk the talk'' with regard to TQM efforts. Further, in order to realize even higher levels of firm performance, an organization should utilize reward practices which specifically complement its TQM-based strategy. The use of total quality management (TQM) as an organizational strategy continues to become more widespread in American organizations. Several recent studies support this conclusion. Lawler et al.'s (1995) extensive study of TQM and employee involvement (EI) practices reported that 76 per cent of the Fortune 1000 practice TQM, up from 73 per cent in 1990. Another study by Moran et al. (1994) reported 74 per cent of firms practice TQM. Lawler et al. (1995) also found that 78 per cent of Fortune 1000 organizations plan to increase their use of TQM, while only 5 per cent plan to decrease their use of TQM. Empirical evidence lends support for the proposition that TQM, when practiced appropriately, has a positive effect on firm performance (General Accounting Office, 1991; Hendricks and Singhal, 1996; Lawler et al., 1995). Yet reports of the failure and imminent death of TQM are surprisingly common in the popular and business press (Boje and Winsor, 1993; Choi and Behling, 1997; Fuchsberg, 1992; Hill, 1993; Jacob, 1993; Mathews and Katel, 1992; Parker and Slaughter, 1993; Spector and Beer, 1994). While there are various reasons for these failures, a potentially important reason has received very limited attention. It is possible that the type of reward The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft D ow nl oa de d by D oc to r R al ph K ilm an n A t 1 1: 44 2 2 N ov em be r 20 15 ( PT ) Role of the reward system 111 practices used by an organization may play an important moderating role on the relationship between a TQM-based strategy and organizational performance. Traditional reward systems typically compensate organizational members based on their individual accomplishments and relative position within the organizational hierarchy. These types of reward systems are generally not considered to be congruent with participative, team-based, knowledge-oriented, quality-focused organizations (Lawler and Jenkins, 1994; Waldman, 1994). While improper reward system practices may hinder the implementation of effective TQM, theorists and practitioners for the most part have ignored the relationship between reward practices and the implementation of a TQM-based organizational strategy (Lawler et al., 1995; Lawler, 1994). The literature on the link between the reward system and TQM has been rather sparse. Noted TQM theorist Juran (1993) has cited shortcomings in the reward system as a key reason why he believes TQM often fails in US organizations. Several articles in practitioner oriented publications have also mentioned the need for alignment of the reward system to support successful TQM implementation (Clinton et al., 1994; Wilkinson, 1993). Academics including Gomez-Mejia and Balkin (1992), Dean and Bowen (1994), and Waldman (1994) note that empirical research on the relationship between TQM and the reward system is practically nonexistent. Additionally, Ledford (1995) cites the general paucity of research done on pay systems and their link to organizational development and change. Clearly from both a practitioner and an academic viewpoint, research on the potential moderating effects of reward practices on the relationship between a TQM-based organizational strategy and firm performance is warranted. Research model and relevant literature The research model presented in Figure 1 shows the variables and the proposed relationships that are explored in this study. In the next sections, we will discuss: Figure 1. Research model D ow nl oa de d by D oc to r R al ph K ilm an n A t 1 1: 44 2 2 N ov em be r 20 15 ( PT )