PAY-FOR-PERFORMANCE RECONSIDERED FROM A SOCIAL NETWORK PERSPECTIVE: AN OVERDOSE IS WORSE THAN AN UNDERDOSE

In this study, drawing on the social network perspective, we explore the questions of how payfor- performance plans, an important component of formal organizational structures, affect the development of informal network structures, through the impacts on individual members’ psychological states in work groups. Specifically, we suggest that individual incentives will damage group network connectivity by weakening members’ communal orientation and cooperative mindsets. While relative performance evaluation can incur cliquish network structures by arousing a sense of rivalry among group members, the effects will be strengthened as pay dispersion among them increases. We further propose that short-term incentives lead to smaller external network range by discouraging members’ pursuit of exploration. The effects of short-term incentives on network ranges are expected to be magnified when process-based, as opposed to result-oriented, evaluation method is used. Theoretical, empirical, and practical implications of the proposed model are also discussed.