Research in Personnel and Human Resources Management 9781783508242, 9781783508471

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RESEARCH IN PERSONNEL AND HUMAN RESOURCES MANAGEMENT

RESEARCH IN PERSONNEL AND HUMAN RESOURCES MANAGEMENT Series Editors: M. Ronald Buckley, Jonathon R. B. Halbesleben, and Anthony R. Wheeler Recent Volumes: Volumes 1 10:

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RESEARCH IN PERSONNEL AND HUMAN RESOURCES MANAGEMENT VOLUME 32

RESEARCH IN PERSONNEL AND HUMAN RESOURCES MANAGEMENT EDITED BY

M. RONALD BUCKLEY University of Oklahoma, Norman, OK, USA

JONATHON R. B. HALBESLEBEN The University of Alabama, Tuscaloosa, AL, USA

ANTHONY R. WHEELER University of Rhode Island, Kingston, RI, USA

United Kingdom North America India Malaysia China

Japan

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2014 Copyright r 2014 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78350-847-1 ISSN: 0742-7301 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

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A MULTILEVEL APPROACH TO THE EFFECTS OF PAY VARIATION Samantha A. Conroy, Nina Gupta, Jason D. Shaw and Tae-Youn Park THE IMPLICATIONS OF COALITION FORMS FOR WORK ROLE INNOVATION, RESOURCE REALLOCATION, AND PERFORMANCE Timothy P. Munyon, James K. Summers, Robyn L. Brouer and Darren C. Treadway A MULTILEVEL MODEL OF STRATEGIC HUMAN RESOURCE IMPLICATIONS OF EMPLOYEE FURLOUGHS Tom Bellairs, Jonathon R. B. Halbesleben and Matthew R. Leon A DYNAMIC MULTILEVEL MODEL OF PERFORMANCE RATING Emilija Djurdjevic and Anthony R. Wheeler TOWARD THE PATTERN-ORIENTED APPROACH TO RESEARCH IN HUMAN RESOURCES MANAGEMENT: A REVIEW OF CONFIGURATIONAL AND CATEGORY THEORIZING, METHODS, AND APPLICATIONS Alexandra E. MacDougall, John E. Baur, Milorad M. Novicevic and M. Ronald Buckley

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THE ROLE OF REPUTATION IN THE ORGANIZATIONAL SCIENCES: A MULTILEVEL REVIEW, CONSTRUCT ASSESSMENT, AND RESEARCH DIRECTIONS Gerald R. Ferris, John N. Harris, Zachary A. Russell, B. Parker Ellen III, Arthur D. Martinez and F. Randy Blass

ABOUT THE AUTHORS

CONTENTS

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305

LIST OF CONTRIBUTORS John E. Baur

Department of Management and Entrepreneurship, Price College of Business, University of Oklahoma, Norman, OK, USA

Tom Bellairs

Department of Management, Culverhouse College of Commerce, University of Alabama, Tuscaloosa, AL, USA

F. Randy Blass

Jim Moran Institute for Global Entrepreneurship, Florida State University, Tallahassee, FL, USA

Robyn L. Brouer

Department of Management, Canisius College, Buffalo, NY, USA

M. Ronald Buckley

Department of Management and Entrepreneurship and Department of Psychology, Price College of Business, University of Oklahoma, Norman, OK, USA

Samantha A. Conroy

Management Department, Sam M. Walton College of Business, University of Arkansas, Fayetteville, AR, USA

Emilija Djurdjevic

College of Business Administration, University of Rhode Island, Kingston, RI, USA

B. Parker Ellen III

Department of Management, College of Business, Florida State University, Tallahassee, FL, USA

Gerald R. Ferris

Department of Management, College of Business, Florida State University, Tallahassee, FL, USA vii

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LIST OF CONTRIBUTORS

Nina Gupta

Management Department, Sam M. Walton College of Business, University of Arkansas, Fayetteville, AR, USA

Jonathon R. B. Halbesleben

Department of Management, Culverhouse College of Commerce, University of Alabama, Tuscaloosa, AL, USA

John N. Harris

Department of Management, College of Business, Florida State University, Tallahassee, FL, USA

Matthew R. Leon

Department of Management, Culverhouse College of Commerce, University of Alabama, Tuscaloosa, AL, USA

Alexandra E. MacDougall

Department of Psychology, University of Oklahoma, Norman, OK, USA

Arthur D. Martinez

College of Business, Illinois State University, Normal, IL, USA

Timothy P. Munyon

Department of Management, College of Business Administration, University of Tennessee, Knoxville, TN, USA

Milorad M. Novicevic

Department of Management, School of Business Administration, University of Mississippi, Oxford, MS, USA

Tae-Youn Park

Owen Graduate School of Management, Vanderbilt University, Nashville, TN, USA

Zachary A. Russell

Department of Management, College of Business, Florida State University, Tallahassee, FL, USA

Jason D. Shaw

Faculty of Business, The Hong Kong Polytechnic University, Hung Hom, Hong Kong

James K. “Jim” Summers

Department of Management, College of Business, Iowa State University, Ames, IA, USA

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List of Contributors

Darren C. Treadway

Organization and Human Resources Department, School of Management, University at Buffalo, the State University of New York, Buffalo, NY, USA

Anthony R. Wheeler

College of Business Administration and Schmidt Labor Research Center, University of Rhode Island, Kingston, RI, USA

A MULTILEVEL APPROACH TO THE EFFECTS OF PAY VARIATION Samantha A. Conroy, Nina Gupta, Jason D. Shaw and Tae-Youn Park ABSTRACT In this paper, we review the literature on pay variation (e.g., pay dispersion, pay compression, pay range) in organizations. Pay variation research has increased markedly in the past two decades and much progress has been made in terms of understanding its consequences for individual, team, and organizational outcomes. Our review of this research exposes several levels-related assumptions that have limited theoretical and empirical progress. We isolate the issues that deserve attention, develop an illustrative multilevel model, and offer a number of testable propositions to guide future research on pay structures. Keywords: Pay dispersion; wage compression; pay variation; strategic HR; compensation; financial incentives; turnover; organizational performance

Research in Personnel and Human Resources Management, Volume 32, 1 64 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0742-7301/doi:10.1108/S0742-730120140000032001

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People in organizations make different amounts of money. These differences can have substantial impact on their attitudes and behaviors as well as on the organization’s eventual success. The effects of pay variation have been the subject of a substantial body of research, particularly by management and economics scholars. Although research is plentiful, the knowledge derived from this research remains ambiguous. Theoretical arguments and empirical evidence are contradictory the relationship is posited and found to be positive and negative, linear and curvilinear, direct and moderated, and so on. In this article, we endeavor to clarify the issues that lead to this state of affairs. In particular, we explicate the levels at which pay variation operates. Pay variation is by its very nature an aggregate-level construct, but theory and research have used individual-, group-, and organizationallevel constructs to address it. We address the etiological dynamics evident at different levels, thereby enabling more targeted research in the future. This article proceeds as follows. First, we define and clarify the construct of pay variation. We then provide a brief review of the pay variation literature, highlighting some of the critical reasons that ambiguity prevails. The review is brief, partly because other reviews already exist (Gupta, Conroy, & Delery, 2012; Shaw, 2014) and partly because of space considerations. The next section develops frameworks and propositions appropriate for addressing pay variation at the individual, group, and organizational levels. The last section addresses other issues that future research must be explicitly cognizant of as pay variation is examined in greater depth. In this exposition, we focus primarily on the effects of pay variation because the causes of variation are fairly well-understood.

THE CONSTRUCT OF PAY VARIATION Pay variation refers to the extent to which people in an organization are paid different amounts of money. A compressed pay structure reflects small differences in pay; a dispersed structure reflects wide variations in pay levels. Pay variation is not a compensation policy per se; rather it is the effect of compensation policies an organization embraces. For example, a policy of merit pay or seniority-based pay raises will necessarily result in differences in pay among people. Even if two organizations have the same policy of merit pay, one could make large distinctions in pay between good and bad employees and the other only small differences. Alternatively, an organization which bases the pay system on job evaluation will have some jobs paid

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more than others. Large pay differences between jobs are more consistent with an elitist pay structure, and small pay differences between jobs are more consistent with an egalitarian pay structure. Thus, differences in pay could occur for a variety of reasons, and these reasons could create large or small differences in pay among employees. To codify these nuances, Gupta et al. (2012), among others, identified three different kinds of pay variation. Vertical variation concerns pay differences across jobs and is usually job-based (e.g., Devaro, 2006). This type of variation is evident when the CEO, for example, is paid more than the janitor, and when faculty members are paid more than administrative assistants. Horizontal variation (sometimes referred to as lateral variation) occurs when there are pay differences among people holding the same job (e.g., Shaw, Delery, & Gupta, 2002; Yanadori & Cui, 2013). This type of variation is evident when, for example, a faculty member with more publications or more seniority is paid more than a faculty member with fewer publications or lower seniority. Overall variation combines both these types of variation and reflects pay variation across people and across jobs (e.g., Carnahan, Agarwal, & Campbell, 2012). This type of variation can be represented as the differences in pay between the highest- and lowest-paid employee, although some research also measures it as the pay difference between the highest-paid employee and the average employee pay in the organization (Walsh, 2008). These different types of variation have different causes and consequences, and should be treated as distinct phenomena (Gupta et al., 2012). Unfortunately, much of the thinking and research on pay variation has obscured the differences generalizing and extrapolating freely from one type to another. If we are to advance clarity in understanding, the distinctions among these types of variation must always be kept in mind. A major difference in the three types of variations is that they occur for distinctly different reasons (Downes & Choi, 2014; Gupta et al., 2012; Kepes, Delery, & Gupta, 2009; Shaw, 2014). Horizontal pay variation holds the job constant. Differences in pay are, therefore, attributable to individual differences, such as differences in qualifications, performance, seniority, political connections, etc. By contrast, vertical pay variation concerns differences in pay across jobs. As such, pay variations are attributable to differences in the internal and external worth of jobs, and to organizational policies about the relative value of internal and external considerations (Milkovich, Newman, & Gerhart, 2014). Overall variation combines both these sources and incorporates both individual and job considerations.

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Because of these fundamentally different etiologies, the impact of pay variations on employee attitudes and behaviors is bound to be different as well. A levels assumption in pay variation research should be clarified at this point. Pay variation is an inherently aggregate construct. To study the effects of pay variation, then, some variables of interest (e.g., attitudes and individual reactions) must also be aggregated to that level. A variety of statistical tools are available for appropriate estimation, but the conceptual distinction between the aggregated and disaggregated phenomena remains salient. This aggregation issue has mostly been ignored, but it contains important questions for the researcher. One, is it reasonable to assume that employees react homogeneously to pay variation? Does a high performer, for example, have the same reaction to pay variation as a low performer? Two, what is the aggregation unit? Is it the entire organization or a workgroup? If the organization is the aggregation unit, is it reasonable to assume that all workgroups in the organization are treated similarly? Do all supervisors allocate pay to their employees in the same way, or does one make large distinctions and another make no differentiations? Fig. 1 illustrates the multiple units for which variations can exist in an organization. For example, it can exist within a workgroup; it can exist for a workforce (e.g., first-line manufacturing workers or truck drivers), and it can exist

Organization

Workforce Group

Workforce Group

Group

Group Group Group

Workforce Group

Group

Fig. 1.

Levels of Pay Variation.

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across the organization. It is important for researchers to specify the precise aggregation unit of interest, and to focus theory and research on that level of aggregation. A number of researchers have highlighted the importance of these and similar cross-level concerns (e.g., Klein & Kozlowski, 2000; Klein, Tosi, & Cannella, 1999). It is important for pay variation researchers to be vigilant about these issues. As we point out below, this has not always been the case.

WHAT DOES THE RESEARCH SAY? Much of the research on the consequences of pay variation has invoked individual-level theories. Extrapolations of these individual-level theories to aggregate-level outcomes (such as workforce or organizational performance) assume that aggregate outcomes parallel individual-level outcomes. Two main theoretical paradigms prevail. One concerns individual motivation and performance, and the other affect and turnover (although sometimes motivation arguments are applied to affect and vice versa). We organize our assessment of the literature around these paradigms. A listing of empirical studies of pay variation and the critical elements of these studies is included in the appendix.

The Motivation/Performance Paradigm Two major theories are typically used to predict a positive relationship between pay variation and motivation/performance. Tournament theory (Lazear & Rosen, 1981) proposes that people work hard to win prizes that are fixed in advance. As Gupta et al. (2012) point out, tournament theory is best applied to vertical variation, that is, the size of pay differences between the current job and the next higher-level job, but it is often invoked to explain horizontal variation as well. Pay variations among people due to differences in merit or seniority have some but not all of the elements entailed in tournament formats. According to tournament theory, tournament wins are not based on absolute performance, but on relative performance, that is, how well an employee fares relative to peers, and the tournament prize is the pay raise associated with the win. Winning means the employee was the best performer in the comparison group. According to the theory, employees compete in a sequential elimination tournament

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with the winners promoted to the next level and to begin a competition at the new level for the next prize (Lazear & Rosen, 1981). Two factors affect the incentive value of the tournament the size of the pay differential, and the probability of winning the tournament (Audas, Barmby, & Treble, 2004; Lazear & Rosen, 1981). Because larger prizes are presumably more motivating, tournament theory implies a positive relationship between pay variation and workforce performance. Many studies support this proposition, particularly in sports settings such as golf (Ehrenberg & Bognanno, 1990a, 1990b), auto racing (Becker & Huselid, 1992), and basketball (Frick, Prinz, & Winkleman, 2003; Simmons & Berri, 2011). One study did not find a positive relationship in a basketball sample (Katayama & Nuch, 2011), while others reported negative relationships between pay variation and performance in baseball and football settings (Bloom, 1999; Frick et al., 2003; Jewell & Molina, 2004). In non-sports, organizational settings, positive relationships between vertical pay variation and performance were observed among executives in the United States (Main, O’Reilly, & Wade, 1993), Denmark (Eriksson, 1999), Israel (Ang, Hauser, & Lautenberg, 1998), and China (Firth, Leung, & Rui, 2010). Positive relationships were also observed between overall variation and performance in the United States (Lee, Lev, & Yeo, 2008), Sweden (Heyman, 2005; Hibbs & Locking, 2000), Taiwan (Liu, Tsou, & Wang, 2010), and Belgium (Lallemand, Plasman, & Rycx, 2004). Interestingly, this positive relationship was not observed in non-sports samples when horizontal rather than vertical variation was of interest (see Jirjahn & Kraft, 2007, for a rare exception in a sample of German organizations). Much of this research concerned the main effects of pay variation, but a few studies explored moderators as well. Kale, Reis, and Venkateswaran (2009) focused on the moderating effect of the probability of getting the prize. A positive relationship between vertical pay variation and firm financial performance among US executives was moderated by opportunities for promotion. Specifically, the relationship was stronger when the CEO was near retirement, and weaker when the CEO was new or was an outsider. All three of these factors are indicators of the likelihood that an internal promotion would soon occur, suggesting that promotion opportunity moderates the relationship of vertical pay variation to firm performance relationship. In all, research on tournament theory offers mixed support for tournament effects. There is some support when the theory is applied to vertical variation, but the picture is conflicting when the theory is applied to vertical variation in sports settings. Positive effects also tend to be more

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consistent when firm (i.e., the success of the entire organization) rather than workforce performance (i.e., success of a subset, such as a specific or a core workforce within the firm) is the criterion of interest. Many studies of executive pay variation and performance that show a positive relationship use financial performance measures as the dependent variable (e.g., Firth et al., 2010; Lallemand et al., 2004; Lee et al., 2008; Main et al., 1993). From a psychological perspective, the theory most often invoked to predict a positive relationship between pay variation and performance is expectancy theory (Lawler, 1973; Vroom, 1964). This theory concerns judgments about situational dynamics and is most commonly applied to predict the effects of horizontal variation on human behavior. Expectancy theorists argue that motivation results from the interplay among three factors. One, Effort→Performance expectancy or E→P expectancy is the probability an employee sees that a given level of effort will lead to a given performance level. Two, Performance→Outcome expectancy or P→O expectancy (also called instrumentality) concerns the probability an employee sees that a given level of performance will lead to a given outcome. Many outcomes can be associated with performance (pay raise, social liking, feelings of accomplishment, etc.), such that numerous P→O expectancies can be identified. Because pay is the only outcome relevant to our discussion, we consider only P→Pay expectancy here. Three, valence represents the value an employee places on a given outcome (and, for our purpose, the value an employee places on pay). For an employee to be motivated to perform, all three of these elements must be strong. That is, the employee must perceive a reasonable likelihood that he/she can do the job, perceive a reasonable likelihood that doing the job will lead to better pay, and the employee must value pay. Expectancy theory is actually a choice theory for within-subjects predictions (i.e., an employee’s choice between multiple effort levels), but it is commonly applied to make between-subjects predictions as well (Pinder, 1998). Kepes et al. (2009) reported the strongest explicit test of expectancy theory in the pay variation literature. Their study demonstrated that the basis of pay variation is a critical moderator of the relationship between horizontal variation and workforce performance. The test is explicit in the sense that expectancy theory suggests that it is only performance-based pay variation, not pay variation in its totality, which leads to higher performance. This study represents consistency between theoretical and empirical approaches, since expectancy theory is most applicable to horizontal variation (Gupta et al., 2012). The study also pointed to the potentially negative effects of politically based pay variation. These results highlight

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the possibility that mixed results across studies could be attributable to the omission of the basis of pay variation, since performance-based variation affected performance differently from politically based pay variation. This idea is further confirmed in the work of Shaw et al. (2002), who found, in general, that horizontal pay dispersion was positively related to performance only when the dispersion was performance-based (see also, Trevor, Reilly, & Gerhart, 2012). That the basis of pay variation (performance or nonperformance) is critical is also evident when we examine mixed results across studies. For example, Simmons and Berri (2011) reported a positive relationship between pay variation and team performance among National Basketball Association (NBA) teams, whereas Katayama and Nuch (2011) (also looking at NBA teams) found no support for any relationship, positive or negative. These studies were published in the same year, focused on the same setting, yet the results conflict. A closer examination reveals that Simmons and Berri studied justified pay variation (i.e., the variation was that based on “observable player skills and attributes,” 2011, p. 383), whereas Katayama and Nuch (2011) statistically controlled for average salary (a proxy for talent and individual performance). This perspective aligns the results of the two studies. The essential lesson is that performance-related variation (the Simmons and Berri study) is positively related to performance, whereas random or unexplained pay variation (the Katayama and Nuch study) is unrelated to performance. As noted above, expectancy theory does not suggest that nonperformance-based pay would lead to higher performance. Gerhart and Rynes (2003) raised this concern explicitly over ten years ago. They argued that many studies control for performance, input, talent, previous pay, etc., in their statistical tests. In effect, the use of these controls removes performance-based pay variation from the predictor, leaving only the variance due to unexplained factors in the equation. Studies using such controls (e.g., Bloom, 1999; Pfeffer & Langton, 1993) should be interpreted as studies of nonperformance-based pay variation. Neither the absence of a relationship nor a negative relationship between nonperformance variation and performance is surprising. No theory not tournament, not expectancy, not equity, not any other predicts a positive relationship between unexplained pay variation and performance. In sum, expectancy theory-based research supports a positive relationship between performance-based horizontal pay variation and workforce performance in sports (Trevor et al., 2012) and non-sports (Kepes et al., 2009; Shaw et al., 2002) settings. This research shows theoretical/empirical

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consistency, and it is particularly useful in highlighting the importance of incorporating the basis of pay variations into our theoretical and statistical frameworks.

The Affect/Turnover Paradigm This paradigm assumes that pay variation has a negative effect on affect (primarily satisfaction), and that affect in turn influences turnover. Although debate continues on the relationship between satisfaction and performance, this paradigm is often extended from affect to predict a negative relationship between pay variations and both workforce and organizational performance. Two related theories relative deprivation theory and equity theory are typically invoked within this paradigm. Based on social comparison theory (Festinger, 1954), relative deprivation theory posits that attitudes depend on relative rather than absolute outcomes (Crosby, 1976; Sweeney, McFarlin, & Inderrieden, 1990). The theory argues that people feel relatively deprived when their outcomes fall short in comparison to others. Relative deprivation engenders both positive and negative cognitions, emotions, and behaviors, including feelings of stress and efforts at self-improvement, depending on how much control one feels over changing the circumstances (Crosby, 1976). Pay variation research adopting this perspective typically dwells almost entirely on the negative outcomes, without considering that in certain conditions (i.e., control and opportunity), positive outcomes are possible. Instead, applications of relative deprivation theory ignore these positive applications. Levine (1993) reported that employees in similar jobs who had low-wage residuals (compared to expected wages) had lower satisfaction levels and were more likely to quit. In this context, it is interesting to note that relatively higher wages also caused discomfort among employees in Japan a potential boundary condition. Equity theory (Adams, 1963, 1965) also emphasizes social comparisons. According to equity theory, individuals compare their inputs (e.g., ability, effort) and their outcomes (e.g., pay, benefits) with those of comparison others. Mental outcome/input ratios for self and others are compared, and inequity and discomfort are experienced when the ratios are not in balance. Inequity perceptions in turn lead to behavioral, attitudinal, and cognitive adjustments including changes in inputs or outcomes or leaving the field, that is, turnover. Typically, inequity effects are stronger for under-reward than over-reward conditions (Lawler, 1971).

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Equity arguments are often used in within-organization comparisons, but Cowherd and Levine (1992) incorporated external labor market pay differentials in their application of equity theory to pay variation. Their key finding was that, among hourly and lower level employees, pay equity was positively related to product quality. More recently, Trevor and Wazeter (2006) reported a negative relationship between pay variation and equity perceptions among lower-paid employees. Equity arguments have also been used to explain the relationship of vertical and overall variation to outcomes. In one study, vertical inequity, that is, underpayment compared to the CEO, was associated with greater turnover in a US managerial sample (Wade, O’Reilly, & Pollock, 2006). Bloom and Michel (2002) and Messersmith, Guthrie, Ji, and Lee (2011) also reported positive pay variation turnover relationships among US managers and executives respectively. Given these results, Shaw (2014) concluded that vertical pay variation is positively related to turnover, but that this type of conclusion was less clear for horizontal pay variation. Research shows, for example, that high performers are less likely to leave the organization when pay is varied, but this was not true of low performers (Shaw & Gupta, 2007). Several points are relevant in summarizing the research from this paradigm. One, there is some support for a positive relationship between pay variation and turnover, especially among low performers (Shaw, 2014). Two, the evidence is too ambiguous to make definitive conclusions about the nature of this relationship, especially for horizontal pay variation. Three, almost all the research from this perspective has ignored the role of inputs, a key component of the theoretical framework. Rather, most arguments assume equivalence of inputs, an assumption that is highly problematic.

Understanding Levels Issues Research on pay variation raises many concerns about the levels at which phenomena occur and the levels at which they are studied. We address several of these issues below. Interdependence The four theories discussed above are individual-level theories. Each explains how individuals, not aggregates, respond to individual or aggregate phenomena. But the application of these theories spans levels. In particular,

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task or goal interdependence has emerged as significant (Levine, 1991). Interdependence operates at a different level than individual responses. That is, interdependence is a contextual variable that describes the task environment. It can be a group level variable (within-unit task interdependence) or a firm-level variable (between-group interdependence). The logic invoked in interdependence applications is as follows. On the one hand, when work is interdependent, cooperation and collaboration are essential, and large pay disparities among group members could be detrimental, assuming these pay disparities create inequity. On the other hand, competition among group members could be beneficial when work is independent, and large pay variations are instrumental in gaining this benefit. The moderating role of interdependence is this context has intuitive appeal, but the evidence is mixed. In studies of executive compensation, interdependence was not a significant moderator of the vertical pay variation firm performance relationship (Eriksson, 1999; Main et al., 1993). These studies used somewhat poor proxies for interdependence (the proportion of profit center heads on the executive team). Lack of empirical support may be attributable to this measurement issue. With a different approach, Siegel and Hambrick (2005) suggested that technological intensity increases the need for collaboration. The hypothesized interaction between pay variation and technological intensity in explaining firm performance was supported for all three types of variation (vertical, horizontal, and overall) among Top Management Teams (TMTs). The relationship of pay variation to firm performance was negative for technologically intense firms (i.e., those requiring greater collaboration) while there was no relationship in low technology firms. On a related issue, Ensley, Pearson, and Sardeshmukh (2007) tested mediating paths of team processes in explaining a negative relationship between pay variation and firm performance, using a sample of high-growth firm TMTs. The authors concluded that the negative influence of pay variation occurred through team potency, cohesion, affective conflict, and cognitive conflict. Looking across sports samples provides some validation of the moderating role of interdependence. The pay variation performance relationship was positive in golf (Ehrenberg & Bognanno, 1990a, 1990b) and auto racing (Becker & Huselid, 1992), but was negative in baseball (Bloom, 1999; Depken, 2000; Gee & Wen-Jhan, 2008; Jewell & Molina, 2004; San & Jane, 2008), football (Mondello & Maxcy, 2009), and hockey (Gomez, 2002; Sommers, 1998) settings. Golf and auto racing are essentially individual sports with little need for interdependence, whereas baseball, football, and hockey are team sports necessitating cooperation. Trevor et al. (2012)

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addressed the issue of input-related pay variation for interdependent sports teams, finding team performance was negatively affected by pay variation only when the variation was unexplained, that is, non-input-based. Shaw et al. (2002) specifically explored this issue in a non-sports setting. They hypothesized, and found, that interdependence affects the nature of the horizontal pay variation workforce performance relationship. In a sample of employees who worked somewhat independently (truck drivers), the relationship was positive. But, in a sample of employees whose work entailed more interdependence (concrete pipe production workers), the results were ambiguous and did not support the hypothesized moderating effects of interdependence. In sum, theory suggests that interdependence (an aggregate construct) moderates the pay variation outcomes relationship. Empirical research has provided some evidence in support of this notion, although the results have not been uniform. Research on pay variation has virtually ignored the complexity of levels issues when addressing interdependence, which can occur both within and between groups. We encourage future research to remedy this oversight.

