Pay for Performance in Korean Companies:Explanations from Institutional and Motivation Theories

Despite fundamental conflicts with their culture and traditional management practices, pay for performance has emerged as an ascendant compensation method in Korean companies within the recent decade. The current research attempts to explain the phenomena, relying on institutionalism and motivation theories. The research develops instrumentality perception as an index of legitimacy at the level of individual employees, and explores whether aspects of a company adoption of pay for performance influence employees’ instrumentality perception. With a multilevel frame of data from 635 individual employees from 30 companies in Korea, results are, in general, congruent with the premises of institutionalism. Factors such as proportion of employees under the pay-for-performance system, proportion of individual performance as a determinant of the pay mix, and industry adoption rate influence employees’ perception of instrumentality. Discussion and implications of the results are included.