Performance-Based Reward Systems and Perceived Justice: A Case of Motorbike Dealer in Pontianak

ABSTRACTThis paper discusses the practices of reward granting and the performance measurement systems in Dealer X and examines its success factors from perspectives of perceived justice. To explore the practice in depth, we employ intensive case study method to illustrate how performance measurement and reward systems are intertwined in Dealer X that creates satisfaction of pay and the system itself and analyze the satisfaction level from the context of justice. The analysis is then grouped into, based on, four dimensions of perceived justice, namely procedural justice, distributive justice, informational justice and interpersonal justice. From this study, we find that employees' satisfaction toward existing systems is mainly driven by the perception of justice in their workplace. Furthermore, pay satisfaction is found to be more enhanced by the feeling of distributive justice because it relates with the amount of reward received. Since there is self-interest bias, distributive justice is more dominant than other dimensions to shape the total perception of justice. Therefore, the control system designers should be aware of and consider the dimensions of perceived justice when installing performance measurement and reward systems into organizations.Keywords: Control Systems; Performance Measurement; Reward Systems; Perceived Justice; Motorbike Dealer.1. INTRODUCTIONPeople are considered to be a key success factor for the strategy implementation in most companies. Because people are the strategy executor, more attentions are now drawn to manage them in the best interest of the organization. Humans, however, basically bear life agenda and self-interest in their minds. They will be more likely to engage in effort-aversion behaviors (Merchant & Van der Stede, 2012) if their personal objectives are not fulfilled. This indeed arouses a debate about how to achieve goal-congruent practices. Anthony and Govindarajan (2007) argue that adequate controls are needed to encourage individuals achieving personal goals that are consistent with those of the organization.Management control systems are aimed to influence human behaviors toward achieving organization objectives (Belkaoui, 2002; Drury, 2012), but how to influence and to what extent the change needed depend upon the company strategies. To discuss this issue, we should cover both accounting and psychology viewpoints, as it is dealing with people reactions toward control systems (Anthony, 2003). Therefore, Anthony (2003) suggests that control issues should be understood in terms of human motivation. To increase employee motivation, for instance, control tools, such as reward systems, are believed to be effective as long as they are tied with performance (Fitzgerald, 2007; Otley, 2005). Nevertheless, prior researches show mixed results about the effectiveness of performance- based reward systems creating motivational effects (Bonner & Sprinkle, 2002). Some studies report that reward systems has successfully improved the company performance in many industries, e.g. in hotel industry (Banker, Potter, & Srinivasan, 2000) and in real estate industry (Azasu, 2009). Other also notes that employees gain more satisfaction from their pay when it is related to their performance measurement (Ducharme, Singh, & Podolsky, 2005) and when right types of rewards are granted to right groups of people and cultural norms (Allen & Helms, 2001; Allen, Takeda, White, & Helms, 2004; Howard & Dougherty, 2004; Libby & Thorne, 2009). In contrast, Pfeffer and colleagues' work, cited by Cropanzano, Bowen, and Gilliland (2007), shows that reward systems can be occasionally ineffective. Furthermore, Chong and Eggleton (2007) find that the performance of managers with high organizational commitment is not affected by the implementation of reward systems and vice versa. Their findings also indicate some contingent factors which enhances the effect of reward systems to organization performance. …