Predictor Homogeneity Most studies assume a single value for pay variation across the organization. There is, of course, only a single value for an organization’s overall variation (i.e., the range between the highest-paid employee and lowest paid employee), but subsets of overall variation can also exist. Should overall variation be addressed at the corporate or facility level? The possibility that some facilities, plants, or subdivisions in a company have dispersed, and other facilities have compressed, pay structures cannot be overlooked. These differences in variation estimates within organizations could hold a significant key to understanding the effects of variation. Vertical variation can also vary substantially. For example, the size of variations between jobs could increase as one ascends the organizational ladder (as tournament theory would suggest, Eriksson, 1999; Lazear & Rosen, 1981), or the organization may have a break point above which variations are large and below which variations are small. The assumption of homogeneity is not necessarily warranted. The issue of homogeneity is especially thorny with horizontal variation. To illustrate, there are likely to be as many different values for variation as there are jobs (see Fig. 1). The degree of pay variation for production employees, for example, could be vastly different from the degree of variation among TMT members.

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Many studies of horizontal variation obviate this issue by studying only a single employee group (e.g., truck drivers [Kepes et al., 2009; Shaw et al., 2002] or athletes [Trevor et al., 2012]). This approach has merit when outcomes are studied at the same level (i.e., the performance of that workforce), but when the criterion of interest is at a different level (e.g., overall organizational performance), the problem remains. Is organizational performance more affected by the compressed pay structure of one group (e.g., production employees), or the dispersed pay structure of another group (e.g., top executives)? Are observed effects due to the variation in the group under investigation, or are they attributable to variations in another employee group? Even within a defined workforce, there are variations in pay variation (see Fig. 1). Employment relationships often have considerable variation between supervisors or teams within organizations (Jia, Shaw, Tsui, & Park, 2013). The production employee workforce reports to many different supervisors, truck drivers are coordinated through many dispatchers, and so on. Each of the supervisors or dispatchers may adopt differing pay allocation policies. Even when the organization uses performance-based pay, one supervisor could make much bigger distinctions based on performance than another. Pay variation is then varied across workgroups. For example, Park (2012) reported differences in allocation decisions depending on the regulatory focus of the allocator. Confounding the situation further, the merit pay pool could be allocated to supervisors based on group performance. The size of the pool as well as the allocation rules could thus vary within the same workforce. In short, there are many different values possible for pay variation in an organization. There are vertical and horizontal variations within organizations. There is variation at the firm level (e.g., horizontal variation across an entire class of jobs), at the workforce level (e.g., horizontal variations within a class of jobs in a workforce), and at the group level (e.g., horizontal variations in a team). Not all these issues can be examined in a single study. But heightened awareness of the inherent complexity of pay variation can clarify our thinking. Homogeneity of Employees Another common assumption in pay variation research is that all employees react similarly to pay variation, and that a degree of pay variation is either good and leads to positive outcomes, or it is bad and leads to negative outcomes. But employees are not all the same, and application of individuallevel theories to aggregate reactions is problematic. Pay variation research

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includes evidence that personality and cultural differences influence perceptions of fairness regarding the size of pay differences. For example, in a sample of Australian managers, Orlitzky, Swanson, and Quartermaine (2006) found that agreeableness was negatively related to normative myopia (a tendency to ignore ethical issues), which in turn was related to preferences for highly differentiated pay structures. Increases in similar preferences were also reported by He, Chen, and Zhang (2004), who argued that Chinese employees may be adopting more Western cultural values as a result of ownership reform in China. Beyond personality and cultural influences, there are also marked differences in ability and values among employees. Some people are more talented than others; some people value money more than others. These things are explicit components of individual-level theories. Equity theory gives great weight to inputs; expectancy theory incorporates ability into the E→P component, and preferences into the valence component. In aggregate applications, these components are ignored when the assumption of homogeneity is adopted. There is also evidence that employees react differently depending on their relative standing within an aggregate. For example, Trevor and Wazeter (2006) reported that employees low in pay standing evinced a negative relationship between pay variation and equity perceptions, whereas the relationship was slightly positive among employees high in pay standing. Petrescu and Simmons (2008) also reported lower pay satisfaction and lower job satisfaction when the overall pay gap was perceived to be too large. An explicit demonstration of the heterogeneity in reactions comes from Shaw and Gupta (2007). High levels of horizontal performance-based pay variations were related to lower turnover among high performers, but average performers had lower quit rates when the pay variation was seniority-based rather than performance-based. The quit rates of low performers were unrelated to pay variation. Based on this study, it is reasonable to conclude that large performance-based distinctions may be particularly beneficial in simultaneously promoting retention among good performers and turnover among poor performers. In any event, this study certainly cautions against the homogeneity assumption. Homogeneity of Criteria In developing their theoretical frameworks, many scholars extrapolate seamlessly across criteria. For example, results obtained for workforce performance are used to support predictions about organizational financial performance, and results about performance are applied to predictions about turnover. But all outcomes are not equal.

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Horizontal variation in pay within a specific employee workforce is most predictive of the performance of that workforce. Overall organizational performance, as we argued above, is affected by many factors including degrees of pay variations among other employee groups within the same organization. In other words, without additional cross-level theory, predictions within the same level of aggregation make much more sense than predictions to higher aggregation levels. Furthermore, the motivation/performance paradigm is different from the affect/turnover paradigm, but both paradigms operate simultaneously. It is quite possible that performance-based pay variations both motivate high performance and erode collaboration within the same workforce at the same time. The interplay between performance outcomes and turnover outcomes at the workforce level will affect the ultimate relationship between pay variation and organizational performance. How important is individual performance? How important is collaboration among employees? Situational contingencies determine the answers to these questions, and it is only these answers that can illuminate whether organizational performance benefits or suffers. Alternatively, if performance-based pay variation reduces turnover among high performers and increases turnover among poor performers, does organizational performance improve or deteriorate? Turnover is expensive, and the relative financial cost of turnover must be assessed against the relative financial gain from high performance to answer this question.

Summary Pay variation research has moved beyond infancy, and it is important to move beyond studying its main effects. A critical examination of the literature shows the value of distinguishing among different kinds of pay variation and of incorporating the basis of pay differences as an integral component of any framework. In addition, this critical examination raises many issues about the level at which theoretical and empirical work is addressed. Many of the issues raised by levels theorists are of concern in past pay variation research. For example, Klein et al. noted that the specification of construct levels is critical and must occur with “care and precision” (1999, p. 244), yet pay variation researchers tend to theorize at one level and operationalize variables at another. Similarly, heterogeneity at the individual level may be meaningful to predicting outcomes at the group and organization

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level (Klein & Kozlowski, 2000; Klein et al., 1999), yet this rarely gets attention. Most work stays focused at the individual or organization level, yet the group level is also important (Klein et al., 1999). Attention to levels concerns is likely to provide much-needed clarity in understanding the effects of pay variation.

AN ILLUSTRATIVE MULTILEVEL APPROACH Based on the foregoing discussion, a multilevel approach to understanding the effects of pay variation is desirable. We begin to develop such an approach next. The treatment below is illustrative, not exhaustive, primarily because our intent is to highlight complexities as we move across levels, and secondarily because space considerations preclude an exhaustive approach. We therefore constrain our attention within certain boundaries and with some assumptions. These are detailed first. To begin with, we focus specifically on horizontal variation. With horizontal variation, jobs are held constant, and variations in pay are attributable to individual differences in skill, performance, seniority, etc. (Gupta et al., 2012). It is true that some workgroups include individuals holding different jobs (Hollenbeck, Beersma, & Shouton, 2012), but such workgroups would not fall within our purview, since our focus is limited to people holding the same job. We focus primarily on horizontal variation for several reasons. One, as noted, horizontal variation keeps jobs constant, fostering a clear focus on human resource dynamics. Vertical variations are likely to be influenced by labor market considerations to a large extent (Fulmer, 2009), which are less controlled by human resource policies. Two, these individually based reasons arguably have stronger effects on employees than job-based effects. Three, most explanatory theories of pay variation, whether they address vertical, horizontal, or overall variation, are focused on individual-level explanations. Four, using only one type of variation makes our task much more manageable. Second, we concern ourselves only with performance-based pay variation. This decision was made for two main reasons. One, most past research has assumed, at least implicitly, that pay variation is performance-based (Shaw, 2014). We make this assumption explicit, as some of the previous research has done (Kepes et al., 2009; Shaw & Gupta, 2007; Shaw et al., 2002; Trevor et al., 2012). Two, a focus on performance-based variation enables us to build on work concerning performance-based pay in general,

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which is a well-developed field (Gerhart, Rynes, & Fulmer, 2009). This constraint means that seniority-based, politics-based, skill-based, and other forms of variation are outside the bailiwick. We hope other scholars focus on those forms. Performance-based pay can take many forms piece-rate pay, merit pay, spot bonuses, gainsharing, and profit-sharing, to name but a few (Gerhart & Rynes, 2003). Performance-based pay can occur at the individual level, the group level, and at the organizational level, as alternatives or simultaneously at all levels. For example, merit pay is typically individually based, whereas profit-sharing is organizationally based. An organization could have either or both forms at one time. These variations in the forms of performance-based pay are relevant in this discussion. Thus, our exposition is limited to performance-based horizontal pay variations in an organization. Horizontal pay variations could occur at different levels (for an illustration of organizational nesting patterns, see Fig. 1). For example, pay variations could be based on individual or workgroup performance. Pay allocations could be made at the individual or the group level as well. These differences mean, for example, that the firm level of pay variation could be the same across firms while the workgroup levels of pay variation differ significantly within and between firms. That is, all members of a group could receive the same amount, or the pay amounts could be tailored to match the differential performance of group members. Downes and Choi (2014, p. 57) suggested that performance-based pay variation was statistically “equal to the overlap between variance in individual performance and variance in individual pay.” This is true for individual-level performance-based pay, but not necessarily for group performance-based pay, since group rewards may be shared equally by all group members. In systems using merit pay, it is not unusual for individual supervisors to have discretion in allocating pay to subordinates (Heneman & Werner, 2005). Some managers are likely to make large differentiations among group members, while other managers minimize these differentiations (Orlitzky et al., 2006). Both decisions involve performance-based pay (since the size of the merit pool coincides with group performance), but they imply different degrees of variation across work groups. These workgroup-level variations are qualitatively different from organizational-level variations. To address this issue, we use group-level allocation rules within our framework. An allocation rule is a “social rule which specified criteria that define certain distributions of rewards and resources” (Leventhal, 1976, p. 94). An equity allocation rule is the distribution of rewards according to the contribution (performance) of each member, and an equality allocation rule is the distribution of rewards as equal shares to each member. This means that,

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given the same degree of organizational-level performance-based pay variation, individuals in different groups actually experience different degrees of variation. Fig. 2 contains a visual depiction of this phenomenon. In this figure, pay variation refers to organizational-level horizontal performancebased pay differences, and allocation rules refer to whether pay is distributed equally or equitably across group members. This distinction is often overlooked in the pay variation literature, but is critical to our exposition. With these constraints and clarifications in place, we can proceed with our illustrative multilevel approach to pay variation. The basic theoretical approach is presented graphically in Fig. 3. The figure depicts the linkages expected at the individual, group, and organizational levels, and it shows cross-level linkages as well. In this figure, and in the subsequent exposition, we focus on motivation/performance and affect/turnover for the workforce. The relationship of these workforce outcomes to organizational outcomes is discussed separately. We address factors that may influence outcomes of pay variation at each level. Following the propositions, we explore past research as it applies to the propositions. This allows, not only a

Organization Equity Allocation Workforce Group

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Organization-Level Pay Variation and Group-Level Allocation Rules.

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Fig. 3.

An Illustration of Multilevel Factors Influencing the Pay Variation and Performance Relationship. 19

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demonstration of the value of the propositions in explaining past research, but also an identification of areas where further work is clearly needed.

Pay Variation and Outcomes at the Individual Level As noted above, two basic paradigms account for much of pay variation research. We address each of these paradigms in turn. The Motivation/Performance Paradigm This paradigm typically depicts the relationship to be as follows: Pay Variation → Motivation → Individual Performance As we explained, this depiction is too simplistic, and several refinements are in order. First of all, the paradigm should NOT be applied to pay variation in its entirety, but only to horizontal performance-based pay variation. In addition, several moderators are relevant. Expectancy theory incorporates three factors E→P expectancy, P→O expectancy, and Valence. Thus, motivation should be higher when E→P expectancy is higher. This means, for example, that employees with higher ability should have higher motivation, all else equal, but this element hardly ever receives explicit recognition in pay variation research. In addition, motivation should be higher when P→Pay expectancy is higher, all else equal. Not all performance-based systems are equivalent, however. For example, there is a much clearer link between performance and pay in a piece-rate pay system than in merit pay systems or profit-sharing systems (all forms of performance-based pay). The P→Pay expectancies will vary considerably across performance-based pay systems, and the type of pay system is a further moderator. Most pay variation research ignores this issue as well. The third element refers to how much employees value pay. Employees with a higher pay valence should have higher motivation levels, all else equal. Using the expectancy paradigm, then, three sets of moderators emerge immediately individual ability, individual preferences for pay, and the type of performance-based pay system. Furthermore, allocation rules should also affect P→Pay expectancies. Employees under individual pay-for-performance plans would, of course have clear P→Pay expectancies (but these can vary, depending on the specific performance-based pay system). For example, Schwab (1973) reported stronger P→Pay links under individual piece-rate pay plans than under group performance-based pay plans. But employees under group

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performance-based pay plans (i.e., plans where pay pools are determined based on group performance) should have different P→Pay expectancies depending on the allocation rules. Equity allocation rules should lead to higher P→Pay expectancies than equality allocation rules, as the link between an individual’s own performance and his/her pay is clearer under equity than under equality rules. Supporting this argument, Pearsall, Christian, and Ellis (2010) reported that group incentives that included an individual component (i.e., there was some level of equity allocation) led to better performance than did group incentives without an individual component. These arguments suggest that the relationship between pay variation and individual motivation/performance is likely to be positive under equity rules. This positive relationship should be strengthened when pay variation is greater because larger pay distinctions are made between good and bad performers. That is, the reward intensity is greater. In short, we offer the following propositions on the relationship of performance-based horizontal variation and individual motivation/performance. All else equal, Proposition 1. The positive relationship between pay variation and individual motivation/performance is stronger among employees with higher ability than employees with lower ability. Proposition 2. The positive relationship between pay variation and individual motivation/performance is stronger among employees with higher valences for pay than employees with lower valences for pay. Proposition 3. The positive relationship between pay variation and individual motivation/performance is stronger when the performance-based pay system provides clearer linkages between performance and pay than when the performance-based pay system provides more ambiguous linkages between performance and pay. Proposition 4. The positive relationship between pay variation and individual motivation/performance is stronger when equity rather than equality allocation rules are used. Relevant Research A review of the pay variation literature addressing individual responses provides preliminary support for these propositions in both experimental and nonexperimental studies. In experimental research, the importance of

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the performance→pay linkage is supported by Harbring and Irlenbusch (2003), who found that student participants choose higher effort levels when more prizes were available than when fewer prizes were available; in later work, Harbring and Luenser (2008) reported that larger wage spreads increased both individual effort and performance. Ability played a significant role in this study: participants in the high ability condition chose higher effort levels when pay was more dispersed than when it was more compressed. In another experiment, individual effort levels selected tended to be higher when allocators were allowed to vary wages than when they could not vary wages. This comparison reflects individual motivational responses to equity versus equality allocation rules (Abeler, Kube, Altmann, & Wibral, 2010). Interpretation is more complex in nonexperimental research. In macro field research, scholars often use numerous statistical controls that potentially cloud interpretation (Gerhart & Rynes, 2003). Many field studies of pay variation also focus on the entirety of variation, rather than performance-based pay variation alone. When only those studies that focus on performance-based pay variation in some way (that is, those that include the performance basis explicitly) are considered, a consistent pattern emerges suggesting increased individual effort and performance as pay variation increases (Becker & Huselid, 1992; Ehrenberg & Bognanno, 1990a, 1990b; Simmons & Berri, 2011). This work provides initial support for the above propositions. The conclusion must be tempered, however in light of three considerations. One, the experimental work considered intended rather than actual effort. Two, nonexperimental work used a miscellany of controls inconsistently across studies, leading to ambiguity. Three, both experimental and nonexperimental work ignored the issue of valence. The Affect/Turnover Paradigm The general approach this paradigm has taken can be depicted as follows: Pay Variation → Dissatisfaction → Turnover Again, we argue that this is too simplistic. Individual-level theoretical models of turnover can be quite complex (e.g., Lee & Mitchell’s unfolding model of turnover, 1994; Jackofsky, 1984). It is beyond the scope of this paper to explicate the intricacies of turnover. Instead, we focus mainly on turnover in relation to pay variation. Beyond the caveats of restricting the predictions to horizontal performance-based pay variation, we explore additional nuances in the pay variation and turnover relationship.

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The affective variable usually implied as the mediator in this paradigm is pay satisfaction. Pay satisfaction is defined as the “amount of overall positive or negative affect (or feelings) that individuals have toward their pay” (Miceli & Lane, 1991, p. 246; Williams, McDaniel, & Nguyen, 2006). Pay satisfaction is influenced by many things (Williams et al., 2006). Of these, pay level and pay comparison are particularly germane to the pay variation context. When performance-based pay variations are great, pay levels of good performers should be higher and pay levels of poor performers should be commensurately lower than when pay is compressed. Social comparisons affect people’s assessments of their outcomes (Buunk & Gibbons, 2007; Festinger, 1954), and those higher in standing compared to others should react better. This means that those receiving higher pay (the good performers) are more satisfied than those lower in standing (the poor performers), both in terms of their absolute pay (i.e., pay level) and in terms of their relative pay (i.e., social comparison). Indeed, earned pay tends to evoke stronger reactions than money, partly because of the symbolic connotation of success (Devoe, Pfeffer, &, Lee, 2013). As a result, pay variations should interact with relative standing to explain satisfaction. As pay variation increases, those with higher pay should feel more satisfied and those with lower pay should feel less satisfied (Crosby, 1976; Sweeney et al., 1990). In one of the earlier works on pay variation, Pfeffer and Langton (1993) found that those at the lower end of the pay distribution were dissatisfied when pay variation was large. Trevor and Wazeter (2006) reported similar results more recently. Extending this idea from satisfaction to turnover, Carnahan et al. (2012) reported that highly paid employees were less likely to leave the organization in high than in low pay variation settings. The situation becomes at the same time more complex and clearer when allocation rules are factored into the equation. Under equity rules, high performers are paid more than low performers (individual performance is considered one of the most relevant inputs in equity assessments, Werner & Ones, 2000). Under equality rules, however, this is not the case. In other words, we should expect stronger effects on satisfaction under equity than equality rules. A further factor is the homogeneity of performance among group members. If group members have similar performance levels, the differences in pay between equity and equality rules would be minimal. When performance levels among group members are varied, however, the differences between the two become more marked and therefore more salient. In

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groups with heterogeneous performance, high performers are increasingly dissatisfied under equality rules. On the other hand, low performers tend to overestimate their performance (Harrison & Shaffer, 1994; Kruger & Dunning, 1999) and would not experience inequity. In short, the organization will be faced with the difficulty of high performers leaving and low performers staying. Essentially, pay variations can “push” different employees to leave due to dissatisfaction with the organization depending to the allocation approach being used. These arguments lead to the following propositions. All else equal, Proposition 5. High performers are more satisfied with pay variation under equity than equality rules; this effect is intensified when group member performance levels are heterogeneous. Proposition 6. Low performers are more satisfied with pay variation under equality than equity rules; this effect is intensified when group member performance levels are heterogeneous. Relevant Research Research addressing responses of high or low performers at the individual level is uncommon in pay variation research; rather, as described earlier, many of the studies consider an individual’s location in the pay hierarchy only (e.g., Carnahan et al., 2012; Pfeffer & Langton, 1993; Trevor & Wazeter, 2006). Assuming location in the hierarchy is representative of performance, this work supports the proposition that high performers are more satisfied and low performers are less satisfied with high levels of pay variation. Although this was not an individual-level study, Shaw and Gupta (2007) did make distinctions among the types of performers. They predicted and found that high performers were less likely to leave firms with highly communicated, performance-based pay variation. One study addressing individual preferences offers preliminary evidence. Based on the results of a policy-capturing study, Blume, Baldwin, and Rubin (2009) reported that individuals higher in cognitive ability were more attracted to pay systems that created greater pay differentiation. We could not locate any study of individual satisfaction that addressed the equity/equality distinction in allocation rules, or that explored the moderating role of group member contribution homogeneity, in the context of pay variation. This omission makes these issues ripe targets for future research.

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Pay Variation and Outcomes at the Group Level In this section, we focus on the effects of pay variation at the workgroup level. Past research has typically either ignored this level entirely, or it has assumed that individual reactions can simply be aggregated to the group level. Beyond the problems in aggregation, additional concerns pervade the interplay between pay variation and group dynamics. This explication draws on the work of Ployhart and Moliterno (2011) on the emergence of human capital resources to explain competitive advantage through people. Pay variation is a human resource (HR) policy outcome that can potentially promote competitive advantage through people. Thus, Ployhart and Moliterno’s (2011) approach, and particularly two constructs in their approach, are germane. One is emergence-enabling states, that is, “the unit’s behavioral processes, cognitive mechanisms, and affective psychological states,” and the other is task environment complexity, that is, “the degree to which the unit’s tasks require interdependence and coordination among members” (Ployhart & Moliterno, 2011, p. 135, emphases added). We draw on these two concepts as important mechanisms in pay variation’s effects at the group level. Emergence-enabling states address the influence of group-level cognitive, affective, and behavioral phenomena. The cognitive component includes group climate (e.g., shared goals), memory (e.g., mental models), and learning (e.g., capacity of knowledge assimilation). The affective component includes group cohesion (i.e., the attraction of group members to one another), trust, and positive mood (i.e., the “emotional orientation” of the group, Ployhart & Moliterno, 2011, p. 140). The behavioral component includes cooperative and collaborative actions. Task environment complexity is usually addressed in the pay variation literature as interdependence, an issue we alluded to earlier. For example, Shaw et al. (2002, p. 494) argued that “work interdependence is the implicit key to the effectiveness of pay compression.” When interdependence is high, it is argued that large pay variations erode cooperation. According to Ployhart and Moliterno (2011), when member interactions and the need for collaboration are high (i.e., high task complexity), the group should be the most successful if affective psychological states and cognitive mechanisms create a collaborative environment (i.e., emergent enabling states). This is specifically an issue of within-group interdependence. Thus, we focus on within-group interdependence as it affects group outcomes.

