University of Oulu

Performance-based compensation : a realist review

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Author: Vahala, Johannes1
Organizations: 1University of Oulu, Oulu Business School, Department of Accounting, Accounting
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 2.1 MB)
Pages: 146
Persistent link:
Language: English
Published: Oulu : J. Vahala, 2021
Publish Date: 2021-10-06
Thesis type: Master's thesis
Tutor: Järvinen, Janne
Reviewer: Järvinen, Janne
Tran, Van


This thesis is a systematic literature review of performance-based compensation literature of non-executive managers and employees utilizing the realist review method. The purpose of the thesis is to find and describe the variables affecting performance-based compensation. The variables are examined within a customized framework of 10 themes, which is based on Bonner and Sprinkle’s 2002 framework on performance incentives. These 10 themes are the effectiveness of performance-based compensation, performance measurement, subjective performance measurement, fairness perceptions, cultural differences, employee retention and attraction, contract framing, goal setting, implementation, and feedback. These themes are then explored in the realist review to explain why, how and in what contexts the variables affect performance-based compensation. The literature sample extends on Bonner and Sprinkle’s research by including empirical studies in addition to experimental studies. Also, the applicability of the realist review method to management accounting research is evaluated.

The thesis finds that performance-based compensation increases firm performance, especially if the employees perceive the system as fair. Performance measurement needs to be accurate, and targets need to be set to follow organizational goals. Subjective performance measurement, manager discretion, and peer-reviews can be used to complement objective performance measures. While penalties are found to extract more performance, bonuses are generally considered to be the better option. Performance-based compensation can be used to attract and retain talent and implementation process is important in the success of a performance-based compensation system. The effect of feedback is unclear. All the variables of performance-based compensation are subject to cultural differences, and it is difficult to define how generalizable the findings from one region, country or culture are to another culture. Finally, the realist review method is found to be a potentially effective research method for systematic literature reviews in management accounting.

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Copyright information: © Johannes Vahala, 2021. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.