Link between Performance and Pay/Promotion has Positive Impact on Financial Measurements

Topic: How tying performance appraisal results influence turnover and productivity
Researchers: Mark A. Huselid, Professor of HR Strategy in the School of Management and Labor Relations (SMLR) at Rutgers University
Published At: Academy of Management Journal, 1995, Vol. 38, No. 3, 635-872
Year: 1995
Formal Reference: Huselid, M.A. 1995., “The impact of human resource management practices on turnover, productivity, and corporate financial performance”, Academy of Management Journal, 38, 635-672.
Main Conclusion: Link between employee performance and pay hve an economically and statistically on both employee turnover and productivity, and short- and long-term measures of corporate financial performance.

Description of Experiment
a. Researchers analyzed 10-K reports for 968 US public companies with more than 100 employees, across a wide range of industries
b.These firms’ heads of HR were asked to complete a questionnaire (3,452 questionnaires were originally sent, but only 968 usable replies were collected)
c.  Questionnaires included questions relating to the link between individual performance appraisal and individual pay increase and promotions
d. An analysis of replies relative to 10-K reports figures was conducted

One-standard-deviation increase in pay for performance practices generated 7.05% decrease in employee turnover, $27,044 increase in sales per employee, $18,641 increase per employee in market value and $3,814 increase in profits per employee (all 1995 dollars).

The Impact of Human Resource Management Practices on Turnover