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Group climate, cohesion, memory, learning, trust, positive mood, and interdependence are potential influences on group level satisfaction/retention and group level motivation/performance. These factors, along with allocation rules and member performance homogeneity (factors identified at the individual level as critical) are relevant in determining the effects of pay variation. We note here the conditions necessary for pay variation to have positive group-level effects. Equality allocation rules, combined with high performance-based pay variation, imply large between-group differentiations and no (or small) within-group differentiations in pay. Because pay is performance-based, high-performing groups receive more pay than low-performing groups. Because within-group allocations are equality-based, all group members receive the same amount of money. When within-group interdependence is high, it is important that group members collaborate with one another, and equal pay allocations promote this objective. The group dynamics literature provides evidence that such an environment is conducive to higher levels of group performance and higher positive affect in the group (Barsade & Gibson, 2012; DeMatteo, Eby, & Sundstrom, 1998). That is, emergenceenabling states develop due to equality allocations, promoting both group level motivation/performance and group level satisfaction/retention. But the situation is more complicated than this. Feelings of inequity could create dissatisfaction or turnover at the individual level. As noted, these feelings may be high for high performers in equality and high pay variation settings. Thus, any predictions around the implications of pay variation at the group-level must take into consideration the feelings and turnover effects occurring at the individual-level. Two situational factors illuminate this complexity heterogeneity of group member contributions, and within-group interdependence. If member performance levels are heterogeneous, inequity is likely to be experienced by high performers under equality allocation rules. The greater the pay variation, that is, the higher the reward intensity, the higher the potential feelings of inequity and the greater the consequent potential for turnover among high performers. Thus, when member performance and contributions are not roughly equal, the development of emergenceenabling states is likely to be retarded, as members making bigger contributions begin to resent those with marginal contributions, and develop lower satisfaction levels (Proposition 5). The introduction of interdependence complicates the situation further. When work is independent, emergence-enabling states may lead to positive affect, but not necessarily to better performance. This is because, in an

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independent setting, cooperation is not critical to effective performance. The positive effects of emergence-enabling states on performance are limited as a consequence. Under equality allocation rules and high pay variation, both workgroup motivation/performance and workgroup satisfaction/retention are affected positively when member performance is homogeneous and the task is interdependent, but the effects on performance are likely to be weaker when the task is independent. As noted above, motivation and satisfaction are different outcomes that should be treated differently. Equity rules hold greater promise of high motivation and performance as pay variation increases. Since pay variation is based on performance, group performance should be positively affected by firm-level pay variations in both high and low interdependence contexts. This is because individual performance is high (Proposition 4); this should aggregate to higher group performance, particularly when the performance of group members is universally high. Furthermore, since equity allocation rules encourage higher performers to stay in, and lower performers to leave, the organization, most group members should have high performance over time. These dynamics are unlikely to be affected by within-group interdependence, since individual members all strive for higher performance, regardless of whether work is independent or interdependent. The effects of equity allocation rules on workgroup satisfaction levels are likely to be more complex. Specifically, member contribution homogeneity and task interdependence should moderate the effects on overall group satisfaction/retention outcomes. High pay variations with equity allocation rules should be equitable in low interdependence environments due to task-reward alignment. Low performers, who may be less satisfied with the distribution, are likely to leave in these conditions (Proposition 6) so that those remaining are likely to be satisfied. If member performance is homogeneously high, higher levels of group performance will entail higher pay allocations at the group level as well, leading to higher levels of satisfaction/retention. These arguments lead to the propositions below. All else equal, Proposition 7. The relationship of pay variation to group level motivation/performance and satisfaction/retention depends on allocation rules, task interdependence, and performance homogeneity. Proposition 7a. Under equality allocation rules, pay variation is positively related to group motivation/performance and group

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satisfaction/retention when group member contributions are homogeneous and task interdependence is high. Proposition 7b. Under equity allocation rules, pay variation is positively related to group motivation/performance. Proposition 7c. Under equity allocation rules, pay variation is positively related to group satisfaction/retention when task interdependence is low and when member contributions are homogeneously high. Relevant Research Research addressing these issues is almost solely focused on sports teams (Shaw, 2014). In sports teams, the pay variation measure is usually based on athlete salaries, since athletes represent the core workgroup of interest. Since the unit of analysis in this case is the team, the effects of pay variation cannot be distinguished from equity/equality allocation rules. The extent of compression is essentially identical to the extent of equality allocation, and the extent of dispersion essentially identical to the extent of equity allocation. This research also commonly uses statistical controls that remove ability-related variance (a problematic procedure, since ability is a critical, Proposition 1). Application of this research to the propositions above is therefore problematic. Still, the research does indicate that differences in pay that are based on individual inputs are associated with higher team performance even in high task interdependent contexts (Trevor et al., 2012), supporting Proposition 7b. Abeler et al. (2010) provide an especially interesting experimental finding addressing the application of equality and equity allocation rules in influencing group performance. The authors allowed pairs of individuals to select effort levels after being assigned to equality pay allocation or equity pay allocation conditions. In the equality condition, group outcomes were influenced by the effort levels of low performers because high performers reduced their effort levels to match those of low performers over time; in the equity condition, group outcomes were influenced by the effort levels of high performers, since low performers increased their effort levels to match those of high performers. The authors concluded that the “results suggest that adherence to the norm of equity is a necessary prerequisite for successful establishment of gift-exchange relations” (Abeler et al., 2010, p. 1299). This study has limitations (i.e., the lack of real effort, groups were dyads), but it provides support for the positive effects of pay variation on group performance, so long as equity is maintained either due to homogeneous

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contributions (Propositions 7a and 7c) or through equity allocation rules (Propositions 7b and 7c). Overall, the dearth of research on team outcomes beyond the sports setting makes the study of group-level outcomes fertile ground for future pay variation research.

Pay Variation and Outcomes at the Organizational Level At the organizational level, pay variation research generally focuses on organizational performance or workforce performance. Organizational performance outcomes include profits, return-on-equity, and return-oninvestments (e.g., Belfield & Marsden, 2003; Carpenter & Sanders, 2004; Conyon, Peck, & Saddler, 2001; Firth et al., 2010; Leonard, 1990; Siegel & Hambrick, 2005). Workforce-performance outcomes include productivity, safety, and turnover (e.g., Bloom, 1999; Brown, 2006; Depken, 2000; Kepes et al., 2009; Shaw & Gupta, 2007; Shaw et al., 2002), often of a core workforce. Some studies include both types of outcomes. For example, Bloom (1999) reported similar relationships between pay variation in Major League Baseball and both team and financial performance. In a study of hospitals, Brown, Sturman, and Simmering (2003) also examined both workforce performance (average length of patient stay and patient survival rate) and organizational performance (return-on-assets). Workforce performance is clearly different from financial performance. Some scholars (e.g., Gupta et al., 2012; Shaw et al., 2002) posit that workforce performance is an intermediate outcome that mediates the relationship of pay variation to organizational performance such that pay variation→workforce performance and workforce performance→organizational performance. But other research overlooks this distinction and focuses on pay variation→organizational performance. Beyond the main effect/mediation argument, the size of the payroll could also affect the relationship between workforce and organizational performance. For instance, workforce performance may improve, but because the organization has higher pay levels for high-performing employees, the payroll costs go up as well, eroding organizational financial performance. Another example of this complexity was provided in a study of the National Football League. Specifically, Mondello and Maxcy (2009) reported a negative relationship between pay dispersion and team winning percentage, but a positive relationship between pay dispersion and financial performance. They argued that the high pay variation necessary to attract “stars” may hinder team collaboration in this interdependent setting, but help financial performance

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by increasing ticket sales. It is beyond the scope of this article to explore these complexities in the relationship of workforce and organizational performance. Instead, we limit attention to specific pay variation issues, reminding readers to remember that the two outcomes are not equivalent, and lessons about one cannot be applied whole-cloth to the other. Numerous issues affect the nature of the relationship between pay variation and workforce performance. The foregoing exposition highlights complexities in the pay variation workforce performance relationship at the individual and group levels. These complexities are magnified multifold at the organizational level. In view of this, we make configurational predictions here (i.e., emphasizing the “multidimensional constellation of conceptually distinct characteristics”; Meyer, Tsui, & Hinings, 1993, p. 1175). Group dynamics cannot necessarily be applied unaltered to the organizational level. For example, group allocation rules cannot be generalized to the organization. Instead, the focus must be on the prevalence of particular allocation rules. Do most groups in the organization use equity or equality allocation rules? Alternatively, is performance heterogeneity or homogeneity predominate across groups? Our exposition separates allocation rules based on contexts with a preponderance of equity allocation rules and contexts with a preponderance of equality allocation rules. Likewise, we differentiate between the preponderance of groups with performance heterogeneity or performance homogeneity. To some extent, predictions made at lower levels can be extended to the organizational level. For example, an organizational policy of wide performance-based pay variations and equity allocation rules combined with employees who have the ability to perform well, who see clear connections between performance and pay, and who value money, should result in higher workforce performance at the organizational level, and consequently higher organizational financial performance as well. But this is not a complete picture. One issue concerns the performance of different workforces in the organization. Performance of one group of employees (e.g., administrative assistants) may be high, while that of another group (e.g., sales staff) is low. How should these employee groups be combined? The relative importance of various employee groups must be weighted in the combination. The strategic HR literature has focused considerable attention to core employee groups, arguing that the HR policies for core groups are critical for organizational success (Lepak & Snell, 1999). The implication is that core employee workforce performance should be given greater weight in the combination.

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An additional complexity surrounds the role of interdependence. The previous section proposed different effects when within-group interdependence is high versus when it is low. At the workgroup level, this argument makes sense. But the argument applies at the organizational level only when between-group interdependence is low. If groups must coordinate and cooperate with one another, high between-group pay variations could also be corrosive, since high between-group pay variations would foster inter-group competition. Moreover, the relative importance of workforce performance and workforce turnover outcomes in organizational performance must be considered. The selection literature has devoted considerable attention to the issue of utility (e.g., Schmidt & Hunter, 1983) the financial value of HR systems such as selection. An integral component of utility formulas is SDy, the standard deviation of employee performance in dollars. It is more financially beneficial for the organization to spend resources to improve performance when SDy is large than when it is small. Likewise, turnover among some employee groups is more expensive than turnover among other employee groups (Cascio, 2000). Turnover among highly skilled, hard-to-replace employees is likely to be much more expensive than turnover among unskilled employees. As we aggregate from workforce performance and workforce turnover to organizational performance, then, the relative costs and benefits of workforce performance and workforce turnover must be inherently integrated into the equation. In view of these arguments, we offer the following propositions. All else equal, Proposition 8. The relationship between pay variation and workforce performance outcomes at the organizational level depends on the configuration of allocation rules, group member contribution homogeneity, and within- and between-group interdependence. Optimal configurations for the effectiveness of pay variation in promoting workforce performance include the following: Configuration A. Predominantly equality allocation rules, homogeneous group member contributions, high within-group interdependence, and low between-group interdependence Configuration B. Predominantly equity allocation rules, homogeneous or heterogeneous group contributions, low within-group interdependence, and low between-group interdependence

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Proposition 9. The relationship between pay variation and organizational performance depends additionally on the relative costs and benefits of workforce performance and workforce turnover. Relevant Research Some of the factors noted in Propositions 8 and 9 are not commonly measured or addressed in pay variation research (i.e., group member heterogeneity, between-group interdependence). As a result, few studies bearing on these propositions are available. One study the Kepes et al. (2009) study described earlier represents an approximation of Configuration B. Specifically, this study was conducted in the trucking industry where between-group and within-group interdependence tends to be relatively low. In this study, performance-based pay variation was individually based and thus resembled equity-based allocations more closely. Thus, the sample represented a low interdependence, equity-based setting, and the relationship of performance-based pay variation to performance was positive, supporting elements of Configuration B. Clearly, more research on configurations at the organizational level is needed.

OTHER ISSUES IN PAY VARIATION RESEARCH The exposition above makes it abundantly clear that pay variation is a complex phenomenon with many influences operating at different levels. It also suggests many directions for future research, such as greater attention to group homogeneity and both within-group and between-group interdependence. Table 1 summarizes the prior section. In addition to the illustration, there are numerous additional issues both within and across levels that should be investigated. These are addressed below. Homogeneity of Pay Variation We pointed out earlier that organizations can have many different kinds of variation. Not only can variation be horizontal, vertical, or overall, but there are also at least as many different horizontal variations as there are job families. Most studies do not address this issue, assuming either than the different variations are inherently identical or completely different (e.g., Ding, Akhtar, & Ge, 2009). The existence of multiple variations raises interesting

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Table 1.

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Factors Influencing the Pay Variation Performance Relationship.

Organizational performance

Workforce performance

Group performance

Individual performance

• Individual satisfaction and performance • Group emergence-enabling states and performance • Workforce performance • Costs and benefits of workforce performance and turnover • Individual satisfaction and performance • Group emergence-enabling states and performance • Allocation rules • Group member contribution heterogeneity • Within-group and between-group task interdependence • Individual satisfaction and performance • Allocation rules • Group member contribution heterogeneity • Within-group task interdependence • Allocation rules • Ability • Valence of pay • Clear pay→performance linkages

questions. Does wide horizontal variation for one employee group have the same effects when it is coupled with narrow and wide variations for another group? If some variations are compressed and others dispersed, are the effects the same as when all are compressed or all are dispersed? Do employees respond differently when all job families are treated the same (universally wide or universally narrow variations)? These issues must be addressed comprehensively as the knowledge base on pay variation matures. Related research sheds some light on the matter. Cowherd and Levine (1992), for example, reported particularly pernicious effects when the wages of lower level employees were below-market but managers’ pay was above market. Using skill-based pay among line workers and job-based pay among staff workers has also been reported to be problematic (Jenkins & Gupta, 1985). Employees make social comparisons, and the treatment of other employee groups affects employee reactions. The network of pay variations across the organization is necessarily the context within which the impact of any specific variation is embedded. Different Forms of Pay So far we have discussed pay variation as though there were a single common definition of pay. But compensation scholars (e.g., Milkovich et al.,

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2014) address many different kinds of pay for example, direct financial compensation (pay), or direct and indirect financial compensation (pay and benefits). Pay variation research has used many different operationalizations of pay. For example, Wright, Kroll, Lado, and Elenkov (2005) studied variations in vertical options pay, while Grund and WestergaardNielsen (2008) studied pay raise variation. The effects of these varied definitions are arguably different. We urge scholars to be sensitive to these differences across studies, and to define their own measures clearly in their reports.

Different Populations The samples used in different studies can also affect the observed results. Much pay variation research is conducted in sports settings (e.g., Becker & Huselid, 1992; Berri & Jewell, 2004; Mondello & Maxcy, 2009; Trevor et al., 2012), or with TMT or top executive samples (e.g., Messersmith et al., 2011; Shen, Gentry, & Tosi, 2010). These populations are popular subjects of research for one main reason pay information is available publicly. But the repeated use of these samples poses severe constraints on generalizability. One, the very fact that pay information is publicly available represents a boundary condition. Many organizations observe policies of pay secrecy (Belogolovsky & Bamberger, 2014; Collela, Paetzold, Zardkoohi, & Wesson, 2007). Public communication of pay information implies that employees have accurate pay information. But when pay is secret, much misinformation can prevail. It is not clear that accurate and inaccurate information yield the same reactions among employees. A second problem is that construct valid archival information on key variables is not always available, and researchers rely instead on marginal proxies. We addressed some of these proxies earlier. In addition, with executive samples, public pay information is usually available only for the top five executives (e.g., Henderson & Fredrickson, 2001; Messersmith et al., 2011; Shen et al., 2010; Wu, Wei, & Liang, 2011). The top five executives represent only a small segment of the executives in an organization. In view of these concerns, we urge scholars to expand their pay variation investigations beyond sports and top-five executives, and to recognize the limitations that these samples embody. Yanadori and Cui (2013) provide an example of an interesting sample that provides new knowledge. Specifically, they studied research and development groups and were able to make predictions and test of the effects of pay variation on innovation.

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A large number of pay variation studies have been conducted in non-US settings. At least 40 of the papers we reviewed represented non-US samples. These include Israel (Ang et al., 1998), China (Ding et al., 2009), Denmark (Clark, Kristensen, & Westergard-Nielsen, 2009), Germany (Bartling & von Siemens, 2011; Jirjahn & Kraft, 2010), Portugal (Martins, 2008), Sweden (Heyman, 2005; Hibbs & Locking, 2000), Taiwan (Lin, 2008; Tao & Chen, 2009), and Australia (Avent-Holt & Tomaskovic-Devey, 2010; Drago & Garvey, 1998; Orlitzky et al., 2006). The broad international interest in pay variation is encouraging. At the same time, it highlights the importance of detailing the contextual and cultural issues that could cloud results. Levine’s (1993) research, conducted across cultures, highlights this point. Within our framework, the effects of equity and equality allocation rules could vary dramatically across cultures (Shaw, 2014). We hope that future research heeds this concern.

Causality and Endogeneity Ironically, most pay variation research from the management perspective has used survey and archival data, while research from an economics perspective has used experimental designs more frequently (e.g., Charness & Kuhn, 2007; Eriksson, Teyssier, & Villeval, 2009; Freeman & Gelber, 2006; Harbing & Irlenbusch, 2003, 2008, 2011). Experimental designs provide stronger evidence of causality, but in pay variation research, many of these designs are problematic. For example, rather than actual effort, studies have used ratings of the choice of intended effort (Abeler et al., 2010; Bartling & von Siemens, 2011). Also, these studies usually assume homogeneity of ability levels across the sample (Abeler et al., 2010; Bartling & von Siemens, 2011; Eriksson et al., 2009). If the design necessitates varying skill levels, the skill levels are assigned, not varying naturally (e.g., Harbring & Luenser, 2008). Because of these and other problems with the design, causal inferences are difficult. In both management and economics literatures, causality remains ambiguous as a result. Do organizations with certain pay characteristics perform better? Or do successful organizations use certain kinds of pay systems? These kinds of questions remain unanswered. The use of longitudinal designs helps, but is not enough. Recently, Grant and Wall (2009) called for increased exploitation of naturally occurring field experiments to address these dilemmas empirically. This is a useful recommendation for pay variation research.

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Nature of the Relationship Most pay variation research assumes a linear relationship between pay variation and outcomes, be the relationship positive or negative. But this may not necessarily be the case. Grund and Westergaard (2008), for example, tested a curvilinear relationship between overall pay raise variation and firm performance. The authors discovered a mostly negative relationship, but the relationship became positive at the highest levels of pay variation among white-collar workers (but not among blue-collar workers) in Denmark. Franck and Neusch (2011) found a U-shaped relationship between horizontal variation and team performance among German soccer teams, but Winter-Ebmer and Zweimuller (1999) reported inverse U-shaped relationships between horizontal variations and performance among blueand white-collar workers in Australia. The inverse U-shaped relationship was supported by Mahy, Rycx, and Volral (2011) for overall variation and workforce performance in Belgian firms. Studies among National Hockey League (NHL) teams (Trevor et al., 2012) and in experimental settings (Freeman & Gelber, 2006) also support an inverse U-shaped relationship. Evidence suggests that the relationship of pay variation and outcomes may be curvilinear. Unfortunately, design problems in these studies (e.g., weak operationalizations of performance) and inconsistencies across studies (different predictors, different outcomes, different populations) make general conclusions difficult. Still, further exploration of curvilinear relationships holds promise.

Basis of Pay Variation We confined our exposition to performance-based horizontal pay variation. But pay can vary for numerous reasons, including differences in jobs, differences in markets, differences in skill, performance, etc. Trevor et al. (2012) and Kepes et al. (2009) are among the few studies that explicitly addressed the basis of pay variation. More studies need to integrate the basis for pay variations into their designs. In addition, more theory and research are needed to explore the effects of nonperformance bases of pay variation. Kepes et al. (2009) found deleterious effects of politics-based pay variation; Shaw and Gupta (2007) reported different dynamics for performance- and seniority-based variation. The notion that seniority-based variation promotes retention has credibility. The notion that seniority-based variation does not affect

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performance (at the individual or the organizational level) also has credibility. But these are mere speculations. Knowledge of pay variation dynamics could benefit from both theoretical and explorations of nonperformance sources of variation. It is often the case that pay depends on multiple factors, not a single factor. For example, merit pay is based on supervisor ratings, and supervisor ratings can incorporate both performance and political factors (Longenecker, Sims, & Gioia, 1987; Cleveland & Murphy, 1992). If performance-based variations affect performance positively and politically based variations affect performance negatively (as Kepes et al., 2009, suggest) what is the net result on performance? We need research that explicitly addresses multiple bases of pay variation simultaneously.

CONCLUSIONS Pay variation is at once a complex enigma and a challenging area of research. This paper highlights some of these complexities and offers ideas about how to begin addressing these complexities. At this point, there is plentiful evidence about the simple pay variation→performance relationship. This research area has matured, and it is time to give the intricacies of pay variation their due. We illustrated the differential interplay of etiological dynamics at varying levels of the organizational pyramid. We hope this multilevel perspective and the issues raised here help to move us toward a rich understanding of the payoffs, the problems, and the pitfalls of this inherently fascinating topic.

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Study

Sample

Type

Predictor

Criterion

Abeler et al. (2010)

Students (Germany)

Horizontal

Pay variation manipulation

Ang et al. (1998)

Executives (Israel)

Vertical

Avent-Holt and TomaskovicDevey (2010)

National organization study (Australia)

Vertical

Pay variation; firm Contestability of performance CEO position; pay-forperformance sensitivity; pay ratio Gender composition; Pay ratio ethnic composition; permanence composition; education; autonomy; professional; craft; unionization

Backes-Gellner and Pull (2013)

Salespeople (Germany)

Vertical (tournament structure)

Employee heterogeneity; winner contest ratio

Individual effort; profit

Individual performance

Key Findings When the principal was allowed to vary wages, performance increased overall, but when the principal was required to give equal payment, performance was lower. In the equal wage treatment condition, low effort providers determined group outcomes while in the individual wage treatment condition, high effort providers determined outcomes. In firms managed by owners, pay variation was greater between owner-CEO and executives. The only time that high pay variation led to higher performance was in the case of owner-managed firms. Pay variation between managerial and core jobs was accounted for by gender composition, ethnic composition, relative education, core job autonomy, core professional job category, and core job unionization. Pay variation between core jobs and lowest level jobs was accounted for by gender composition, permanence composition, relative education, and relative autonomy. Under centralized wage settings, the authors find that pay variation tends to be explained by more legitimate factors (e.g., education, skill) than under unmonitored environments (e.g., gender is more explanatory). Effort levels were lower in heterogeneous contests than in homogeneous contests. Employees on the threshold of winning an award exert effort even in heterogeneous contests.

A Multilevel Approach to the Effects of Pay Variation

APPENDIX: SUMMARY OF EMPIRICAL FINDINGS

47

Sample

Type

Predictor

48

(Continued )

Appendix. Study

Criterion

Management employees of one firm

Horizontal; vertical; overall

Cohort

Pay level; pay range

Bartling and von Siemens (2011)

Students (Germany)

Horizontal

Pay variation manipulation

Worker effort and morale

Beaumont and Harris (2003)

Annual census of production manufacturing firms (UK)

Vertical

Pay ratio

Firm performance

Becker and Huselid (1992)

Auto-racing drivers

Horizontal

Prize range

Individual performance (speed and adjusted finish)

Beersma et al. (2003)

Students

Horizontal

Pay variation manipulation

Team performance

Exit rates did not vary primarily due to relative wage. Variation between cohort wages was explained by varied starting wages by year. The distributions of wages were widened by top earners increasing earnings more rapidly than others. Variation in rates across levels and variation in rates within levels appeared to be driven by a common underlying factor (the authors suggested it may be ability). Participants chose whether or not to participate in groups and then were either given equal wages or unequal wages. No differences in effort or participation were found between groups in the unequal wage treatment and the equal wage treatment. In most sectors, pay variation was related to higher performance. In the pharmaceutical sector, compressed structures were related to higher performance. Large, non-UK firms had stronger pay variation and firm performance relationships than small, UK firms. Performance increased with prize spread. This incentive effect diminished with increasing prize spread. Large spreads, greater than one standard deviation above the sample mean, led to increased hazardous driving behaviors. Team performance was dependent on reward structure, task dimension, and team composition. Equal (cooperative) structures led to greater accuracy. Unequal (competitive) structures led to greater speed. Extraversion and agreeableness performed best under cooperative structure.

SAMANTHA A. CONROY ET AL.

Baker, Gibbs, and Holmstrom (1994)

Key Findings

Workplace employee relations survey firms (UK)

Overall

Performance-related pay

Pay ratio; firm performance

Ben-Ner, Ren, and Paulson (2011)

Human service firms

Vertical

Firm type

Pay level; pay ratio

Berri and Jewell (2004) Bishop (1987)

NBA teams

Horizontal

Firms with more than 85 employees

Horizontal

Change in pay Team performance dispersion Productivity; training Pay level

Bloom and Michel (2002)

Two samples: executives and managers

Horizontal; overall

Bloom (1999)

MLB teams

Bloom and Michel (2002) Blume et al. (2009)

Managers

Overall

Pay dispersion

Turnover; tenure

Students

Horizontal

Attraction to FDS Consequences of poor performance; reward differentiation; comparison group size; feedback frequency

Individual performance; organizational performance

The negative pay variation and individual performance relationship was moderated by location in the distribution, such that those lower in the distribution are more negatively affected by pay variation. Pay variation was negatively related to tenure and positively related to turnover. Individuals were attracted to greater reward differentiation. Higher cognitive ability was associated with greater preference for reward differentiation in forced distribution systems.

49

Tenure; turnover; pay dispersion

Horizontal

Pay dispersion; investment opportunities; environmental instability; environmental munificence; diversification Pay dispersion

Performance-related pay was related to greater pay variation. Performance-related pay was related to higher performance. Input-based pay was related to higher performance when monitoring environments were expensive and inaccurate than when they were cheap and accurate. Wage level differences were not statistically significant across firm types. Pay variation was lower in government and nonprofit firms than in for-profit firms. For-profit firms used financial incentives more than nonprofit and government organizations. Changes in pay variation on NBA teams did not lead to changes in winning percentages. Productivity relative to peers influenced wage rates in small and medium nonunion firms, but did not have an effect in unionized and large firms. Wages responded to differences in productivity, but these adjustments were not complete. Investment opportunity, environmental munificence, and environmental instability were positively related to pay variation. Pay variation was negatively related to tenure and positively related to turnover.

A Multilevel Approach to the Effects of Pay Variation

Belfield and Marsden (2003)

Study

Sample

Type

(Continued ) Predictor

50

Appendix.

Criterion

Hospitals

Vertical

Pay dispersion

Workforce performance

Carnahan et al. (2012)

US Census Bureau longitudinal establishment household database (legal service employees)

Overall

Pay dispersion

Turnover

Carpenter and Sanders (2004)

Executives of multinational firms

Vertical

TMT pay level; LTIP Firm performance structure; pay range

Charness and Kuhn (2007) Chen and Shum (2010)

Students

Horizontal

Pay range

Effort

Retail stores

Vertical

Worker effort

Pay range

Executives of large firms

Vertical

Brown (2006)

Hospitals

Brown et al. (2003)

Workforce performance

Key Findings Promotions from within at the executive level were common. Pay variation increased at each level. The number of “competitors” for the CEO prize increased with the pay variation. Pay level and pay variation interacted to predict heart attack mortality rates, such that higher pay levels reduced the negative impact of hierarchical structures on workforce performance. Pay variation had a negative relationship with resource efficiency and patient care outcomes when pay levels were low. Hierarchical pay leading the market or egalitarian pay lagging the market had the best financial performance results. High performers are less likely to leave firms with high pay variation, but if they do leave, they are more likely to form new firms. Low performers are more likely to leave when there is high pay variation. The measure for performance was based on pay level. CEO-TMT pay variation was negatively related to future firm performance. Pay gap and degree of internationalization interacted such that higher internationalization strengthened the pay gap performance relationship (more negative when high internationalization). Effort decisions were strongly related to own wages. Coworkers’ wages did not affect effort. Worker effort did not completely explain pay variation. Much of the range, then, was believed to be an incentive for lower level workers.

SAMANTHA A. CONROY ET AL.

Pay range between CEO and lower levels

Vertical

Number of executives competing for CEO position Pay dispersion

Bognanno (2001)

Faculty (Canada)

Horizontal

Pay dispersion; Trust perceptions communal sharing preferences

Clark et al. (2009)

European Community Household Panel (Denmark)

Overall

Firm pay level; own pay level

Satisfaction

Colvin, Batt, and Katz (2001)

Service and sales reps of telecommunication establishments

Vertical

Manager pay level; manager-toworker pay range

Connelly, Haynes, Tihanyi, Gamache, and Devers (2013) Conyon et al. (2001)

Publicly traded firms

Overall

Skilled workforce investments; teams; performancebased pay; HPWP; information technology; electronic monitoring; unionization Pay ratio

Executives (UK)

Vertical; overall

Cowherd and Levine (1992)

Managers and workers of manufacturing business units

Vertical

Cunat and Guadalupe (2009)

Executives of manufacturing firms

Overall

Organizational level; number of contestants; pay range and dispersion Pay equity

Import penetration (globalization)

Pay dispersion and communal sharing preferences interact to predict trust perceptions. The relationship between pay dispersion and trust perceptions is positive for those with low communal sharing preferences. Individuals were more satisfied when firm average pay was higher (controlling for own pay level). Satisfaction was not affected for individuals earning more than the average pay level. High performance HR practices were negatively related to manager-to-worker pay variation. Use of teams and variable pay were also related to lower manager-to-worker pay variation. Unionization was related to lower level of manager-to-worker pay variation.

Pay variation has a positive relationship with shortShort-term firm term firm performance, but a negative performance; relationship with a firm’s long-term performance long-term firm trend performance trend The relationship between pay and organization Executive pay; pay level was convex. Number of contestants was range and correlated with executive pay variation. Pay dispersion; firm variation did not significantly affect firm performance performance. Product quality There was a positive relationship between pay equity for hourly and lower level workers and product quality. Pay structure Greater globalization led to a decrease in variables (basis, nonperformance-related compensation and an level) increase in pay for performance. Total pay increased most for the top executive and variation increased as a result.

A Multilevel Approach to the Effects of Pay Variation

Christie and Barling (2013)

51

Sample

Type

Predictor

Major League Baseball (MLB) teams

Horizontal

Pay dispersion

Depken (2000)

MLB teams

Horizontal

Pay dispersion

Devaro (2006)

Professional and skilled workers

Vertical

Pay range; relative performance

Ding et al. (2009)

Manufacturing and service firms Horizontal; vertical (China)

Pay dispersion

Dominguez and Gutierrez (2004)

Wage structure survey (Spain)

Overall

Collective bargaining arrangement

Drago and Garvey (1998)

Workgroups (Australia)

Horizontal

Ehrenberg and Bognanno (1990a)

Professional golf tournaments

Horizontal

Piece rate; share scheme; task variety; pay residuals Total prize; pay range

Ehrenberg and Bognanno (1990b)

Professional golf tournaments (Europe)

Horizontal

Total prize; pay range

Criterion

Key Findings

Individual performance; organizational performance Team performance

Pay variation had a negative relationship with team and organizational performance.

Individual performance

Greater prizes led to higher performance. Larger marginal prizes were related to lower final scores (lower indicated better performance). A replication of Ehrenberg and Bognanno (1990a) on European professional golf. Greater prizes led to higher performance. Larger marginal prizes were related to lower final scores (lower indicated better performance).

Pay variation had a negative relationship with team performance. Worker performance; Relative performance influenced promotion promotion outcomes. Greater vertical pay variation led to better worker performance. Firm performance Vertical pay variation between managers and workers was positively related to performance. Horizontal pay variation was negatively related to some measures of performance. Pay dispersion Bargaining at the firm level is related to lower variation than bargaining at the sector level. Other factors have stronger effects than the bargaining level influence on pay variation such that pay variation is actually higher for firms that bargain at the firm level rather than the sector level. Helping behaviors; Individuals engaged in fewer helping efforts and individual greater individual effort when there were greater absenteeism promotion incentives.

Individual performance

SAMANTHA A. CONROY ET AL.

DeBrock, Hendricks, and Koenker (2004)

52

Appendix. (Continued ) Study

Executives of fast growing private firms

Overall

Family-ownership; pay dispersion

Pay dispersion; firm performance

Eriksson (1999)

Executives (Denmark)

Vertical

Environmental risk; pay range and dispersion

Pay range and dispersion; firm performance

Eriksson et al. (2009)

Students

Horizontal

Payment scheme

Effort; effort variability

Firth et al. (2010)

Executives (China)

Vertical

Firm performance

Franck and Nuesch (2011)

Professional soccer (Germany)

Horizontal

Pay dispersion

Pay ratio and residual; pay level Player behavior; player performance

Fredrickson, DavisBlake, and Sanders (2010)

Executives of large firms

Horizontal

Freeman and Gelber (2006)

Students

Horizontal

TMT board membership; variation in stock ownership; average tenure; pay dispersion Pay variation manipulation

Pay dispersion; firm performance

Individual and group performance; deviance

Pay variation was lower in family owned firms than nonfamily-owned firms. Negative influences of pay variation on firm performance occurred through the effect of pay variation on potency, cohesion, affective conflict, and cognitive conflict. These negative influences on pay variation on firm performance were strongest in family firms. Pay variation and risk were positively related. Pay variation was positively related to firm performance. Interdependence did not affect the pay dispersion-firm performance relationship. When individuals chose their payment scheme variance in effort was reduced and effort increased. Self-selection of payment scheme was largely related to risk aversion. A positive relationship between pay variation and performance was found. Pay variation increased individualistic player behaviors. A U-shaped relationship existed, very high or very low pay variation led to higher performance. Greater potential for social comparisons were related to lower non-CEO-TMT pay variation. Non-CEO-TMT pay variation was negatively related to firm performance and stock price volatility moderated this relationship.

53

There was an inverted U-shaped relationship between pay variation and performance; performance was higher at moderate levels of variation, and this relationship was strongest in full pay information settings. Performance was higher when full information was available in no inequality and medium inequality settings than when no information was available. Cheating increased when full information was available about skill distribution and the pay inequality level was medium.

A Multilevel Approach to the Effects of Pay Variation

Ensley et al. (2007)

Sample

Type

(Continued ) Predictor

54

Appendix. Study

Criterion

BLS wage survey

Horizontal

Unionization

Pay dispersion; pay practices

Frick and Prinz (2007)

Marathons

Horizontal

Pay dispersion; prize level

Race times

Frick et al. (2003)

Professional baseball, basketball, football, and hockey teams

Horizontal

Pay dispersion

Team performance

Gee and Wen-Jhan (2008) Gilsdorf and Sukhatme (2008)

Professional baseball league (Taiwan) Women’s professional tennis

Horizontal

Pay dispersion

Team performance

Horizontal

Pay range

Stronger athlete win

Glandon and Glandon (2001)

Three universities

Overall

Turnover; pay compression index

Gnyawali, Offstein, and Lau (2008)

Executives of pharmaceutical firms

Vertical

School size; school type (teaching, research) Pay range

Gomez (2002)

NHL teams

Horizontal

Pay dispersion

Grund and WestergaardNielsen (2008)

Linked employer employee data (Denmark)

Overall

Pay raise dispersion

Firm competitive activity, complexity, and magnitude Individual and team performance Firm performance

Unionized organizations have lower pay variation. Wage practices that unions encourage reduced pay dispersion. Larger prizes led to better running times. Greater spread of the prize amount led to improved racing times. Smaller prize differences between ranks slowed running times. The influence of pay variation depended on the sport. Higher variation was positively tied to performance in professional basketball and negatively tied to performance in professional baseball and football. Inter-team and intra-team wage variations were negatively related to performance. Stronger players won more often than weaker players as the prize spread increased, from this the authors infer greater effort was elicited when the spread was larger. Turnover was greater in small, teaching schools. A tentative finding that salary compression did not affect faculty turnover. Key finding was CEO-TMT pay variation was positively associated with competitive activity and complexity. Team performance was lower for teams with dispersed structures. Individual performance was lower when there was greater pay variation. The pay raise variation performance relationship was U-shaped (but the positive relationship was only for the highest levels of variation). The relationship existed for white-collar workers, but not blue-collar workers.

SAMANTHA A. CONROY ET AL.

Freeman (1982)

Key Findings

Overall; vertical

Pay ratio; organization sector Number of participants and number of prizes

Harbring and Irlenbusch (2003)

Students (Germany)

Horizontal

Harbring and Irlenbusch (2008)

Students (Germany)

Horizontal

Number of participants and number of prizes

Harbring and Irlenbusch (2011)

Students (Germany)

Horizontal

Pay range manipulation; framing of sabotage

Harbring and Luenser (2008)

Students (Germany)

Horizontal

Harder (1992)

MLB and NBA teams

Horizontal

Pay range manipulation; ability Pay equity

He et al. (2004)

Employees of steel, transportation, and petroleum firms (China)

Overall

Ownership reform; vertical and horizontal collectivism

Henderson and Fredrickson (2001)

Executives of chemicals, hightech, and natural resources firms

Vertical

Relatedness; R&D activity; capital investment activity; firm size; number of vice presidents; number of firm businesses

Service quality

Pay variation has a positive relationship with service quality in for-profit firms, but a negative relationship in nonprofit organizations. Effort Effort increased when there were a greater number of prizes. There were fewer nonparticipants when there were more prizes. There was less effort variability when the number of prizes was higher. Effort; sabotage Tournament size did not appear to influence effort. Effort was highest when there was a balance of winner and loser prizes. Sabotage did occur in tournament settings. Effort; sabotage Effort levels and sabotage levels increased with prize spread. Framing sabotage as sabotage and indicating an employment situation reduced sabotage. Effort was higher and sabotage was lower in communication conditions. When sabotage was not an option, tournament incentives were chosen by principals more often. Effort Effort increased with prize spread. Stronger players exerted greater effort when the prize spread was the greatest. Individual Under-rewarded players did not decrease performance; performance, and this was attributed to the paycooperativeness for-performance context. However, underrewarded players engaged in more selfish behaviors and over-rewarded players engaged in more team-oriented behaviors. Allocation preference An attitudinal shift to differential reward allocation preferences was related to ownership reform. Vertical collectivism was positively related to differential allocation preferences. Horizontal collectivism was positively related to equalitarian preferences. Pay range; firm Executive pay variation was best predicted by performance tournament theory. Multiple theories added predictive value for explaining the pay variation and firm performance relationship.

55

Linked employer employee data

A Multilevel Approach to the Effects of Pay Variation

Hamann and Ren (2013)

Sample

Type

Teachers

Horizontal; overall

Heyman (2005)

Linked employee employer data (Sweden)

Overall

Heyman, Sjoholm, and Tingvall (2011) Hibbs and Locking (2000)

Linked employee employer data (Sweden)

Overall

Industrial firms (Sweden)

Hunnes (2009) Jane, San, and Ou (2009) Jewell and Molina (2004) Jirjahn and Kraft (2007)

Jirjahn and Kraft (2010)

Criterion

Number of competitors Pay dispersion; wages; number of contestants; market volatility

Pay level

Pay ratio

Overall

Acquisition/cross border foreign direct investment Pay dispersion

Linked employee employer data (Norway) Professional baseball (China)

Horizontal; vertical

Pay dispersion

Firm performance

Horizontal

MLB teams

Horizontal

Pay dispersion; team performance Pay dispersion

Pay dispersion; team performance Team performance

Blue-collar employees of manufacturing firms (Germany)

Horizontal; overall

Pay range

Workforce performance

Blue-collar employees of manufacturing firms (Germany)

Overall; horizontal

Teamwork

Pay range

Firm performance; job levels; pay dispersion

Industrial output; labor productivity

Key Findings Greater returns for promotion existed when there were fewer opportunities for promotion. The relationship between pay variation and profits was positive. The relationship between pay variation and average pay was positive. The number of contestants was negatively related to pay variation. Pay variation was positively related to variation in sales. Foreign direct acquisitions increased wages for those at the top of the hierarchy and lowered the wages of those at the bottom. Industrial output had a negative relationship with variation between firms and a positive relationship with variation within firms. Labor productivity had a negative relationship with variation between firms and a positive relationship with variation within firms. No relationship between pay variation and performance was found. Pay variation was negatively related to performance. Pay variation was negatively related to team production but not team efficiency. A positive pay variation and performance relationship was found and was moderated by a number of factors, including internal promotions (negative), piece rates (positive), and works councils (negative). Self-managed teams led to greater variation between skilled and unskilled employees. This relationship was moderated by training (positive), production technology (positive), age of the firm (negative), and collective bargaining coverage (negative).

SAMANTHA A. CONROY ET AL.

Heutel (2009)

(Continued ) Predictor

56

Appendix. Study

Executives

Vertical

Pay range; CFO is VP; firm size; industry practice; volatility

Pay range; firm performance

Katayama and Nuch (2011) Kato and Long (2011)

NBA teams

Horizontal

Pay dispersion

Executives (China)

Vertical

Pay ratio; size of contestant pool; noise in performance measure

Individual and team performance Pay ratio; firm performance

Kepes et al. (2009)

Drivers of trucking firms

Horizontal

Pay range

Workforce performance; firm performance

Lallemand et al. (2004)

Linked employer employee data (Belgium)

Overall

Pay residual, range and dispersion

Firm performance

Lambert, Larcker, and Weigelt (1993)

Managers and executives of large, publicly traded manufacturing and service firms

Vertical

Pay range; pay level Organization level; managerial power; executive performance

The pay variation firm performance relationship was positive. The relationship was stronger when a CEO was near retirement, weaker when the CEO was new to the firm and when the new CEO was an outsider. No causal effect was found between pay variation and performance outcomes. Pay variation was greater when there was a greater number of contestants and when there was greater market volatility. The relationship between pay variation and performance was positive, and moderated by state ownership (lesser state ownership strengthened the relationship). Performance-based pay and pay variation interacted to have a positive relationship with workforce performance. Politics-based pay and pay variation interacted to have a negative relationship with workforce performance. The relationship between pay variation and firm performance was positive. The pay variation workforce performance relationship was moderated by work level (stronger for bluecollar worker) and firm monitoring level (stronger for higher monitoring levels). The relationship between organizational level and pay was convex with the CEO level providing the largest increase in pay (supportive of tournament theory). The relationship between managerial power and pay level was positive (supportive of managerial power theory). Executive performance and pay level were positively related (supportive of agency theory). Overall, tournament and managerial power were stronger predictors of pay level and variation than agency theory.

A Multilevel Approach to the Effects of Pay Variation

Kale et al. (2009)

57

Sample

Type

Predictor

58

Appendix. (Continued ) Study

Criterion

Executives

Overall

Pay dispersion

Firm performance

Leonard (1990)

Executives

Overall

Pay level; pay dispersion; roe

Levine (1993)

Manufacturing firms (US and Japan)

Horizontal

Hierarchical level; promotion rate; pay dispersion Pay residuals

Lin (2008)

Textile company (Taiwan)

Vertical

Hierarchical level; product price

Pay range

Lin, Shen, and Su (2011)

Executives (China)

Vertical

Pay range; pay level

Liu et al. (2010)

Linked employer employee data (Taiwan)

Overall

Mahy et al. (2011)

Linked employer employee data (Belgium)

Overall

Talent demands; number of participants; environmental noise; time; Chinese government ownership stake Firm age; firm size; labor quality; pay dispersion Conditional pay residuals

Quit rates; pay satisfaction; commitment

Workforce performance Workforce performance

The pay variation and firm performance relationship was positive. This relationship was moderated by agency concerns and corporate governance, the relationship was stronger in firms with agency problems and stronger corporate governance. Executive pay was largely associated with hierarchical level. Pay variation was correlated with hierarchical level. There was a relationship between residual wages and quit rates (negative) and pay satisfaction (positive). In Japan (but not in the United States), receiving high wages in comparison to others in the plant created discomfort among employees. Higher product price made effort more valuable, so the pay structure convexity was strengthened by product price. Pay variation has increased over time in China. Pay variation is highest at the top of the firm though this is not a consistent increase. Pay variations are tied to noise in the business environment. The pay variation between tier 1 and tier 2 was positively related to the number of tier 2 executives. A positive relationship between pay variation and firm performance was found. Labor quality was positively related to firm performance. An inverse U-shaped relationship between pay variation and workforce performance. The pay variation workforce performance relationship was moderated by skill level (stronger for higher skill levels), but collective bargaining did not moderate the relationship.

SAMANTHA A. CONROY ET AL.

Lee et al. (2008)

Key Findings

Executives

Vertical; overall

Human capital and firm characteristics; number of VPs; pay dispersion

Martins (2008)

Linked employer employee data (Portugal) Executives of single industry firms

Overall

Pay range and Firm performance dispersion Turnover Pay dispersion; incentive intensity; relative market pay position

Messersmith et al. (2011)

Overall

Mondello and Maxcy (2009)

NFL teams

Horizontal

Pay dispersion; incentive

Organizational and team performance

O’Reilly, Main, and Crystal (1988)

Executives of large firms

Vertical

CEO pay level; pay range

Orlitzky et al. (2006)

MBA students (Australia)

Overall

Firm size; firm performance; industry; CEO tenure; number of VPs; board member pay Agreeableness

Preference for equal or unequal pay

Tournament mechanisms explained pay variation; a greater number of contestants were related to greater variation. A weak, positive relationship was found between pay variation and firm performance. Interdependence did not appear to moderate the pay variation firm performance relationship. The pay variation and firm performance relationship was found to be negative. Pay variation was positively related to executive turnover. The relationship was moderated by incentive intensity (strengthens the relationship). The executive’s percentage of total compensation was negatively related to turnover. Payroll and incentive pay were positively related to team performance. Pay variation was negatively related to team performance, but positively related to financial performance. CEO pay was negatively related to number of VPs. CEO pay was explained by compensation of board members.

A Multilevel Approach to the Effects of Pay Variation

Pay range between CEO and lower levels; firm performance

Main et al. (1993)

Agreeableness was negatively related to normative myopia (propensity to ignore ethical issues). Normative myopia was positively related to preferences for highly dispersed pay structures. Normative myopia partially mediates the agreeableness pay dispersion preference relationship (Agreeableness is negatively related to normative myopia which is positively related to preferences for high differentiated pay structures).

59

Study

Sample

Type

(Continued ) Predictor

Criterion

Spanish managers

Overall; horizontal

Education

Pay dispersion

Linked employee employer data of nonprofits (Austria)

Overall

Pay dispersion

Petrescu and Simmons (2008)

Firms (UK)

Overall

Broad range of demographic variables; volunteers; income from public authorities; pay level; collective agreements HRM practices; perceptions of pay inequality

Pfeffer and DavisBlake (1990)

University administrators

Overall

Race and gender composition; university type; number of job titles

Pay dispersion

Pfeffer and DavisBlake (1992)

University administrators

Overall

Pfeffer and Langton (1988)

Faculty

Horizontal

Individual turnover Pay dispersion; individual location in the pay distribution Pay dispersion Variation in productivity, experience; department size; collaboration; social contact; university type; department chair

Pay satisfaction; job satisfaction

Job tenure was positively related to pay variation; education and work experience prior to job entry were negatively related to pay variation. Pay variation was related to use of volunteers (negative), use of public subsidies (positive), and income from public authorities (negative).

Performance based and seniority based pay were associated with nonunion member satisfaction. Perceptions of pay inequality led to lower job and pay satisfaction. Pay variation was explained by tenure dispersion (positive), private control (positive), and institution type. Pay variation was also explained by gender composition homogeneity (negative). Number of positions was positively related to dispersion when positions were general administrative, but negatively related to dispersion when positions were related to core activities. Pay variation led to greater turnover, and this relationship was strengthened by pay information availability and external labor market mobility. Pay variation was explained by private control (positive), departmental size (positive), working alone (positive), social contact (negative), democratic and participative governance (negative), demographic homogeneity (negative). Pay variation was not found to be related to variation in productivity.

SAMANTHA A. CONROY ET AL.

Ortin-Angel and Salas-Fumas (2007) Pennerstorfer and Schneider (2010)

Key Findings

60

Appendix.

Pfeffer and Langton (1993)

Faculty

Horizontal

Pissaris, Jeffus, and Gleason (2010)

Executives

Vertical

Pay range; shareholder power; board ownership and control; leverage

Firm performance

Powell, Montgomery, and Cosgrove (1994) Richards and Guell (1998)

Teachers and teacher aides of child care establishments

Horizontal

Pay level; pay dispersion

Quit and fire rates

MLB teams

Horizontal

Pay dispersion

Team performance; organizational performance

Riddell (2011)

Greater Toronto area firms (Canada) Professional employees (Spain)

Horizontal

Pay dispersion

Quit rates

Vertical

Pay dispersion

Professional baseball teams (Taiwan) Drivers of trucking firms

Horizontal

Union density; performance; pay level; unemployment Pay level; pay dispersion Pay dispersion

Rodriguez-Gutierrez (2001)

San and Jane (2008) Shaw and Gupta (2007)

Horizontal

Individual satisfaction; individual performance; individual collaboration

Team performance

Pay variation was negatively related to team winning percentage, but unrelated to organizational performance (measured as attendance). Horizontal pay variation was positively related to quit rates in Toronto firms. Pay variation was negatively related to union density and sales per employee and positively related to pay levels. Pay variation increased during economic slumps. The relationship between pay variation and performance was negative. Good performer quits were lower when pay dispersion is high, performance-based pay is emphasized, and pay system communication is high. Average performer quits were lower when pay dispersion is high, when seniority-based pay

61

Good performer quits; average performer quits; poor performer quits

Pay variation had a negative effect on satisfaction, performance, and collaboration. The relationship between pay dispersion and satisfaction was moderated by fairness (weakened), productivity and seniority pay basis (weakened), individual pay level (weakened), pay information availability (strengthened), and commitment (weakened). Pay variation was positively related to firm performance. This relationship was moderated by duality (strong, positive for CEO duality, no relationship when there is not duality), board ownership (positive for high board ownership, negative relationship for low board ownership), and leverage (stronger for high leverage). Pay variation was not significantly related to quit or fire rates.

A Multilevel Approach to the Effects of Pay Variation

term; participation; autocratic governance Pay dispersion

Sample

Type

(Continued ) Predictor

62

Appendix. Study

Criterion

Two samples: (1) Drivers of trucking firms and (2) production workers of concrete pipe firms

Horizontal

Pay range and dispersion

Workforce performance

Shen et al. (2010)

Executives of large firms

Vertical

Pay ratio

CEO turnover

Shin (2009)

Manufacturing firms

Vertical

Pay dispersion

Siegel and Hambrick (2005)

Executives

Overall; vertical; horizontal

Gender heterogeneity; race heterogeneity; proportion of recently hired workers; job rotation program; self-managed teams Pay dispersion

Firm performance

is emphasized and pay system communication is high. Poor performer quits were not significantly explained. Pay variation and individual incentive use interacted to explain workforce performance, such that higher performance led to better performance when individual incentives are high and worse performance when they are low. Pay variation and interdependence interacted to explain performance, such that higher variation and highly interdependent work led to lower workforce performance (as compared to low interdependence and variation). A three-way interaction between pay dispersion, interdependence, and individual incentives was related to performance, such that the negative relationship between pay dispersion and performance in the presence of high interdependence was attenuated by high use of individual incentives. CEOs that have a higher percentage of pay compared to other members of the top management team were less likely to turnover. Pay variation was positively related to gender heterogeneity, proportion of recently hired workers, and job rotation programs. Pay variation was negatively related to the use of self-managed teams.

The relationship between TMT pay variation and firm performance was negative in high technologically intensive firms.

SAMANTHA A. CONROY ET AL.

Shaw et al. (2002)

Key Findings

NBA teams

Horizontal

Pay dispersion

NHL teams

Horizontal

Su (2011)

Executives of public firms (China)

Vertical; overall

Pay dispersion; pay level Job level; risk; number of competitors

Sunday and Pfuntner (2008)

BLS national compensation survey

Horizontal

Sunde (2009)

Professional tennis

Horizontal

Tao and Chen (2009)

Firms (Taiwan)

Vertical

Trevor and Wazeter (2006)

Teachers

Horizontal

Trevor et al. (2012)

NHL teams

Horizontal

Predicted pay; pay residuals

Tsou and Liu (2005)

Manufacturing firms (Taiwan)

Overall

Pay residual; flexible wage structures

Venkatesh, Challagalla, and Kohli (2001)

Sales units

Horizontal

Heterogeneity in demographic characteristics, skills, rewards, and goal orientations

Occupation; private vs public; work level; pay level; industry; firm size; union presence; incentive pay Heterogeneity of ability; prize differential Technology-related employment Pay dispersion

Individual and team performance Team performance Pay range and dispersion; pay level Pay range

Stronger athlete win

Pay range

Justified pay variation had a positive relationship with both team and individual performance. Pay variation and team points were negatively related. Pay variation was greater when there was a greater number of contestants and business risk. Pay levels and pay variation were related to board composition and independence. Pay variation within a firm was related to work level, pay level, industry, firm size, unionization, and incentive pay.

Effort exertion was greatest in homogeneous contests.

Firm-specific technology and pay variation were positively related. Pay equity The pay dispersion and pay equity perceptions perceptions relationship was positive for those high in pay standing and negative for those low in pay standing. Team performance Pay variation related to inputs was positively related to performance in an interdependent setting. Higher excess turnover was related to more Job reallocation; compressed wage structures. Plants with greater excess turnover; flexibility in wage structures exhibited greater low quality turnover rates among low quality employees. turnover Job satisfaction; sales Reward dispersion was positively related to unit performance performance and unrelated to satisfaction. Gender dispersion was positively related to satisfaction but negatively related to performance.

A Multilevel Approach to the Effects of Pay Variation

Simmons and Berri (2011) Sommers (1998)

63

Sample

Type

(Continued ) Predictor

64

Appendix. Study

Criterion

Executives and managers

Vertical

Werner and Ones (2000)

MBA students

Horizontal

Winter-Ebmer and Zweimuller (1999)

Firms (Australia)

Overall; horizontal

Executive CEO under or over compensation; payment; CEO turnover power; internal and external equity Perceived pay Performance inequities differences; seniority differences; gender differences Pay residual Productivity

Wright et al. (2005)

Executives

Vertical; horizontal

Pay ratio

Firm performance

Wu et al. (2011)

Firms (China)

Overall

Strategic change

Yanadori and Cui (2013)

Research and development employees in high-tech firms

Horizontal

Organizational tenure diversity; age diversity; educational background diversity Pay dispersion; financial slack

Innovation

CEOs appeared to influence wage-setting for their employees, Internal and external inequities were related to higher turnover rates.

Performance and seniority differences of comparison others led to feelings of pay inequity when pay was the same. Feelings of inequity were reduced when pay systems were explained. Pay variation had an inverse U-shaped relationship with productivity for white-collar workers. The pay variation and performance relationship was more linear for blue-collar workers. Vertical pay variation and performance were negatively related in focused firms, but positively related in less focused firms. Vertical options pay variation was positively related to performance. Horizontal pay variation was negatively related to performance. The positive relationship between TMT diversity and strategic change was moderated by TMT pay variation (dispersion weakened the effect).

Pay dispersion was negatively related to innovation. This relationship was weakened by increases in financial slack.

SAMANTHA A. CONROY ET AL.

Wade et al. (2006)

Key Findings

THE IMPLICATIONS OF COALITION FORMS FOR WORK ROLE INNOVATION, RESOURCE REALLOCATION, AND PERFORMANCE Timothy P. Munyon, James K. Summers, Robyn L. Brouer and Darren C. Treadway ABSTRACT Coalitions are informal and interdependent groups of actors operating within organizations, yet their effects in organizations are not widely understood. In this paper, we develop a model of coalition formation and functioning inside organizations. By extrapolating the behavioral intentions (i.e., altruistic or antagonistic) and compositional differences (i.e., supplementary or complementary) among these informal group structures, we classify coalitions into four forms (i.e., lobby, cartel, circle, and alliance), theorizing how each coalition form affects work role innovation, resource allocations, and work performance. Our conceptualization helps clarify previous theoretical inconsistencies and establish an agenda for the study of coalitions at work. Furthermore, this paper

Research in Personnel and Human Resources Management, Volume 32, 65 97 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0742-7301/doi:10.1108/S0742-730120140000032000

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TIMOTHY P. MUNYON ET AL.

provides insights into the ways that coalitions support or impede the organization’s objectives. Keywords: Coalition; politics; antagonism; altruism; upward influence; counterproductive behavior

Coalitions are informal and interdependent groups of actors cooperating to pursue a shared goal (Bacharach & Lawler, 1980; Thibaut & Kelley, 1959). Unlike formal teams, which are composed, managed, and incentivized by the organization (DeMatteo, Eby, & Sundstrom, 1998; Kozlowski & Ilgen, 2006), coalitions emerge without official sanction from the organization and manage their own activities (see Miller, 1980 and Murnighan, 1978 for review). Thus, coalitions fall largely outside of the formal structure of the organization (Ranson, Hinings, & Greenwood, 1980; Stevenson, Pearce, & Porter, 1985). Coalitions (“cliques” in the original terminology; Selznick, 1943) help members achieve superordinate goals (see also Emerson, 1962; Roethlisberger & Dickson, 1949) not otherwise achievable by individuals acting alone. As such, coalitions may be used as a vehicle to gain upward influence and power for members (Kipnis, Schmidt, & Wilkinson, 1980). However, additional evidence (e.g., Pfeffer, 1981; Tushman, 1977) suggests that coalitions may engage in political and counterproductive behavior that negatively affects organizations. Furthermore, because traditional monitoring and incentive control mechanisms (Eisenhardt, 1989) may be ineffective for coalitions, it is critically important for human resource professionals to understand coalition formation processes and outcomes. In this paper, we discuss the operation and effects of coalitions on work and role processes. First, we consider the process of coalition formation, discussing the types of goal discrepancies that may stimulate a coalition’s formation (Caplow, 1956, 1958). Based on the type of goal discrepancy experienced by the coalition, we then classify coalition activities as altruistic or antagonistic toward the organization itself. Altruistic coalitions are those whose actions generally support the organization’s mission and structure, while antagonistic coalitions are those who actions indirectly or directly oppose the organization’s mission and structure (cf. Sherif & Sherif, 1953). This conceptualization is consistent with prior theory (e.g., Farrell & Petersen, 1982) suggesting that coalitions may support or resist the formal structure of an organization.

The Implications of Coalition Forms

67

Second, coalitions are likely to exhibit variance in member composition, reflecting supplementary or complementary levels of fit between members (Cable & Edwards, 2004; Humphrey, Hollenbeck, Meyer, & Ilgen, 2007) who exhibit variance in individual competencies. Member composition should impact the extent to which the coalition is able to realize its objectives. By extrapolating the intentions and compositional differences among informal group structures, we develop a taxonomy of coalition forms. We then examine how coalitions influence resource allocations, work role innovation, and performance. Our conceptualization helps clarify previous theoretical inconsistencies and assumptions, setting an agenda for future research examining the informal structure of work, and hopefully serving to better inform our understanding of the nature of coalition behavior.

A MODEL OF COALITIONS AT WORK As a type of informal structure, coalitions result from a failure of the organization’s formal structure to manage internal or external contingencies (Pfeffer, 1981; Thompson, 1967). For example, the absence of employee voice, inequity or unfairness in compensation, power inequities, unclear performance expectations, inadequate resources, job insecurity, or excessive rigidity in the face of change could all stimulate the formation of coalitions inside organizations. Many of these factors are directly influenced by the human resource management (HRM) function, highlighting the importance of HRM practices as a key catalyst behind the formation and behavior of coalitions. One critical condition behind coalition formation is that formal structural inadequacies must be experienced by at least two or more members of the organization, even if the structural inadequacies are not analogous to coalition members. Thus, coalitions depend upon the successful identification of actors who experience goal discrepancies, cannot resolve their discrepancies alone, and are sufficiently motivated to pool their individual resources toward a common objective (Gamson, 1961) (Fig. 1). Having identified individual actors who experience goal discrepancies and are willing to form a coalition, actors must then ascertain the potential contributions of members toward achieving the coalitions’ shared objectives (see Marks, Mathieu, & Zaccaro, 2001 for application in a team context). This foundational question has motivated significant experimental research (Miller, 1980), primarily based on ascertaining how differential

68

TIMOTHY P. MUNYON ET AL. Process Model of Coalition Forms Composition Complementary Supplementary

Goal Discrepancy

Intentions Antagonistic Altruistic

Fig. 1.

Coalition Lobby Circle Alliance Cartel

Work role Innovation Resource Reallocation

Work Performance

Process Model of Coalition Forms.

resources (i.e., votes) and power influence functioning. Nevertheless, at work, the relative competencies (i.e., knowledge, skills, abilities, and other characteristics) of potential coalition members are paramount, as these characteristics enable or impede functioning of the coalition. Experienced goal discrepancies and motivation provide a necessary premise for role negotiation regarding social and economic exchanges among potential coalition actors (Cook & Emerson, 1978; Molm, 1994). At this point in the coalition’s existence, coalition members seek to understand the relative value (i.e., instrumentality) they may gain from membership in the coalition (Ferris et al., 2009). As coalitions represent a vehicle for upward influence, potential coalition members would be expected to gauge the value anticipated from exchanges with one another (Cropanzano & Mitchell, 2005) in terms of process or power. Process interdependence refers to the extent to which actors rely on each other for information, knowledge, or other resources to accomplish work and objectives (Kiggundu, 1981; Saavedra, Earley, & Van Dyne, 1993). Due to the complex nature of today’s work environment, increased specialization, and greater responsibility (Grant & Parker, 2009; Humphrey et al., 2007; Parker, Wall, & Cordery, 2001), actors find themselves engaged in activities to which their skills or resources are ill-suited (Provan, 1983). Indeed, few actors function with total independence (Wageman, 1995). Instead, organizational life increasingly is interdependent, as actors rely on one another to accomplish tasks, reengineer inefficiencies, and adapt to a dynamic and competitive environment. Coalitions thus provide a theoretical mechanism to reconcile otherwise unattainable individual discrepancies

The Implications of Coalition Forms

69

resultant from the objectives of the formal structure (see for discussion Aime, Van Dyne, & Petrenko, 2011 and Fenger & Klok, 2001), and process interdependence supports the objectives of the coalition by enabling more effective and efficient work (Provan, 1983). Similarly, actors also possess an asymmetrical control over valued resources in social relations (Galinsky, Rus, & Lammers, 2011). Scholars long have noted that power provides influence over others (Emerson, 1962; Etzioni, 1969) and resources (Thibaut & Kelley, 1959), including decision outcomes. Therefore, power is desirable, both as an innate personal need (McClelland, 1961), and as a marker of social status (Magee & Galinsky, 2008). As Gamson (1961, p. 374) noted, “the pursuit of power itself [is] an ideal basis for coalition formation since it is an instrument for the achievement of widely ranging and even incompatible goals.” Therefore, to gain power, individual actors are likely to signal how shared membership provides control over resources not otherwise attainable in individual form. In summary, potential coalition actors will coalesce to the extent that they believe a coalition will be instrumental in achieving the shared objectives of the group, using process and/or power interdependencies: Proposition 1. Coalitions will form when two or more individual actors experience a perceived goal discrepancy, are motivated to form a coalition, and interdependent upon one another in terms of process or power.

Subsequent Coalition Intentions Although shared goal discrepancies and motivation enable the formation of coalitions (see Komorita & Meek, 1978 for discussion), the net positive or negative effects of coalition activities will depend on the actions of members toward the organization itself (or its acting principals). Thus, the type of formal structural inefficiency should affect whether coalitions use their pooled resources and power antagonistically or altruistically toward the organization. Antagonistic coalition actions are those opposed to the organization’s objectives, while altruistic coalition actions are those that support the organization’s objectives. More specifically, as coalition members make attributions concerning the cause of a formal structure’s inefficiencies, they will trend toward antagonistic or altruistic intentions regarding the coalition’s activities directed at the organization or its representatives.

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We anticipate that a coalition’s antagonistic behaviors will derive from perceived and shared feelings of injustice among coalition members. Organizational justice is a holistic assessment regarding the overall fairness of a situation, acting as a marker of how fairly individuals are treated, decisions are made, and whether outcomes are fair (Ambrose & Schminke, 2009). Perceptions of organizational justice affect subsequent employee reactions to the organization itself (Ambrose & Schminke, 2009), and extant research suggests that perceived injustice is a key driver of workplace deviance (Fox, Spector, & Miles, 2001; Holtz & Harold, 2013). In the current context, workplace deviance may be defined as the voluntary and intentional actions that run counter to organizational norms and are harmful to organizational functioning (Bennett & Robinson, 2000; Robinson & Bennett, 1995). When individuals lack sufficient power to retaliate against an organization regarding a perceived injustice, they may band together in coalitions to accomplish this purpose (cf. Bies & Tripp, 1996). Thus, antagonistic coalitions may rightly be characterized as deviant or counterproductive groups pursuing common goals. Whereas we anticipate that antagonistic coalitions will be formed from perceived and shared injustice, altruistic coalitions should be formed from process or resource inadequacies in the organization itself. Like antagonistic coalitions, altruistic coalition members make attributions, or causal assessments, concerning inefficiencies in the formal structure of the organization. In this instant, employees may perceive the organization to be just and fair, but unable to accomplish its objectives using current resources. Altruistic coalitions are thus likely to form when the formal structure lacks sufficient resources or processes needed to enable outputs deemed important by the coalition members themselves. The objectives of coalition members in the altruistic condition would then be to support the organization’s mission either by pooling competencies or power in an effort to accomplish otherwise unachievable objectives. This may involve including other members in an effort to legitimize the coalition’s activities due to a lack of formal power or authority by one or more individuals (Farrell & Petersen, 1982). In this condition, coalition members will believe that the organization is acting fairly toward them, but lacks the ability to accomplish an objective deemed as important. Consequently, we propose that: Proposition 2. Coalitions activities will be directed either toward supporting (i.e., altruistic behaviors) or opposing (i.e., antagonistic behavior) the organization.

The Implications of Coalition Forms

71

Subsequent Coalition Compositions Interdependence also plays an important role influencing the composition of the coalition. A composition reflects the defining characteristics that delineate members from nonmembers in a coalition (see Davis, Spaeth, & Huson, 1961 for discussion). Based on work in formal team structures and fit (e.g., Cable & Edwards, 2004; Muchinsky & Monahan, 1987), two types of coalition structures are likely to be formed: supplementary and complementary coalitions. Supplementary coalitions are those whose members possess similar or matching characteristics, including competencies or resources. Meanwhile, complementary coalitions are those whose members possess unique competencies or resources relative to other members of the coalition (see for related discussion, Humphrey, Morgeson, & Mannor, 2009). Complementary coalition members may share experienced goal discrepancies and motives, but not competencies or resources. Coalition actors in either composition may join together to support one another’s relative expertise (i.e., process interdependence) or control similar resources (i.e., power interdependence). To be effective in achieving their goals, supplementary coalitions must gain sufficient membership to control competencies or resources while dissuading members from defecting (Komorita & Chertkoff, 1973). Accordingly, supplementary coalitions are likely to be horizontal (i.e., composed of members of the same level of authority in the formal structure) in hierarchy (cf. Galinsky et al., 2011). The anticipated actions of supplementary coalitions are analogous to oligopolists seeking to collude toward control of valued resources (Engel, 2007) or gain legitimacy as a group, with the net effect of greater resources for coalition members, provided those members do not defect. For example, a unit’s computer programmers might join together informally to share expertise or exert influence over management regarding decisions important to the coalition. Such a coalition could conceivably push to resist a new software adoption that would threaten the job security of members, or work together to help an organization avoid a cumbersome mistake in hardware adoption. The collective nature of this supplemental coalition provides them with more power if a sufficient number of programmers control the flow or output of programming work in the unit. Sharing expertise may reflect altruistic and antagonistic ambitions. Similarly, exerting influence over management may or may not help the organization. Complementary coalitions may be horizontal (i.e., composed of members of the same level of authority in the formal structure) or vertical

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(i.e., composed of members from different levels of authority in the formal structure) in hierarchy (cf. Galinsky et al., 2011). Complementary coalition actors join together to support one another’s unique expertise (i.e., process interdependence) or control different resources (i.e., power interdependence). For example, complementary coalitions may be used to control the flow and type of information within or between units, creating or leveraging structural holes (Burt, 1992) for the good of the coalition. The key for complementary coalitions is to ascertain which actors are in potential positions of formal or informal power (Mechanic, 1962), and to leverage the informal group structure to maximize the control and influence of resources among those actors. In this instance, the complementary coalition may act as an oligopoly, even though its members possess dissimilar competencies. The coalition is thus able to achieve its goals by gaining and controlling access to information by leveraging structural holes (Burt, 1992). Unlike supplementary coalitions whose outcomes are premised on the number of collective actors, complementary coalitions are relatively robust against member defection. That is, the overall power of the coalition is reduced, but not eliminated, by member defection, because the coalition is able to realize its goals through alternative channels (i.e., recruit new members). Thus, complementary coalitions may accommodate changing membership over time. Consequently, we propose: Proposition 3. Coalition compositions will reflect a supplementary or complementary blend of individual actor competencies and resources that facilitate the objectives of the coalition.

Coalition Forms Based on dichotomous distinctions among coalition intentions (i.e., altruistic or antagonistic) and compositions (i.e., supplementary or complementary), it is possible to classify coalition forms. The purpose of this objective is to highlight how different coalition forms approach goals and behave to achieve those goals. Reconciling previous inconsistencies in coalition theory, we contend that behavioral intentions and compositions influence the likely mechanisms relied on by each of the four coalition forms. Consequently, we evaluate distinctions and similarities among four coalition forms (i.e., cartel, lobby, circle, and alliance) seeking to ascertain how each coalition form affects role innovation, resource allocation, and work performance (Table 1).

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Table 1. Antagonistic motives Altruistic motives

Coalition Forms.

Supplementary Composition

Complementary Composition

Coalition form: cartel Coalition form: circle

Coalition form: lobby Coalition form: alliance

Cartel The first form, cartel, represents a coalition with a supplementary composition and antagonistic behaviors. Cartel coalitions form in competitive markets with relatively few producers, seeking to control processes and resources (see Scarrow, 2006 for discussion). In organizational contexts, cartel coalitions provide competencies and control resources that are scarce, and for which organizations competitively bargain against one another (e.g., Gardner, 2005; Munyon, Summers, & Ferris, 2011). The relative scarcity of cartel coalition competencies and resources enables these actors to gain power over both the flow and price of outputs (e.g., wages) in organizations. Thus, perceived inequity in process and price is the primary goal discrepancy this coalition seeks to remedy. Cartels tend to be ongoing interests, who act over time to maintain control for individual actors (see Symeonidis, 2000 for discussion). Cartels are similar to the coalition forms found in the experimental paradigm of game theory (e.g., Murnighan, 1978). In terms of structure, cartels are antagonistic toward the formal structure of an organization, as they negotiate with the formal structure to realize process and price gains. Organizations generally resist external attempts of control by others (e.g., Pfeffer & Salancik, 1978), suggesting that cartels also may predict intra-organizational conflict. However, even though they act antagonistically toward the organization, cartels resist structural change (e.g., Katz & Mair, 1995) because environmental dynamics have the potential to change the bargaining power of the cartel. Therefore, cartels are likely to actively oppose the formal structure of the organization to realize heightened individual gains, but they must also ensure that the formal structure of the organization persists to realize any gains made. For example, the Organization of the Petroleum Exporting Countries (OPEC) is a cartel seeking to control and influence the price of petroleum to realize greater gains for individual actors. However, it also must keep prices at a stable level sufficient to maintain reliance upon the resource, lest consumers seek out alternatives to the controlled resource. Excessive

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success in controlling key resources also may threaten the viability of the cartel’s demand, as the formal structure on which the cartel relies may cease to exist. Finally, the cartel must guard against implicit defectors (e.g., Ferguson, Jones, & Stewart, 2000), who maintain membership in the cartel, but act against the collective goals of the coalition. Such actions degrade the potential power of the cartel by reducing its control over outputs. Lobby The second coalition form is a lobby, representing an informal group with a complementary composition and altruistic intentions. Lobby coalitions form to influence decisions on issues important to coalition members (see Ainsworth, 1993 for discussion). In organizational contexts, lobbies use the combined competencies and power of actors to pressure the formal structure to acquiesce regarding decisions of importance, thus gaining access to decisions by exerting pressure of the collective (Ainsworth, 1993). Lobbies are very similar to the coalitions used to gain upward social influence (e.g., Kipnis et al., 1980). Goal discrepancies for lobbies reflect one or more shared issues among coalition members. Lobbies tend to be episodic in nature, forming from a salient issue of importance, and disbanding once the issue is resolved via a favorable decision for the coalition. Even though lobbies act antagonistically toward the organization, they are likely to be supportive of the formal structure of the organization, as they negotiate with the structure to realize a shared objective among coalition members. Similar to cartels, lobbies may resist structural change, as modifications to structure threaten the viability of previous gains made by the lobby. However, unlike cartels, lobbies may sometimes act to change the formal structure of the organization itself. In this instance, there is an obvious incongruence between the formal structure of the organization and the informal structure of the coalition, as perceived by the coalition’s members. Numerous examples of lobbies can be expected in organizations. For example, a lobby might conceivably push a manager to hire a favored colleague. Although the decision is made within the formal structure of the organization, the lobby coalition manipulates perceptions of consensus to garner managerial support. Lobbies also could be used to influence managerial decisions regarding resources. For example, a lobby might form to advocate for changes to employee benefits, gaining power by “representing” the interests of other employees. Consequently, it is important for lobbies to have members with a variety of competencies and resources, so that the diversity of the coalition reflects the diversity of the formal structure.

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Circle The third coalition form is a circle, reflecting a supplementary composition and altruistic behaviors. Circle coalitions form to reinforce and support the formal structure, primarily through positive extra-role behavior and role innovation. Circles use combined competencies and resources to improve the efficiency and effectiveness of work processes, including engaging in pro-social acts toward members and nonmembers. For example, Grant (2007) proposed that actors are motivated to help one another in a work context. We acknowledge this, but also note that individual actors are limited in competence and resources. Consequently, these informal coalitions enable actors to engage in activities that individual actors could not accomplish in isolation, allowing for the accomplishment of superordinate goals. Scholars have considered, at some length, the nature of helping and citizenship behavior conducted by individuals (e.g., Organ, 1997; Stoner, Perrewe´, & Munyon, 2011). However, less scholarship has evaluated the nature of helping and citizenship conducted by the group for others, including nonmembers. Like lobbies, circles tend to be episodic in nature, reflecting perceived discrepancies in the formal structure of the organization. Structurally, circles are altruistic toward the formal structure of the organization, working collectively to improve its efficiency and effectiveness. Consequently, circles are likely to resist structural change, when the nature of the change is external. However, circles should work to facilitate structural change when that change originates inside the organization through formal decision channels. Circles are perhaps the most common type of coalition found in organizations, both as a function of the attractiveness of altruistic motives (Grant, 2007), and the necessity of supporting the formal structure (Selznick, 1943). For example, a circle may form to organize a goodbye party for a co-worker. In this instance, the circle would form to celebrate another’s accomplishments, using varied competencies and resources to recognize the contributions of a fellow actor. A circle also could be used by actors to negotiate or innovate formal work roles (e.g., Aime et al., 2011) and processes to improve efficiency and effectiveness. Circles also may be used to provide social support. For example, stressed employees might find support from similar actors in demanding work contexts (e.g., Zellars & Perrewe´, 2001). For circles, the composition of the coalition does not reflect needed competencies, per se. Rather, the composition is likely to be supplemental, based on the shared functional status and network position of actors who perceive a discrepancy and act to resolve it.

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Alliance Alliances are a fourth type of coalition, reflecting a complementary composition and altruistic intentions. Like their formal counterparts (e.g., Sampson, 2007), alliance coalitions form to support the formal structure, primarily by seeking new innovations and process improvements. Alliances combine divergent competencies and resources from members to innovate new products, services, or processes within the formal structure. Alliances are likely to support the formal structure, but push for incremental or drastic improvements to the formal structure. For example, in his highly cited case study of Intel, Burgelman (2002, p. 348) noted that an alliance coalition was responsible for the development of the PCI chipset, which became a critical asset for Intel: … [Intel CEO Andy] Grove was opposed to the idea of turning PCI chipsets into a business. Ron Smith [Vice President, Chipsets] nevertheless decided to pursue PCI chipsets as a new business. He tried to “fly under the radar” to protect the venture from close top management scrutiny to build a viable business foundation. He assembled a team of experienced functional managers who were well connected with the rest of the corporation and could access resources that would otherwise not be available … Smith convinced his team that winning inside required winning outside through successful strategic forcing … Eventually, Grove concluded that the chipset venture was an important business for Intel.

Although Burgelman (2002) relied on the team nomenclature to describe this activity, it is clearly a coalition activity analogous to stealth innovation (Miller & Wedell-Wedellsborg, 2013). Notably, the group lacked legitimacy from the formal structure, as evidenced by their attempts to hide coalition activities from top management. Ironically, the coalition formed, because of perceived inadequacies with the strategic direction of the formal structure, to help facilitate the objectives of the formal structure. The composition of alliance coalitions is also notable. In this instance, Intel drew on a complementary coalition composed of functional participants. Arguably, this provided a foundation for greater innovation (Sampson, 2007) within the alliance. Like circles, alliance coalitions also are episodic in nature, forming to meet a need or deficiency in the formal structure, and disbanding when the discrepancy is met. Having extrapolated the characteristics of anticipated coalition forms and the operation of political skill in these forms, we propose the following: Proposition 4. Coalition forms will vary on the basis of composition and intentions, resulting in cartel, lobby, circle, or alliance forms.

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By identifying the forms of coalitions likely to be encountered in organizations, we now consider how coalition forms influence three outcomes of interest to organizations and coalitions: work role innovation, resource allocation, and work performance.

Work Role Innovation A role can be described as an expected pattern or set of behaviors (Biddle, 1979, 1986), and typically is defined as a cluster of related and goal-directed behaviors characteristic of a person within a specific situation (Stewart, Manz, & Sims, 1999). Roles frequently are regarded as one of the fundamental and defining characteristics of organizations (Katz & Kahn, 1978). The concept of a role is more dynamic and flexible than the traditional concept of tasks and jobs, and is more congruent with the current conceptualization of adaptive work environments (Griffin, Neal, & Parker, 2007; Ilgen & Hollenbeck, 1991). Griffin et al. (2007) developed a model of work role performance in uncertain and interdependent contexts based on three subdimensions: proficiency (i.e., the extent to which an individual meets role requirements that can be formalized), adaptivity (i.e., the extent to which an individual adapts to changes in a work system or work roles), and proactivity (i.e., the extent to which the individual takes self-directed action to anticipate or initiate change in the work system or work roles). These subdimensions were then cross-classified across the three levels in which role behaviors can contribute to effectiveness (i.e., individual, team, and organization). The third dimension of proactivity specifically describes the mode of behavior for role innovation. Extending this theoretical conceptualization of role theory, Aime et al. (2011) conceptualized role innovation to occur in three different ways. First, role innovation includes personalizing a role to fit the agent, including changes in expected work behaviors “ranging from minor initiatives such as variations in work schedules to more dramatic role innovations such as changes in the main goals of the organizational work” (Nicholson & West, 1988, p. 106). Second, role innovation includes changes in employee cognitions. From an interactionist perspective, employees can use their role cognitions as proxies for making sense of the relationship between self and the social context (Callero, 1994). Third, role innovation also includes changes in relationships with others (Grant & Hofmann, 2011). This can occur through negotiation of role relationships, and it results in changes in

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role sets (i.e., those an employee interacts with regularly in the course of performing the job; Katz & Kahn, 1978). These various modes of role innovation all are relevant to the current discussion. Employees engage in role innovation to fundamentally alter the nature of their own work, processes, and or responsibilities (Aime et al., 2011). However, as work has become more interdependent (Ilgen & Hollenbeck, 1991), we would be remiss, even naı¨ ve, to think that innovating one’s role would not impact those roles of others’ in the employees work environment. Coalitions often form as a result of actors pursuing superordinate goals that they are unable to obtain on their own (Gamson, 1961). Now more than ever, the dynamic and complex nature of organizational life demands that employees constantly “redefine their positions in meaningful ways and/or adapt their organizational roles in ways that show an understanding of corporate objectives” (Aime et al., 2011, p. 1). Thus, role innovation becomes an important dimension of an employee’s work (Griffin et al., 2007; Ilgen & Hollenbeck, 1991), and a potential goal. When employees are faced with new problems (e.g., quality control, customer satisfaction), the interdependent nature of work (Humphrey et al., 2007) requires them to involve others to improve on current processes. Furthermore, the flattening of organizational hierarchies has resulted in increased autonomy, where the burden to overcome problems lies in the hands of employees, devoid of managerial direction. Thus, in order to overcome issues such as these, coalitions need to be formed, as individuals alone do not possess the requisite resources or knowledge to solve these issues. However, when coalitions fundamentally modify the nature of their roles, the role innovation via work interdependencies (Kiggundu, 1981; Saavedra et al., 1993) will alter roles for anyone impacted by the role innovation, whether they are members of the coalition or not. With that said, the causes and consequences of role innovation should vary according to the coalition form. For example, cartels seek to control valuable resources in organizations by controlling valued outputs. In this instance, role innovation may be used by the cartel to modify the relational context between coalition members and the organization (cf. Ferris et al., 2009). In particular, instead of receiving roles and inducements for cooperation from the formal structure, the cartel actively seeks to negotiate with the organization regarding role expectations and role inducements. Consequently, the cartel seeks to use role innovation to gain control and power relative to the formal structure of the organization.

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Cartels are contrasted with alliances in that alliances actively pursue role innovation as a mechanism to realize greater efficiencies or effectiveness in processes. Alliances are likely to use modifications to employee cognitions and variations in processes to realize their objectives. For example, the complementary composition of an alliance would likely facilitate the sharing of knowledge among the alliance, which could serve to enhance creativity and potential process improvements. The alliance also may act to redefine the boundaries of participant members, changing priorities from those of the formal structure to accomplishment of the alliance’s objectives. Likewise, circles are likely to rely on role innovation, because it enables individual actors to pursue extra-role behavior in support of the formal structure, predominantly by changing relationships with others. Over time, circle members may develop an identity as good citizens (Stoner et al., 2011; Tajfel & Turner, 1986), and nonmembers may view these actors as a potential resource regarding the provision of help (e.g., Flynn, Reagans, Amanatullah, & Ames, 2006). Finally, the lobby is likely to engage in role innovation by changing cognitions within the formal structure. These actors gain influence over decisions by helping make sense environments that are uncertain or in flux (Summers, Humphrey, & Ferris, 2012). Thus, the formal structure may come to rely on lobbies as a cognitive resource, particularly in dynamic environments. Taken together, we anticipate that coalitions will enable role innovations. However, the mechanism for role innovation will covary depending on the form of the coalition. Therefore, we propose: Proposition 5. Coalitions will enable members to adapt and innovate work roles, and the mechanisms of role innovation will be dependent upon the form of the coalition. Prior theory and research typically has focused on individual-level predictors of role innovation, such as individual differences and employee discretion (Morgeson & Humphrey, 2008; Nicholson & West, 1988). Prior research also suggests that individual role innovation can be aggregated from the micro level to the macro level to produce higher level (e.g., department, organization) role innovation (Aime et al., 2011). Moving beyond this past research, theorizing on informal structures, such as coalitions, allows for the explanation of role innovation in a manner that cannot simply be aggregated from the individual level. That is, by definition, coalitions leverage synergistic resources/capabilities of their members in ways that go beyond what they could do if actor capabilities were aggregated individually. Therefore, we now consider how coalitions act to gain additional resources.

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Resource Allocations The acquisition and possession of resources acts as a premise to understanding the formation and persistence of coalitions in organizations (Gamson, 1961; Romer & Rosenthal, 1978). Indeed, if actors possess a large reservoir of resources, it is unlikely they would be motivated to join in coalitional activities (Bacharach & Lawler, 1980; Stevenson et al., 1985). This occurs because personal resources (including competencies) could be used to remedy goal discrepancies (i.e., sufficient actor ability). Yet, coalition actors combine their competencies to realize greater resources, which must be allocated among the members of the coalition (in antagonistic forms) or toward the formal structure (in altruistic forms; e.g., Miller, 1980). Thus, coalitions are consumers and providers of invested resources from individual actors. Ironically, employees’ membership in a coalition does not insure that they will invest their resources for the benefit of the collective. Bacharach and Lawler (1998) positioned this dilemma as the mobilization issue, and leaned on social identity perspectives (e.g., Tajfel & Turner, 1986) to suggest that members will contribute their resources to the coalition to the degree that their identity is integrated into that of the collective. Therefore, individual actors will contribute scarce personal and energy resources (Hobfoll, 1989, 2002), including personal competencies, if these actors believe the coalition reflects their core motives and goal discrepancies. It is likely that membership in a coalition is easier than investment in the coalition’s activities (e.g., Schachter, 1959). Thus, individual membership in a coalition does not necessarily imply that actors in the coalition will invest in its activities. Individual actors must believe that the invested returns will capitalize on an adequate return, be it social or economic in nature (Cropanzano & Mitchell, 2005). Nevertheless, resource investments beget resource returns (e.g., Lindsley, Brass, & Thomas, 1995) when the coalition is successful in achieving its objectives (Farrell & Petersen, 1982), and these resource returns may be distributed among coalition members or nonmembers. The form of the coalition also likely influences the type of resources provided to the coalition. As a review, the conservation of resources framework (Hobfoll, 1989, 2002) classifies resources into actor (e.g., personality, knowledge), energy (e.g., time, money), condition (e.g., status, security), and object (e.g., land, controlling interests in other organizations) resources. Because of their focus on the process and outputs of work, cartels are likely to rely on actor and object resources that serve as an input required by the formal structure.

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Meanwhile, lobby coalition members would be expected to primarily contribute condition and actor resources to the coalition, since these resources beget influence (e.g., Kipnis et al., 1980) with decision makers in the formal structure. Circle coalitions would be expected to contribute the most heterogeneous set of resources because the coalition’s activities are targeted toward a wide variety of objectives. For example, to help an employee cope with the loss of a family member (cf. compassion organizing; Dutton, Worline, Frost, & Lilius, 2006), circle coalitions might contribute energy (e.g., time, money), actor (e.g., knowledge, support), condition (e.g., status to give an employee time off), and even object resources (e.g., loaning a form of transportation) to other members or nonmembers. Finally, alliances are likely to invest actor (e.g., idiosyncratic knowledge and competencies), energy (e.g., time, money), and status (e.g., formal position) to help innovate and improve processes within the formal structure (e.g., Burgelman, 2002). Finally, coalition member resource investments will exert an influence on the distribution of resources in antagonistic forms (i.e., cartels and lobbies; Miller, 1980). This is not a perfect causal link, however, because individual actor contributions often are tacitly held, and subject to interpretation (e.g., Albanese & Van Fleet, 1985). Indeed, perceived coalition member contributions are more important than the actual nature of the contribution itself, as evidenced by the performance evaluation process (Ferris, Munyon, Basik, & Buckley, 2008). Nevertheless, in general, the perceived contribution of actors should be positively related to the amount of resources gained by actors. Thus, we propose: Proposition 6. Coalitions will leverage their combined competencies to reallocate resources to the benefit of coalition members, and the predominant type of invested resources is dependent upon coalition form.

Coalitions and Work Performance Last, but certainly not least, is the influence of coalitions on the work performance of individual actors. Global work performance reflects three dimensions: task performance, contextual performance, and counterproductive performance (Rotundo & Sackett, 2002). Task performance supports the productive processes and goals of the formal structure (i.e., technical core, Thompson, 1967) of the organization, and generally is viewed as performance needed to maintain a relationship between an

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individual actor and the organization (LePine & Van Dyne, 1998). Contextual performance, or citizenship, reflects discretionary behavior and investments made to support the social and psychological fabric of the organization (Munyon, Hochwarter, Perrewe´, & Ferris, 2010; Organ, 1997). Finally, counterproductive performance reflects activities that impede achievement of other actors and/or the formal structure (Rotundo & Sackett, 2002). In his discussion on power, Pfeffer (2010a, 2010b) contended that performance is itself a resource that may be leveraged to provide an actor with power. This power may be targeted to control resources and influence outcomes for the holder of that power, or for others. We believe that coalitions will emphasize different types of performance, relying on performance either as an end in and of itself, or performance as a means of obtaining additional power for coalition actors. Cartel coalitions exert influence over the formal structure to the extent that they control the process and outputs of valued work. Thus, because task performance directly supports the goals of the organization (Thompson, 1967), cartels are likely to rely on control of this critical input to gain leverage and additional resources. Cartels also may use subversive, or counterproductive, forms of performance to maintain power, including coercion to keep coalition members from defecting, and to pressure nonmembers to comply. Because of their interest in supporting the formal structure, circle coalitions likely engage in the highest levels of contextual performance, including acts of helping to others. However, we also would anticipate that circle coalitions would also engage in backing up behavior (Porter, 2005), or the task-related discretionary contributions from one actor to another when that actor will not likely achieve his or her objectives (LePine & Van Dyne, 2001). Thus, circle coalition members support the task objectives of others through positive performance. Next, lobbies rely on contextual and counterproductive performance to accomplish their objectives. By definition, the objectives of the lobby are to influence decisions or reconcile outstanding issues of importance to its members. Thus, task performance is likely to reduce the resources available for lobby coalition members to engage in influence attempts (see Bergeron, 2007 for related discussion). Thus, lobby coalition members are most likely to invest in contextual and counterproductive performance, which strengthens access to decision makers, even if those means are subversive. Finally, alliances will positively use task and counterproductive performance to accomplish their goals. Because the objectives of the alliance coalition may be opposed by management (e.g., Burgelman, 2002), it is

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necessary to step outside of prescribed bounds, and operate using scarce resources derived from the formal structure. Thus, although alliances ultimately seek to help facilitate the ongoing success of the formal structure, they may have to do so through seemingly counterproductive means, representing a significant irony. Due to the scarcity of personal resources (Hobfoll, 1989), we anticipate that membership in alliances will reduce individual task and contextual performance assessments. Indeed, it is highly possible that alliance coalition members will view the goal of the alliance as the driving force behind their work, particularly if they are able to successfully innovate roles and gain scarce resources from the formal structure to support coalition activities. Thus, we propose that: Proposition 7. Coalitions will affect the global performance of members, and the type of performance most impeded or facilitated by the coalition will depend on the form of the coalition.

DISCUSSION Because of structural changes in organizations and ever-present demands for efficiency (Friedman, 2005), collaboration and adaptation are increasingly important aspects of work in contemporary work environments (Morgeson & Humphrey, 2008). Furthermore, scholars long have recognized that workers collaborate and adapt work roles independent of the formal structure of the organization (Roethlisberger & Dickson, 1949). Yet, the social context of such informal efforts only recently has been explored, primarily at the individual level of analysis (see Wrzesniewski & Dutton, 2001 for review). Thus, existing knowledge is highly deficient regarding the nature of collective adaptation and collaboration, captured by the domain of coalitions. Furthermore, organizations are political arenas (Mintzberg, 1983), dominated by a variety of informal and formal constituents (e.g., Pfeffer, 1981). Accordingly, scholars have begun to search for mechanisms that enable workers to navigate this political and social environment (Jones, 1990). Three observations from this status quo motivated our development of theory regarding coalition forms. First, despite widespread recognition on the presence of coalitions in organizations, there is little theoretical consensus and grounding concerning coalition behavior in work contexts (Cook & Gillmore, 1984). This theoretical deficiency is exacerbated by the inadequacy of early coalition

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theoretical frameworks to describe the social context in which coalitions are embedded (Komorita & Parks, 1995). The net effect of these deficiencies has been a general decline in inquiry by scholars and practitioners regarding the nature and effects of coalitions. Cognizant of such a condition, coalition scholars recommended that process theories be developed to capture the richness of coalition behavior and the context surrounding coalitions (Komorita & Parks, 1995). Yet, these calls for theory have remained largely unanswered (see Carton & Cummings, 2012 for exception). Consequently, one reason to focus on coalitions was to set a systematic agenda for future inquiry in a work context. Second, coalitions are theoretical mechanisms across multiple levels, capturing behavior by individuals, groups, organizations, and even nations. For example, in the micro domain, coalitions exert a pervasive influence on bargaining and negotiation (e.g., van Beest, Steinel, & Murnighan, 2011). In the macro domain, coalition units are an important structural component for prominent organizational theories (e.g., resource dependence theory, Pfeffer & Salancik, 1978). Coalition behavior also has been linked to strategic decision making (e.g., Pearce & DeNisi, 1983). Consequently, the study of coalition behavior has significant ramifications for workers and the organizations in which they engage (e.g., Lechner & Floyd, 2012), and an improved understanding of coalition behavior will better articulate phenomena at micro and macro levels. Third, scholars long have recognized that workers actively adapt and negotiate the bounds of work (e.g., Bell & Staw, 1989; Frese, Garst, & Fay, 2007; Thatcher & Zhu, 2006), exerting agency over the work environment. Yet, inquiry into role adaption and innovation has focused largely on individuals, despite recognition that coalitions represent an important means of exerting social and political group influence (e.g., Yukl & Falbe, 1990). Furthermore, as an informal source of power (Emerson, 1962), coalitions may act to support or impede an organization’s interests. Therefore, it is important to understand how coalitions, as an informal group structure, may be used by workers to modify and change work roles. This need becomes more salient when compared to a general flattening of organizations (Friedman, 2005), with potential implications regarding informal adaptations to work (Morgeson & Humphrey, 2008). These observations motivated our theoretical inquiry into coalitions within organizational contexts. Following the recommendation of coalition scholars (e.g., Komorita & Parks, 1995), we developed a process model of coalition forms that extrapolates how coalitions develop and act. Also, we used behavioral intentions and compositional differences to classify

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different coalition forms, developing testable propositions to lay a foundation for future inquiry and new research regarding the social and political context of coalitions at work. In the following, we discuss contributions of the paper, theoretical overlap between formal and informal structure, and areas of future research.

Coalition Outcome Effects Although we have presented coalition outcomes in isolation, theory suggests that these outcomes are causally linked to one another. Accordingly, it is important to note that the outcomes may work with or against one another in helping the coalition facilitate its objective(s). For example, a principle mechanism by which coalitions are able to innovate their roles is through the resources that members control, most notably in cartel and lobby forms. Prior research has found that coalitions and their members receive higher payoffs when they when they have access to more resources (e.g., Gamson, 1961; Komorita & Chertkoff, 1973; Miller, 1980). As proposed earlier, coalitions will be successful to the extent that they can leverage and reallocate the resources they possess, be it for altruistic or antagonistic purposes. Because resources provide coalitions with the opportunity to more successfully innovate roles (Wrzesniewski & Dutton, 2001), we would also expect coalition members to exert more influence within their work environment (McCall & Simmons, 1966). Similar causal interrelationships may be found between role innovations, resources, and performance. For example, we anticipate that positive role innovations made by coalition members will facilitate both the acquisition of resources and heightened performance in the future (see Aime et al., 2011 for discussion). Coalitions that are successful at engaging in role innovation and resource allocations also should be able to increase their task performance and helping behaviors if they so desire. The changes in the work behaviors, cognitions, and relationships should enable coalition members to innovate their roles in such a way that meets their needs (e.g., minimizes their weaknesses, maximizes their strengths). Moreover, as COR theory would predict, having increased resources is important for gaining additional resources. Those who have resource caravans (i.e., high levels of resources) are more likely to expend energy to accumulate additional resources (e.g., Halbesleben & Bowler, 2007; Hobfoll, 2001) that benefit the members of

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the coalition. Then, these individuals will be more likely to engage in higher task performance and helping behaviors as a means of gaining other resources (e.g., higher pay or someone owing them a favor). .

Coalition Effects on Others Our conceptualization of coalitions primarily has focused on the process of coalition development and outcomes of the coalition to its members. As coalitions form and pursue goals, they likely directly and indirectly impact the work of others. Thus, although beyond the scope of the present manuscript, we need to address the effects that coalitions demonstrate on non-coalition members. Coalitions have the capability to both support or impede the work of others and the organization itself. For example, if a coalition forms to secure resources (e.g., travel money) for their department, then the department as a whole benefits, not just those for whom the coalition was based. Conversely, others’ work also can be negatively impacted. For example, a coalition attempting to change work flow or work processes could do so regardless of the impact it has on others (e.g., place undue workload or burden on those not in the coalition). Dominant coalitions can demonstrate widespread effects on the organization as a whole (e.g., Pearce & DeNisi, 1983). These coalitions can impact employment decisions (e.g., who gets hired, retention, promotion) and subsequently negatively affect job attitudes (i.e., job satisfaction, organizational commitment) or experienced strain (Halbesleben & Buckley, 2004; Munyon, Breaux, & Perrewe´, 2009) of nonmembers. Perhaps the most impactful effect a dominant coalition can have on an organization is in the case of spinoffs. In the case of spinoffs, the informal structure of one company (i.e., coalitions) lays the foundation for formal structure (and competition) in another firm (Klepper & Sleeper, 2005), an important potential consequence of coalitions. Dominant coalitions may become frustrated with their employers and choose to spinoff (Garvin, 1983), or they may be either dissatisfied with the lack of change or the direction of change within the organization (Brittain & Freeman, 1986). Thus, analogous to external team lifts (e.g., Munyon et al., 2011), we foresee spinoffs as an important consequence of coalition behavior. There also are obvious parallels between the study of coalitions and the emergence of organized labor within organizations. Both coalitions and

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unions typically begin with pockets of informal structure, formed together for a common cause. Unions also represent actor interests apart from the formal structure of the organization, becoming a formal structure if collective bargaining is successful (see Fiorito, Jarley, & Delaney, 1995 for review). Consequently, the organized labor research literature may be very helpful in further elucidating the contextual factors that predict and enable informal structure to form and thrive. Likewise, resources represent a central concern for coalition formation and functioning (Romer & Rosenthal, 1978), and the acquirement and reallocation of resources directly affects the coalition’s success of goal attainment. Not explicit in the literature is the means of acquiring and allocating resources in a manner that appears altruistic or pro-organization, when the intentions could be self-serving. To that end, political skill, a social influence competency, should enable coalition members to operate and accomplish goals while maintaining positive relationships with management and those not in the coalition (e.g., Ferris et al., 2007; Munyon, Summers, Thompson, & Ferris, in press). That is, political skill of the coalition works in a non-threatening manner to accomplish work. Additional research is needed to extrapolate the means by which political skill affects coalition formation and functioning.

Coalitions and Human Resource Departments There are two main areas in which coalitions will impact the human resource function. First, human resource departments should design policies and procedures to encourage and capture the benefits of circle and alliance coalitions, while working to minimize cartels and lobbies. Second, to ensure that HR is a part of the strategic discussion in an organization, a weak spot for many HR departments (Hammonds, 2005), members of human resource departments need to develop alliances to push strategic initiatives that align HR to the strategic objectives of the organization. From the perspective of encouraging effective functioning within an organization, HR departments should encourage circles and alliances and discourage cartels and lobbies. It has long been proffered that extra-role behaviors, such as organizational citizenship behaviors, are vital to an organization’s success (Organ, 1988), even if they are not rewarded or expected from the formal system. Circle coalitions encourage not only contextual performance, but also backing up behaviors that help others’ performance (Porter, 2005). Circles may even become a resource for helping

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other individuals and groups within the organization. Therefore, HR should encourage the development of circle coalitions to increase these behaviors. Encouraging policies that give employees the leeway in their schedule to form circle coalitions and recognizing successful circle coalitions might help HR departments do this. Alliances also are useful to organizations, as they push forth innovations that are required for organizations to adapt to and be successful in a fastchanging, globalized work environment (Bettis & Hitt, 1995; Boisot, 1998). Successful companies should encourage this coalition type to encourage innovation that is necessary to compete in a hypercompetitive environment. HR can play a key role in this, as has been shown with the work at Google (Manjoo, 2013). For instance, in order to encourage people from differing backgrounds to interact, Google investigated the length of their lunch tables and even timing of their lunch lines in order to maximize the likelihood that workers would talk to other from different parts of the company, hoping for innovation (Manjoo, 2013). Other ways that HR departments could support alliances is through weekly or monthly networking meetings, and hosting brown-bag seminars on various topics. Successful alliances should be called forward as examples for what others can do to push innovation in organizations. At the same time, HR departments should work to minimize the negative aspects of coalitions, specifically lobbies and cartels. Many times these coalitions are formed due to perceived injustices or inequities. HR is one of the first departments that should be ensuring fair practices in the workplace. HR departments need to ensure that hiring, promotion decisions, raises, and training opportunities are given without bias. Training should be encouraged to make sure managers understand that performance should be rewarded over friendships or other nonperformance related issues. By having fair practices in the organization, this should lessen the likelihood that antagonistic cartels and lobbies will form. However, beyond the policies and procedures for encouraging and discouraging different types of coalitions, HR members should be working to form their own coalitions, specifically alliances. Researchers have long argued that HR should help play a vital strategic role in the company (e.g., Becker, Ulrich, & Huselid, 2001). However, many HR departments have struggled in getting a seat at the strategic table and even at aligning their policies and procedures in a way that upholds the strategic direction of a company (Hammond, 2005). Therefore, we encourage HR executives and departments to form coalitions to innovate and help bring policies and

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procedures that align HR’s strategy with that of the overarching company. To do this, the alliance, as it is defined, will need to have more than just HR members; it will need champions from outside of HR to tout and publically support the strategic role of HR. It will need experts in the areas of operations, marketing, and finance to make sure that the innovations happening are in line with the other functions of the company, and that they truly do support the behaviors necessary to achieve the organizations vision and goals. HR executives should become experts in forming alliances to increase the reputation of their department, as not just taking from the bottom line, but actively contributing to increased performance and increased profitability (Christensen, 2006).

Comparing Coalitions and Formal Teams We would be remiss if we failed to address the obvious as well as the more inconspicuous differences between coalitions and formal team structures in organizations. Although similarities could be argued between coalitions and some other formal team structures (e.g., parallel teams, self-managed teams), a number of important differences should be articulated as well. Parallel, or ad hoc, teams pull employees together from units or jobs to perform functions that the regular organization is not well-equipped to handle (Ledford, Lawler, & Morhman, 1988; Stein & Kanter, 1980). Similar to coalitions, these team structures exist in parallel with the formal organizational structure, and are used for problem solving and improvementoriented activities, but without official authority (Cohen & Bailey, 1997). However, parallel or ad hoc teams derive from the formal structure, being held accountable by management and achieving organizational-directed goals. On the other hand, coalitions are held accountable only by members of the coalition for achieving their own goals, representing informal structure. Self-managed teams are accountable to members of the group for achieving goals, as are coalitions, and both forms acquire resources via the organization’s formal structure. Self-managed teams, however, are empowered by the organization and are allocated resources from the organization expressly to achieve those mutually accountable goals (Kirkman & Rosen, 1999). Conversely, coalitions secure resources through their own means, allocating resources among their informal structure in some instances, and the formal structures in other instances.

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Both coalitions and teams also potentially share a “free rider,” or social loafing, problem among members. In this instance, members of a coalition or team may shirk normative responsibilities, resulting in a great burden for the remaining members of the collective (Albanese & Van Fleet, 1985). Although this outcome is theoretically possible in both coalitions and teams, coalitions are likely to experience a free rider problem at significantly lower levels than formal work teams for several reasons. Coalition members, rather than formal management, choose to ally with one another, exerting influence over selection. As previously discussed, coalition members are unlikely to engage in exchange with one another unless they perceive mutually independent benefits from doing so (e.g., Cropanzano & Mitchell, 2005). Furthermore, coalition members are likely to possess more complete knowledge of member competencies than that which resides in the formal structure, since tacitly held competencies of coalition actors manifest behaviorally at work. Ironically, then, coalition member selection is likely to be more rigorous than selection in the formal structure, reducing the likelihood of free riding or social loafing. Similarly, because coalitions control the distribution of rewards among group members (e.g., Miller, 1980), coalition actors who do not participate fully are likely to receive reduced rewards relative to the rest of the group. Thus, in summary, there are structural similarities between coalitions and teams. However, we argue that the assumptions guiding team formation and behavior do not always apply to coalitions. Consequently, scholars should exercise caution when drawing distinctions between groups and teams derived from the formal structure, and those derived representing the informal structure of the organization.

CONCLUSION This paper developed a theory of coalition forms in organizations, examining how behavioral intentions and compositions influence the form and activities of coalitions. By classifying four coalition forms (i.e., cartel, lobby, alliance, and circle), we were able to distinguish outcomes of interest to coalition actors and organizations, including an examination of coalitions with respect to role innovation, resource allocation, and work performance. It is hoped that this theoretical statement will help guide future inquiry into the informal group structures that operate within and between organizations.

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A MULTILEVEL MODEL OF STRATEGIC HUMAN RESOURCE IMPLICATIONS OF EMPLOYEE FURLOUGHS Tom Bellairs, Jonathon R. B. Halbesleben and Matthew R. Leon ABSTRACT Sudden crises, known as environmental jolts, can cripple unprepared organizations. In recent years, financial jolts have led many organizations, particularly government organizations, to respond by furloughing employees. Furloughs can engender various responses in employees that can lead to negative work outcomes for both the employees and the organization. Previous research shows that the implementation of strategic human resource management (SHRM) practices, such as commitmentbased systems, can mitigate the negative effects of environmental jolts. Utilizing the knowledge-based view and affective events theory, we propose a multilevel model where SHRM practices moderate employee affective responses to furloughs, which, in turn, drive subsequent employee behavioral outcomes. Keywords: Furloughs; strategic human resource management; affective events theory Research in Personnel and Human Resources Management, Volume 32, 99 146 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0742-7301/doi:10.1108/S0742-730120140000032002

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Averting crisis is a major issue organizations face in today’s rapidly changing dynamic world. Although rare, these crises often called environmental jolts can cripple an organization. In recent years, the uncertain financial environment faced by many organizations has led to increases in the perception that financial jolts could occur and that managers must be prepared for such jolts. Environmental jolts (e.g., natural disasters, public affairs catastrophes, employee strikes) have been shown to impact organizational performance such that some organizations prosper and others decline or fail (Meyer, 1982; Meyer, Brooks, & Goes, 1990; Sine & David, 2003; Wan & Yiu, 2009). Adapting to jolts by implementing the organization’s overarching (strategic) vision with its business level (tactical) decisions can reduce the turmoil produced from such a shock. Additionally, managers may draw on slack resources (extra resources) to address uncertainty (Kim & Ployhart, in press). Changes in environmental munificence or other discontinuous changes render existing strategies ineffective (Dess & Beard, 1984; Meyer et al., 1990). In this chapter, we are interested in the effects these strategies have on individual workers in the context of recent financial jolts and, in particular, a strategy that many service-based firms have used to address the financial uncertainty: employee furloughs. A furlough is an action taken to reduce expenditures by placing employees in a nonwork, nonpay status due to a lack of appropriation or funding (Office of Personnel Management, 2013). It is a way of controlling organizational costs such that employees are paid less but also expected to produce less. Despite being an increasingly common cost-cutting strategy, both in the public and private sector (Vu, 2009), there is relatively little research concerning how furloughs impact employees and, in particular, whether there are ways that organizations can strategically address the potential negative elements of furloughs. The limited research to this point suggests that furloughs can have a significant negative impact on employees and organizations. For example, Halbesleben, Wheeler, and Paustian-Underdahl (2013) found that a furlough led to higher emotional exhaustion and lower performance (both in-role and extra-role) among state government workers. Wheeler, Halbesleben, and Paustian-Underdahl (2013), in another study, found that turnover intentions increased following a furlough, particularly among higher performing employees the very employees the organization would want to keep to deal with difficult financial times. Finally, Halbesleben, Bellairs, and Mandeville (2014) found that furloughs lead employees to shift their identification away from their work and more toward their family. In all cases, these outcomes raise concerns for organizations seeking to control labor costs through furloughs.

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We extend that literature by describing various strategic human resource management (SHRM) methods an organization can employ to minimize the negative impact of furloughs utilized to address financial jolts. Selecting and combining the most appropriate HR methods produces HR bundles or systems (interrelated and internally consistent HR practices) that create multiple, mutually reinforcing conditions that support employee motivation and skill acquisition based on a consistent HR policy (MacDuffie, 1995). By realizing that HR policy must be conspicuously linked to strategy to be effective, an organization should use SHRM to create an atmosphere that keeps employees motivated during routine operations as well as during jolts. Accordingly, research suggests that organizations should invest in high performance work systems (HPWS) (Becker & Huselid, 1998; Becker & Huselid, 2006; Combs, Liu, Hall, & Ketchen, 2006; Huselid, 1995). These systems target ways to select, train, incentivize, compensate, and encourage employee participation to benefit the organization (Huselid, 1995; Pfeffer, 1998). The goal of SHRM techniques is to impact productivity, effort, and efficiency, which subsequently drive organizational growth and value, even in dynamic, unpredictable environments (e.g., during and after an environmental jolt; Huselid & Becker, 2011). To that end, we provide a brief review of literature concerning environmental jolts and examples of SHRM practices that, if properly implemented, can buffer the negative effects of environmental jolts. We explicate this process through a theoretical lens of affective events, organizational justice, and psychological contracts to describe resulting employee affective and behavioral responses that affect organizational performance. In the following sections, we offer several propositions to explain the effects of a furlough on employee behaviors. While formal propositions are provided later in this chapter, we believe that a brief review here lends clarity and structure to the rest of the chapter. In our model, we propose that an environmental jolt (i.e., a legislative disagreement on budget priorities that enabled automatic reductions in funding) led to furloughs across government organizations. Various government agencies were forced to furlough employees but could implement the furlough at their discretion (e.g., close the office on Fridays, take all the days at once, furlough half the office at a time). We propose that these furloughs cause affective reactions in government employees that cause stress, change employees’ perceptions of organizational trust and justice, and affect employees’ psychological contract with the organization. We believe that the severity of these reactions can be moderated by SHRM practices; specifically, that government organizations deploying a commitment-based

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Fig. 1. A Multilevel Model of Human Resource Management Implications of Furloughs. Notes: PC=psychological contract; Dev.=deviance; Prod.= productivity; T.O.= turnover.

approach are more likely to decrease negative affective reactions than organizations implementing a control-based approach. Finally, these affective reactions mediate the relationship between the furlough and employee behaviors (i.e., deviance, productivity, and turnover). The result is a multilevel model of employee responses to furloughs linking market factors to employee responses (see Fig. 1). To conclude, we discuss the theoretical and managerial implications of environmental jolts and provide suggestions for managers grappling with the negative outcomes of a furlough.

ENVIRONMENTAL JOLTS Environmental jolts are sudden, unprecedented, discontinuous events such as employee strikes, natural disasters, or economic crises. Environmental jolts are defined as “transient perturbations whose occurrences are difficult to foresee and whose impacts on organizations are disruptive and inimical”

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(Meyer, 1982, p. 515). Because a jolt is a discontinuous and unexpected change that contradicts organizational norms, responses, and adaptive measures are of prime concern to organizational functioning (Meyer et al., 1990). Environmental jolts as catalysts for action (Sine & David, 2003) which prompt responses such as “weathering the storm,” experimenting and learning, or transforming to indicate the level at which the jolt will be characterized (Meyer et al., 1990). These responses initiate a search process that can uncover alternative arrangements (Sine & David, 2003). An environmental jolt that alters the levels of environmental munificence can impact firm performance (Wan & Yiu, 2009). They found that this relationship (environmental munificence to performance) is moderated by the amount of organizational slack within a firm. When organizations have few resources, or those resources have been depleted, any potential slack (a cushion of resources that allows an organization to adapt to internal or external pressures as well as to initiate changes in strategy concerning the external environment; Bourgeois, 1981) is especially important to continued success. Organizational slack allows managers to act more aggressively and with increased confidence when facing a dramatically changed environment (Thompson, 1967). Further, organizations with more slack may adopt proactive strategies in response to jolts (Tan & See, 2004). In fact, rapid and comprehensive adaptive strategies have been shown to allow organizations to make money during jolts (Meyer, 1982). Environmental conditions and organizational capabilities shape responses and ultimate consequences of disruptive events (Lengnick-Hall & Beck, 2005). Strategies, structures, and ideologies all influence the way organizations adapt to environmental forces (Beyer, 1981; March & Simon, 1958; Miles, Snow, Meyer, & Coleman, 1978). Diverse strategies (conservative, entrepreneurial, and diversified) help organizations decide how narrowly or broadly to focus on various areas (Meyer, 1982). Conservative strategies enact narrow domains and routinely monitor environmental segments; entrepreneurial strategies enact volatile domains and view various environmental segments closely; diversified strategies enact broad domains and form subunits to analyze different segments. Structures stem from the specific HR policy decisions each organization makes. Ideologies (e.g., organization beliefs, norms, culture) shape the way employees relate to the decisions through HR policy and their own knowledge. The knowledge transfer process is important for each organization during tranquil times and becomes critical during an environmental jolt. A common framework for observing these phenomena is the knowledgebased view (KBV), which highlights knowledge as an important,

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strategically significant resource that rests within the human resources of an organization (Dierickx & Cool, 1989; Kogut & Zander, 1992). Knowledge is a primary way to explain variation in organizational performance (Reus, Ranft, Lamont, & Adams, 2009). Developing human capital (i.e., knowledge, skills, abilities) is a core function of an organization’s HR department (Sirmon, Hitt, & Ireland, 2007) because it drives organizational value and has been positively associated with performance (Lepak, Takeuchi, & Snell, 2003). Integrating an organization’s HR policy with its overarching strategic goals in a consistent manner helps employees understand the organization’s focus and, thus, enables them to retain and transfer knowledge in concert with this focus. Because much knowledge rests in the minds of employees (Polanyi, 1966), organizations may struggle if turnover rates are high or employees are disgruntled. HR managers can bridge gaps in knowledge with more efficient HR policies that motivate employees to share what they know. Transferring knowledge throughout the organization adds value (Kor & Mahoney, 2005; Mahoney, 1995) and helps reduce variance across employees’ skill sets (Coff, 1997; Lado & Wilson, 1994). Harnessing knowledge is even more important during uncertain times and it drives innovation and growth which is critical to an organization’s survival and ability to achieve its strategic goals (Cavusgil, Calantone, & Zhao, 2003; Miller & Shamsie, 1996). With strategic goals in mind, a strategic, macro-level perspective indicates that conservative or aggressive responses to environmental jolts stem from the organization’s overarching strategy (Meyer, 1982; Sine & David, 2003; Wan & Yiu, 2009). Other studies have observed environmental jolts at the micro level (Arthur, 1994; Huselid, 1995; Wright & Boswell, 2002) using theoretical frameworks such as organizational justice theory and psychological contract theory to investigate if employees perceived workplace policies to be fair and if employees felt that unwritten contracts with their employers were being reinforced and supported during environmental changes (Colquitt, 2001; Colquitt, Conlon, Wesson, Porter, & Ng, 2001; Greenberg, 1987; Greenberg, 1990b; Robinson, 1996; Robinson & Rousseau, 1994). While several of these studies examined human resource policies or procedures, the studies did not bridge multiple levels of the organization or take into account both macro-level and micro-level theory to explain employee behaviors. To better illustrate how we can integrate micro- and macro-perspectives into a multilevel model of employee responses to furloughs, we will draw upon the recent example of government furloughs.

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RECENT CONTEXT: GOVERNMENT FURLOUGHS To better understand the context of furloughs as a response to a financial environmental jolt, we turn to a brief discussion of the recent implementation of furloughs by the federal government. The federal government fiscal year (FY) begins on October 1st and ends on September 30th each year. Congress and the President aim to reach an interim or full year funding provision by the end of each FY. If they cannot reach any agreement (short or long term) on the level of appropriations for the upcoming year, federal agencies experience a funding gap. When a funding gap occurs, the federal government begins to “shutdown” affected agencies, furloughs nonemergency personnel, and curtails agency activities and services (Brass, 2013). This happens because, under the Antideficiency Act, federal agencies are prohibited from involving the government in any obligation or expenditure that is in excess of the appropriated amount authorized by Congress and the President, unless specifically exempted by federal law (Government Accountability Office, 2006). To avoid this, Congress and the President may pass a continuing resolution a joint resolution providing budget authority for federal agencies to operate until the final appropriations bill is signed to provide some interim guidance on the level of funding with which each agency can proceed (United States Senate, 2013). The continuing resolution may allow each agency to spend at current, reduced, or expanded levels of funding until the final appropriations bill is passed. In 2011, Congress passed a law stating that if they could not reach an agreement on which agencies or programs to cut funds from, they would apply uniform cuts to all agencies, known as sequestration (WhiteHouse. gov, 2013). As the last day of the FY (9/30/2012) approached, government officials averted a full government shutdown by passing a continuing resolution to provide appropriations (funding) through March 2013 (Office of Management and Budget, 2012). As March approached, administrators announced continued budget woes and planned to implement administrative furlough actions of varying lengths to all government employees. In the Department of Defense (DoD), for example, officials proposed 22 discontinuous furlough days by the end of the current FY (FY13). As the months passed, the number of furlough days changed from 22 to 14, then 11; finally, in August 2013, officials announced six days as the final number of furlough days (US Department of Defense, 2013). Furloughed employees go without a paycheck, have an unclear job status, and uncertain future income. Uncertain events, such as furloughs, highlight the importance of sound human resource practices to best balance

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strategic goals with resource availability. In the following sections, we outline the manner in which strategic human resource practices can be employed to reduce the negative impact of financial jolts and furloughs as a response to improve employee well-being and performance.

STRATEGIC HUMAN RESOURCE MANAGEMENT HRM typically consists of training, appraisal, and rewards for individuals in the organization (Fombrun, Tichy, & Devanna, 1984). HRM is a traditional approach that depicts how separate human resource practices impact individual outcomes (Butler, Ferris, & Napier, 1991; Jackson, Schuler, & Rivero, 1989; Snell, 1992). SHRM evolved from HRM (Butler et al., 1991) and is defined as the “pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals” (Wright & McMahan, 1992, p. 298). The SHRM perspective integrates macro-level theories and concepts to examine how specific choices or combinations or human resource policies impact organizational performance outcomes (Fisher, 1989; Wright & McMahan, 1992). SHRM vertically links the organization’s human resource management process with its overall strategy (Dyer & Reeves, 1995), and horizontally emphasizes coordination between HRM practices and distinct organizational competencies (i.e., ensuring HR practices align with capabilities while still meeting organization goals) to enhance performance (Schuler & Jackson, 1987). Ideally, SHRM covers the HRM process across the organization to measure impacts on performance (Lengnick-Hall, Lengnick-Hall, Andrade, & Drake, 2009). The SHRM literature stream has been fundamental in shifting HR focus toward firm-level issues related to managing people (human capital) (Lepak & Snell, 2002; Wright & McMahan, 2011). Accomplishing this requires a complex and interconnected framework of HR policies with consistent focus, fit, and form that drive preferred employee behaviors. In the following sections, we discuss the importance of these three factors (i.e., focus, fit, and form) and how they shape SHRM practices that influence employee affective and, therefore, behavioral outcomes. Focus: Strategic and Tactical Decisions SHRM involves choices, both strategic and tactical, and these choices have implications for employee behaviors and organizational performance

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(Wright & McMahan, 1992). Strategic decisions incorporate complex and ambiguous issues that involve large amounts of organizational resources (Mason & Mitroff, 1981). Strategic choices focus on the overall purpose, mission, and vision of an organization (Moore, 1995). Implementing a strategic decision takes time and may involve overcoming some resistance or opposition (Allison & Zelikow, 1971; Mason & Mitroff, 1981; Mintzberg, Raisinghani, & Theoret, 1976). In the case of government furloughs, these decisions were made largely by policy-makers. Once a strategic decision is made, organizations carry out the specific details such that they implement the plan with the least impact to their routines. Tactical decisions are the day-to-day actions that, in total, execute the strategic plan. In the case of furloughs, each agency within the government had some degree of authority to decide when employees take furlough days. One agency may furlough its entire staff at once for each of the six days. This tactic was frequently employed at the state government level (e.g., by Department of Motor Vehicle offices) in order to save on overhead costs since no one would be using the offices. Another agency may consider furloughing half of its workers over a span 12 days. This may require continued operating expenses but could prevent gaps in services or production. It may give some level of consistency across furlough days and may not be as noticeable to customers. Synchronizing HR practices involves combining both strategic and tactical decisions to fit the current environmental conditions facing an organization. Often times, when senior officials decide to implement furloughs, they permit individual organizations’ managers to decide how to best execute the decision by using their HR policies. The furlough policy in Georgia offered an excellent example of how tactical decisions support that overall strategic policy. When Georgia experienced a severe budget deficit, its Governor ordered all agencies to prepare three cost-cutting plans (GA Budget and Policy Institute, 2009; GA Office of Planning and Budget, 2009). The Governor, at the strategic level, proposed that all state employees be furloughed for three to 12 days. However, each agency, at the tactical level, was able to execute the Governor’s direction to fit their own agency’s budget constraints. The same situation applied to the state’s teachers. The Governor called for all 1,28,000 state teachers to be furloughed, but left the detailed, tactical decisions to the individual school districts. Here we see managers making tactical decisions with respect to their human capital resources. Their goal is to align their tactical decisions with the strategic level goals of the organization. When furloughs are announced, the strategic goal is to cut costs while still maintaining essential

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mission requirements and capabilities. Agency directors have the latitude to balance their HR policies with achieving this goal. For example, managers can make the tactical decisions about which workers will be furloughed on which days. Recall, in the federal furlough example, the strategic decision was to furlough all employees for six days. At that point, each organization’s managers may decide to furlough all the employees on a given day or spread out the number of employees furlough over several days. A manager can consider a specific employee’s personal circumstances when deciding which days to let the worker use one of the six furlough days. Allowing employees to have input into the days they will miss allows them to plan their schedules to run errands, spend time with their families, or use the day more like a weekend or holiday. We anticipate that this type of HR tactic will help employees handle the stressful furlough situation.

Fit: Internal and External Components More recently, researchers have shifted the focus to the organizational environmental by identifying internal and external categories of HR (Jackson & Schuler, 1995). The goal is for each organization to determine the HR policies that best fit their organization while maintaining the most flexibility. Internal components include technology, structure, size, life cycle, and business strategy. Internal fit requires the organization to determine if its realized outcomes align well with its intended SHRM policy. It is expected to increase synergy within and between employee skills and organizational structures (Huselid, 1995). Coordinating these internal components across the organization requires sound horizontally aligned policies. The policy should facilitate ways for employees to share the resources across units. These HR policies, programs, and practices may appear to fit from a strategic level viewpoint but could be implemented by individual managers such that the intended purpose is not congruent with these policies (Lengnick-Hall et al., 2009). Thus, it is important for organizations to ensure employees receive consistent messages that connect strategic level guidance with tactical level execution. Vertical HR alignment will help if organizations successfully design HR systems to provide consistent messages at all levels of the organizations. External components incorporate the legal, social, political, labor conditions, unionization, industry characteristics, and national culture. When the government implements furloughs, the external factors, especially, political, legal, and labor characteristics, dictate how furlough directives are

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implemented. External fit ensures that HR policies coincide with the expectations of external organizational stakeholders (e.g., social, political, legal representatives). An organization’s resources may be influenced by external stakeholders such as when the political climate alters the level of resources available for the organization’s human resources to produce the desired outcomes or by providing additional resources that enhance the efficiency with which human resources can produce the desired organizational outcomes (Way & Johnson, 2005). Since external factors cannot be predicted with great accuracy, it follows that each organization should align its culture with its strategy so that it encourages behaviors that are in line with its strategy (Cabrera & Bonache, 1999).

Form: Control versus Commitment Approach While focus and fit are intrinsic properties of any HR system, managers can consciously choose to differentiate policies by focusing on a control or commitment form of implementation. Two different HR systems, control vs. commitment, outline ways that organizations can bundle HR practices to shape employee behaviors and attitudes to increase performance (Arthur, 1994). Control systems aim to reduce labor costs or increase efficiency by using numerous rules and procedures to enforce compliance (Eisenhardt, 1985; Walton, 1985). This depends on how well managers know the transformation process between inputs and outputs in their organization. Managers must have the ability to outline performance standards and measure employee output. By directly monitoring and rewarding employee behaviors, managers can reduce labor costs by changing performance standards or benefits. Commitment systems, such as SHRM, shape employee behaviors through trust and by giving employees more autonomy and flexibility to complete their jobs (Organ, 1988). Developing employees through commitment systems increases their competence to complete tasks correctly. Leveraging SHRM practices focused on competence (aimed at human capital) allows an organization to better attract, utilize, and retain talent (Wright & Snell, 1991). In general, commitment human resources systems have often involved employees in management decisions, training, problem solving, and social activities (Arthur, 1992). Commitment HR systems have resulted in higher productivity than control systems (Arthur, 1994). Choosing the most effective HR system also moderated the impact of turnover on manufacturing performance. This led

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other researchers to consider bundling or coupling the best parts of an HR system, which, in turn, influenced the emergence of HPWS (Combs et al., 2006; Huselid, 1995). As explained, these jolts apply systematically to each individual organization within the overall government. However, each agency within the government has latitude to make personnel decisions and establish its own HR policy. For example, Mesch, Perry, and Wise (1995) studied two contrasting personnel systems that govern federal employees. Authorized by law, Title 5 and Title 38 of the U.S. code are the models of HR management in the government. Title 5 emphasizes uniformity and centralization and typifies a bureaucratic model, akin to a “one-size fits all” approach, of HR management. Title 5 mimics the control HR approach discussed above. Title 38 gives managers more latitude to make decisions and is representative of the SHRM model. Title 38 is more closely aligned with the commitment HR system. They found no significant differences between the approaches. However, they only grouped employees into two categories, those in the department of Veteran’s Affairs (VA) and not. Further, this study relied on routinely collected secondary data during times not attributed to an environmental jolt. Consequently, we expect to see greater variance among organizations when we identify more agencies and compare practices during far more tumultuous times. We anticipate that the variance among organizations will lead us to see how different HR strategies impact organizations. Therefore, we expect that the type of HR system chosen (see Table 1) will moderate HR behaviors and overall organizational outcomes as depicted below.

High Performance Work Systems (HPWS) Another important concept in the SHRM literature is HPWS. These HR practices include comprehensive employee recruitment and selection procedures, incentive compensation and performance management systems, and extensive employee involvement and training (Huselid, 1995). SHRM theory asserts that using these practices enriches human capital (e.g., knowledge, skills, abilities) and increases employee motivation to benefit the organization (Becker & Huselid, 1998; Delery & Shaw, 2001). Incorporating flexible work schedules, job security, promotion opportunities, listening to employee complaints and concerns, and compensating employees can increase motivation through increased commitment (Pfeffer, 1998). Huselid (1995) showed that turnover and productivity mediated a

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Table 1. Forms of HR Systems. SHRM (Commitment Style) SHRM (Wright & McMahan, 1992, 2011)

HPWS (Combs et al., 2006; Huselid, 1995) HR bundles (MacDuffie, 1995) Behavioral perspective (Arthur, 1994; Snell, 1992) Cooperation, trust (Arthur, 1994) Decentralized authority (Thomas & Velthouse, 1990) Human capital focus (Wright & McMahan, 1992, 2011) Differentiation (Arthur, 1994) Employee involvement in managerial decisions (Arthur, 1992) Strategic focus (Arthur, 1994) Lower employee turnover (Arthur, 1994) Prospector adaptation style (Miles et al., 1978)

Control Style Managers having near complete knowledge of the transformation process (Eisenhardt, 1985; Snell, 1992) Rules and regulations (Eisenhardt, 1985) Set standards and procedures (Cheng & McKinley, 1983) Measuring employee outputs (Ouchi, 1979) Employers directly monitoring employees (Arthur, 1994) Centralized authority (Arthur, 1994) Improve efficiency input/output focus (Arthur, 1994) Reduce labor costs low cost strategy (Arthur, 1994) Unilateral decision making (Arthur, 1994) Tactical focus (Arthur, 1994) More turnover (Arthur, 1994) Defender adaptation style (Miles & Snow, 1978)

relationship between HPWSs and organizational performance. Thus, HPWS reduce turnover and increase productivity; these systems positively influence organizational performance. Further, training promotes gains in human capital and can increase employee motivation, reduce shirking, and enhance retention (Huselid, 1995; Jones & Wright, 1992). Additionally, a recent meta-analysis has shown the consistent relationship between using HPWS and organizational performance in the literature (Combs et al., 2006). It is unlikely for an organization to have one HR system that covers all employees because of many different employee organization relationships (Jackson et al., 1989; Tsui, Pearce, Porter, & Tripoli, 1997). As noted, the government is one large organization that has several different agencies that operate semi-autonomously under its overall strategic direction. The top-level government HR architecture, widely accepted as explaining various HR systems within an organization, guides agencies on how to best manage employees through HPWS. Each of these agencies, then, implements a tailored HR system to fit its needs. Combining these policies into

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flexible HR bundles reinforces employee motivation and increases skill acquisition (MacDuffie, 1995). Flexibility is a key ingredient for an organization to best manage employees. In fact, Macduffie showed that HR bundles led to greater productivity and output quality in flexible systems when comparing a variety of production facilities.

Adaptive Behaviors Utilizing Control or Commitment Forms Each organization must adapt and respond to ever changing levels of resources. Within the government, external factors, such as political elections, fluctuating budgets, and shifting policy directions, can change the environment for each organization. Responses and adaptations to changes, or environmental jolts in our examples, can vary significantly across organizations or within organizations. To achieve the balance necessary to handle an environmental jolt while maintaining consistent output, an organization must establish HR systems that complement the overall strategy in times of uncertainty. Adjusting to environmental change while maintaining internal consistency is enormously complex (Miles et al., 1978). The adaptive behavior of lower level organizations is derived from top-level strategy (Ansoff & Stewart, 1967; Argyris, 1973; Beer & Davis, 1976). In our example, the top-level strategy is to control costs through furloughs while retaining as much knowledge and skill as possible to endure harsh times. Furlough implementation represents an overarching strategy that affects the direction and control of human resources. Each organization adapts in a manner consistent with the cost reducing strategy such that its overall mission remains intact. To implement strategic decisions at the tactical level, various organizational adaptation typologies explain how organizations are likely to respond. For example, conservative and aggressive response strategies can be categorized by specific tactical actions. Miles et al. (1978) grouped organizations by response mechanisms labeled defenders, prospectors, analyzers, and reactors. Miles and colleagues convey that defenders typically pursue a conservative approach that focuses on stability and essential organizational elements. Defenders seek to achieve efficiency during unstable times and use a control HR approach, but are not aptly suited to respond to major environmental shifts. Conversely, prospectors pursue an entrepreneurial approach by attempting to use the environment as a catalyst to find opportunities for success. Prospectors implement a more flexible HR strategy that, in uncertain times, may be more inefficient.

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The prospector’s inefficiency may be due to its entrepreneurial position because it can respond to the changing dynamics of an uncertain environmental but may temporarily underutilize its resources. Analyzers combine facets of both, defenders and prospectors, to minimize risk while maximizing opportunity. Analyzers prefer to let prospectors survey the environmental conditions and then follow that route if it seems viable. Balancing efficiency and stability is the true dilemma for an analyzer. This diversified approach lends itself to a matrix organizational structure. This structure requires an analyzer to maintain different planning, control, and reward systems. Maintaining stability while remaining flexible may limit the organization’s ability to increase efficiency. Reactors are organizations that lack set response mechanisms. They tend to be inconsistent and unstable. Reactors may not understand the overall strategy or may be conflicted in which way they prefer to respond. Further, a reactor could try to maintain the status quo despite overwhelming changes in the environment. Meyer (1982) examined adaptive strategies (e.g., defenders, prospectors, analyzers, reactors) for three hospitals affected by a doctor’s strike. He found that successfully mitigating an environmental jolt was heavily dependent on foresight that hinged on strategy that was in place. While an organization cannot predict when or to what extent a jolt will impact its environment, it can benefit from a knowledgeable workforce and use its resources to diffuse negative effects. One hospital, Memorial, adapted a conservative posture. Its managers contended that preparing for a crisis doesn’t make much difference and took a defensive stance to allow its reserve fund cover losses. This response mirrors that of a defender because Memorial maintained stability by not laying anyone off or doing anything else that may affect efficiency. Memorial suffered more than $1,20,000 in net losses during the strike but reasoned that it would have reached the same end state by taking drastic measures to cut costs or change its routine. Community hospital, on the other hand, anticipated the strike and forecasted its possible effects. Knowledgeable managers collaborated with departments to gain tactical level insight and put together a contingency plan to implement if a strike happened. This plan would immediately lay off workers to cut labor costs by 40%. By being proactive and finding new ways to operate, even when faced with constraints, Community took an entrepreneurial approach that is in line with prospector strategy. Focusing on flexibility and being ready to execute a plan allowed Community to cut costs and make $10,000 once the jolt occurred. The third hospital, General, applied a diversified strategy maintain some levels of activity to profit while

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laying off employees in other areas. Its strategy was similar to an analyzer since it tried to minimize its risk while seeking way to maximize opportunities. General suffered no losses and described the strike more as an everyday problem than an environmental jolt. Meyer’s analysis implied that strategic planning and ideological variables (beliefs that bind people together) helped predict environmental disturbances. These ideologies can be shaped through HR philosophy that combines programs and processes to influence organizational performance. Incorporating these practices allowed one of the three hospitals to profit during the environmental jolt. Meyer then found that strategy accounted for the most variance in how well the hospital handled the jolt. Predicting a jolt, or practicing for a potential jolt, by clearly outlining a strategy and a contingent HR policy allowed hospitals to avoid losses at greater rates than hospitals failing to have clear policies. The government furloughs represented an immediate cost reduction strategy. Because of the immediate jolt, organizations had little time to respond and could not effectively solicit their HR department’s knowledge base for guidance. We expect this to upset or offend employees to a greater extent than if these organizations had planned for cost reduction. In the government furlough example, a defender tactic may be an organization that requires its employees to work set hours (i.e., determine which days are furlough days and how many people are furloughed each day) and forces employees to take breaks at set times throughout the day. The managers may curtail future plans and control the tasks employees continue to work on. A prospector may instead allow employees to take furlough days at various times. This flexible policy may seek to lessen the burden by encouraging employees to balance work with their personal lives. They may want employees to be more rested or ready to work so that they can incorporate the entrepreneurial spirit of the prospector strategy. Without enough planning or explicit knowledge of how employees handle stress, this policy could set the prospector up for underutilizing its employees. For example, if two interdependent employees take their furloughs on different days, a project could lose two days of work if they do not communicate beforehand. An analyzer might try to balance the defender and prospector approach by requiring groups of interdependent employees to work or take furlough days together. Balancing the mix of employees may help the analyzer to complete short-term goals while focusing on long terms possibilities. Reactors may be too uncertain to apply a specific HR policy and not adapt accordingly. For example, by not specifying a control policy or flexible, commitment style policy, employees may be uncertain as to what is

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expected. This uncertainty may lead employees to question if they should complete near term tasks or plan for future opportunities. A primary concern for organizations in response to an environmental jolt is the potential loss of human capital resources that are difficult to replace because of the knowledge, skills, and abilities these individuals possess. Implementing SHRM by properly aligning focus, fit, and form allows an organization to bundle its HR practices to manage its workforce more effectively (Lepak & Snell, 2002). By managing its workforce via SHRM, an organization can preserve human capital resources and mitigate negative outcomes associated with environmental jolts. For example, organizations benefit when they can retain employees with specific (tacit) knowledge since this knowledge creates value within the organization (Barney, 1991; Huselid, 1995; Wright & McMahan, 1992). Because each organization relies heavily on the knowledge it creates, manages, and maintains (Conner, 1991), SHRM choices should focus on maintaining firm-specific knowledge following an environmental jolt, such as a furlough.

THE KNOWLEDGE-BASED VIEW Knowledge is a strategically significant resource (Dierickx & Cool, 1989; Kogut & Zander, 1992) and has been a dominant way to explain variation in organizational performance (Reus et al., 2009). Superior coordination and efficient management of knowledge is vital for growth and survival (Kogut & Zander, 1992; Nelson, 1982a; Nelson, 1982b). While this knowledge can be stored in many ways, “the strategic data bank of the organization is not in the memory of its computers so much as in the minds of its managers” (Mintzberg, 1989, p. 13). SHRM research aims to cultivate and expand human capital (Hitt, Biermant, Shimizu, & Kochhar, 2001; Kor & Leblebici, 2005; Lengnick-Hall et al., 2009). Developing human capital represents a method for an organization to achieve success through its human resources (Sirmon et al., 2007). In fact, strategic value, derived from human capital, varies across the way an organization implements and bundles its HR architecture (Lepack & Snell, 2002). Additionally, Lepak et al. (2003) surveyed senior executives and senior HR managers about modes of employment and found that the use of knowledge-based employment (i.e., emphasis on cultivating human capital) was positively associated with performance.

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Types of Knowledge: Tacit and Explicit Organizational knowledge must be understood as socially constructed, or, more simply stated, how well organized human resources are within the organization (Kogut & Zander, 1992). The benefits of organizational knowledge is a primary resource to cultivate, and benefits come not only from the amount of knowledge organizations possess, but also from how they acquire and transfer it (Kogut & Zander, 1992; Reus et al., 2009). Before an organization can realize gains in performance, it must understand how its knowledge is stored and compartmentalized so that the organization can best decide on which HR practices will bring about the best results for the use of knowledge. Knowledge has been characterized into two forms, explicit (codifiable and transmittable) knowledge and tacit (personal, hard to formalize and communicate) knowledge (Polanyi, 1966). Polanyi clearly articulated this dilemma by stating, “we can know more than we can tell” (p. 4). By its tacitness and complexity, an organization’s stock of knowledge is central to its performance (Kogut & Zander, 1992). More specifically, tacit knowledge (what individuals know inside that is difficult to transfer) is a valuable resource to the organization because it is not easily acquired and can be difficult or costly to transfer (Polanyi, 1966).

Strategy and Performance Grant (1996) suggested that since knowledge is created, stored, and used by an organization’s employees with a goal of increasing performance; it is the most strategically important organizational resource. Because of its importance and limited transferability, organizations need mechanisms to coordinate and integrate knowledge. Human resources management requires a mix of skills to coordinate and integrate knowledge by working with tacit and explicit knowledge. Conflict resolution, employee appraisals, customer satisfaction, organizational strategy, and environmental conditions represent mixtures of tacit and explicit knowledge and require skills in managing both (Soliman & Spooner, 2000). Although managers bring explicit knowledge derived through formal education into their organizations, they build specific (tacit) knowledge about the organization and environment through their experiences and rely on this experience when making decisions about the suitability and progression of their actions (Fondas & Wiersema, 1997; Holcomb, Holmes, & Connelly, 2009; Melone, 1994).

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As managers accumulate organizational expertise, they develop proficiencies and become more effective at aligning firm strategies with the environmental context in ways that enhance organizational performance; they identify which opportunities to pursue and which threats require a response (Holcomb et al., 2009; Mahoney, 1995). Managers must integrate or link the organization’s HR policies to its knowledge base across tranquil times and in times of instability (Collins, Holcomb, Certo, Hitt, & Lester, 2009; Fondas & Wiersema, 1997; Melone, 1994).

HR Managers: Combining the Pieces Intellectual assets and resources can be utilized much more efficiently and effectively if organizations apply knowledge management techniques for leveraging their human resources and enhancing their personnel management (Soliman & Spooner, 2000). Owning or having access to valuable and rare resources (e.g., tacit knowledge) is necessary for better performance; these resources must be effectively managed and synchronized to realize a competitive advantage (Hansen, Perry, & Reese, 2004; Holcomb et al., 2009; Kor & Leblebici, 2005; Mahoney, 1995). For human resources, variance across employees’ skill sets and abilities constrains the effectiveness of knowledge transfer and management (Coff, 1997; Lado & Wilson, 1994; Wright & Snell, 1998). Therefore, instead of solely focusing on maximizing an individual’s skill set or ability, managers must also consider an employee’s marginal contribution, relying on knowledge about employees’ skills and abilities to combine them in a way that enhances the value-creating potential of an HR bundle (Alchian & Demsetz, 1972). Organizational performance based on heterogeneous resources is a result not of having better resources but in knowing more accurately the relative productive performances (i.e., outcomes) of those resources (Alchian & Demsetz, 1972). Managers, then, are a potential source of value creation for the firm. Changes in the firm’s strategic priorities and tactical activities compel tradeoffs between resource positions (Porter, 1996). Such tradeoffs require managers to coordinate how they apply resource management processes across different HR bundles (i.e., internally consistent HR practices) to achieve the necessary fit between policy and environment (Siggelkow, 2001; Thomke & Kuemmerle, 2002). Having an HR system that allows managers and employees to realize how resources and environmental conditions impact performance better identifies where specific contributions can lead to

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organizational value. Both property-based (i.e., specific, well-defined assets) and knowledge-based resources contributed to performance: return on sales, operating profits, and market share (Barney, 1991; Miller & Shamsie, 1996). They asserted that the environmental context mattered most in conditioning these relationships. “Periods of stability and predictability favored firms with property-based resources but did not reward those with knowledgebased resources. Precisely the opposite was true for periods of uncertainty, even though the sample of firms was identical” (Miller & Shamsie, 1996, p. 539). While stable times have been shown to favor property-based resources, the unpredictability of environmental jolts we mention highlights the importance of focusing on the organization’s knowledge base. Consequently, decision makers must incorporate the environmental context of the situation as much as the resource itself. Accordingly, resources to produce value must be managed in concert with the environment within which they must operate to achieve this necessary fit. Human resources departments, then, play a significant role in driving knowledge management solutions to match strategy with resource management in each environment. For an organization to benefit from it knowledge base, it must ensure its employees are aware of its HR policies. The HR policy should be valid, consistently applied, and sensitive to the needs of employees (Greenberg, 1993). Policy should clearly detail how changes will occur during unstable times. When employees are aware of HR policies, they are more likely to improve how their jobs are performed (Huselid, 1995) and less likely to perceive negative outcomes (e.g., furloughs) as unfair if the information is conveyed in an informative manner (Greenberg, 1993). When HR departments can include senior management in the knowledge management effort, it provides additional motivation for everyone within the organization to share knowledge and increases the chance of success of the HR program. If staff (employees and managers) members are encouraged to discuss concerns candidly, a help seeking culture could stimulate a learning organization (Soliman & Spooner, 2000). Successful knowledge strategy should clearly designate the resources devoted to tacit and explicit knowledge management and should include strategies to expand the knowledge sharing (learning) process within an organization (Soliman & Spooner, 2000). HR managers can facilitate a learning environment by using HPWS and removing fear of punishment and penalties from HR policies. This may accelerate the knowledge management (e.g., learning, sharing, and transfer) activities. Interaction between a knowledge management effort and the existing organizational culture may spawn changes to that culture

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(Soliman & Spooner, 2000). These changes may need to occur for the organization to prosper during more difficult times. The human resources department’s assistance in motivating senior staff to incorporate HR into their strategy (i.e., SHRM) may help retain employees during unfavorable times or lessen potentially negatives outcomes of environmental jolts. Our purpose is to develop a model that explains how furloughs impact organizations and employees. To that end, we propose our model (see Fig. 1), with the understanding that SHRM (specifically, commitmentbased HR) helps organizations handle environmental jolts, such as furloughs. Next, we detail how employees respond to furloughs and how the choice of HR practices impact employee responses. We address the implications of organizational trust, psychological contracts, stress, and organizational justice to better understand how furloughs affect employees. Finally, we outline organizational performance measures (e.g., deviance, performance, turnover) related to employee responses to the furlough.

EMPLOYEE RESPONSE TO FURLOUGHS When addressing an environmental jolt, the chosen SHRM practices directly impact employees’ subsequent affective states and behavioral actions. In this specific case, we propose that the SHRM decision to furlough employees will act as an affective experience that influences employees’ perceptions of the psychological contract they hold with the organization, perceptions of organizational justice, feelings of trust, and feelings of stress. Based on the Affective Events Theory (AET) framework, we propose that changes in these perceptions and feelings will result in changes in employee behaviors. Specifically, we will discuss the increased potential for deviant behaviors such as absenteeism as well as effects on performance and turnover in response to furloughs.

Affective Events Theory The central thesis of AET (Weiss & Cropanzano, 1996) is that work events are proximal drivers of emotional reactions and moods (Weiss & Beal, 2005). That is, some type of work event (e.g., the implementation of a furlough) acts as an affective experience that directly causes a change in an employee’s affective state, which includes the moods and feelings of an

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employee (Weiss & Cropanzano, 1996). In turn, these changes in moods and feelings lead employees to engage in a set of behaviors instigated by their altered affect. Affective experiences and emotions have been tied to motivation, job performance behavioral activation and inhibition, and job satisfaction (Brief & Weiss, 2002; Carlson, Kacmar, Zivnuska, Ferguson, & Whitten, 2011; Carver & White, 1994; Seo, Barrett, & Bartunek, 2004). Under the AET framework, work behaviors that are more affect-driven (e.g., organizational citizenship behaviors, absenteeism) are more likely to be influenced by an affective experience than work behaviors that are judgmentdriven, or those behaviors that are predicated on more enduring attitudes about the job (e.g., lying to one’s supervisor; (LeBreton, Binning, Adorno, & Melcher, 2004; Lee & Allen, 2002). These relationships may be magnified by a decoupling effect, where employees may have assumed that the threat of a furlough would not result in a loss and, therefore, the loss was made more significant when it actually occurred (Halbesleben et al., 2013). AET provides an intuitive theoretical lens through which to explain potential decoupling effects related to a furlough. Employees are often faced with environmental and firm-related threats, but must balance the potential loss with expectations that they will be averted. In this case, it is reasonable to assume that government employees believed a furlough would be averted and that Congress would be able to pass a budget. With this in mind, proper SHRM practices (discussed above) should mitigate decoupling effects or remove them altogether. However, this is an interesting avenue of future research that may provide more insight into employee affective reactions to furloughs or other powerful work events. We view the furlough as a disruptive, unexpected, and stressful work event that caused fluctuations in the affect, and consequently the behaviors, of government employees. In the coming sections, we draw on this model and extant literature to make inferences regarding the potential behaviors of employees affected by the recent federal government budget dispute and the subsequent furloughs that emerged from it. Work events have been shown to cause emotional responses in employees through frequency, intensity, and subjective appraisal of the event, with empirical models finding significant paths between work events, employee affect, and various performance criteria (Motowidlo, Packard, & Manning, 1986; Podsakof, LePine, & LePine, 2007; Wallace, Edwards, Arnold, Frazier, & Finch, 2009). In our model (see Fig. 1), we propose that the furlough engendered an affective response within employees that influenced their levels of stress, trust of the organization, and perceptions of organizational justice as well as constituted a violation of the psychological contract

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between the employees and the organization. In turn, these emotional responses led to behavioral actions including deviance, performance issues, and increased turnover intentions.

Stress Lazarus and Folkman (1984) define stress as occurring when an individual appraises something as a source of harm, challenge, threat, or loss. Their Transactional Stress Model is one of the most commonly used stress appraisal models in current literature. In this model, the relationship between outcome (e.g., negative work behaviors such as turnover or deviance) and stress is mediated by appraisal of and coping with stressors in the environment (e.g., a furlough). Environmental stimuli are appraised as either threatening or challenging and determine the degree of stress experienced and the subsequent coping method. Appraisal is an evaluative process influenced by individual factors (e.g., self-efficacy, preferred coping styles, coping success) that classify events according to their features, significance, and impact on well-being (Folkman, Lazarus, Grue, & DeLongis, 1986; Lazarus & Folkman, 1984; Lazarus & Folkman, 1987). A primary and secondary appraisal occur where the individual decides whether or not he or she will be affected by the stressor and whether resources exist to cope with the stressor, respectively. Primary appraisal includes the identification of a stressor as benign, relevant, or stressful while secondary appraisal encompasses the evaluation of one’s ability to cope given current levels of resources and demands (Lazarus & Folkman, 1984). Over time, the accrual of stress due to constant stressful appraisals or maladaptive coping techniques can lead to chronic mental or physical strain (e.g., burnout, illness; (Folkman, Lazarus, Dunkel-Schetter, DeLongis, & Gruen, 1986; Folkman et al., 1986). Disruptive work events (e.g., environmental jolts) have been documented as causal mechanisms acting on employees’ stress level and emotions, which mediate the relationship between the event and employee behavior changes (e.g., Ashkanasy & Humphrey, 2011; Fuller et al., 2003; Rodell & Judge, 2009). For example, stress caused by work events is associated with roughly 40% of turnover in American organizations and is correlated with increases in absenteeism, lowered performance, and self-reported resource loss (Atkinson, 2004; Brock & Buckley, 2012; Dextras-Gauthier, Marchand, & Haines III, 2012; Park, 2007; Richardson & Rothstein, 2008). These findings are in line with current literature on furloughs showing

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increased levels of emotional exhaustion and decreased self-reported performance in employees experiencing furloughs (Halbesleben et al., 2013). The emotional distress caused by furloughs may increase the chance of losing high-performing employees who possess the skills to gain employment elsewhere, leaving a company with mid to low performers as a consequence (Halbesleben et al., 2013). As such, we expect stress to play a significant role in predicting variance in behavioral responses to the furlough.

SHRM Practices to Mitigate the Affective Stress Response The level of stress caused by the furlough may be moderated by SHRM practices utilized before, during, and after furlough implementation. As previously discussed, the furlough was a strategic level, cost-cutting decision affecting all departments of the government. However, departments were given autonomy at the tactical level to dispense the six furlough days in a fashion that best fit their organizational structure and culture (e.g., utilizing a Title 5 [control approach] or Title 38 [commitment approach]). Some research indicates that increased job autonomy can decrease stress, particularly when the employee is allowed to craft certain aspects of his or her job to meet individual needs (e.g., Berg, Grant, & Johnson, 2010; Parker & DeCotiis, 1983). This would indicate that a commitment-based approach should yield lower levels of stress in furloughed employees. Many government departments attempted this by allowing the employees to choose their own furlough days instead of adhering to a mandated furlough schedule. Granting autonomy to employees gives them a more personal stake in their work patterns, which has been shown to lead to positive emotional outcomes (Berg et al., 2010). This is particularly evident in the job crafting literature, where employers are encouraged to increase person-job fit through task emphasis, job expansion, and role reframing (Berg et al., 2010). Here, the goal of any SHRM practice (e.g., choosing furlough days, job crafting) should be to minimize negative emotional outcomes by reducing employee stress. Since stress begins as a perceptual process, it follows that SHRM practices targeted at reducing negative perceptions of the furlough would have the highest impact on employee stress levels associated with it. Since furloughs are mandated by the government and outside of the control of the individual departments, organizations do not have the authority to end the furlough and must adapt to it while working under federal guidelines. By

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reducing employee stress, leaders may be able to reduce negative emotion and behavior related outcomes. Proposition 1. Levels of stress due to the furlough will be moderated by human resource policies, where the presence of commitment-based human resource policies will decrease the level of stress associated with the furlough and control-based resource policies will increase the level of stress associated with the furlough.

Psychological Contracts During the hiring process, employees are often required to sign a formal work contract that outlines the specific employment details of what the employee will do and what the organization will do. Further, job benefits and other issues (e.g., vacation, breaks, policies) are summarized so each party knows what to expect of the other. Psychological contracts differ from these legal contracts because they refer to employee perceptions of unwritten agreements with their employers (Robinson, 1996). A psychological contract consists of informal expectations that employees feel they owe the employer and what they believe the employer owes them (Robinson, 1996). These contracts are unwritten and idiosyncratic. Each person may have different beliefs and perceptions as these contracts are subjective (Robinson & Rousseau, 1994). Another key difference between psychological contracts and formal job contracts is that psychological contracts can change and be reframed over time as iterative cycles of reciprocal behavior between the organization and employee are completed (Rousseau, 1989). Finally, psychological contracts differ from expectations. Expectations are what the employee expects to receive from the employer, where the psychological contract refers to perceived mutual obligations that help define the relationship between the employee and the employer (Robinson & Rousseau, 1994; Wanous, 1977). Psychological contracts are categorized along a bipolar continuum from transactional to relational (Rousseau, 1995). Rousseau (1990) describes a transactional contract as economic and extrinsically focused, static, narrow in scope, publicly observable, and with a close-ended or specific time frame. These types of contracts involve monetizable exchanges (e.g., benefits, salary, pay for attendance) and are formal agreements between two parties with explicitly defined boundaries and conditions. Relational contracts are economic and noneconomic with socio-emotional and intrinsic properties,

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dynamic, pervasive in scope, and subjectively interpreted with an openended or indefinite time frame. These types of contracts exist to build loyalty and engender a sense of security in the relationship between an employer and their employees. Psychological contracts emerge based on the context of a relationship, which includes both transactional and relational aspects of contracts as well as interactions between the employer (e.g., managers, supervisors, or other company representatives) and employees (Robinson, 1996; Rousseau, 1989; Rousseau, 1990). Strong psychological contracts result in increased levels of trust, loyalty, engagement, and productivity from employees (Bal, Chiaburu, & Jansen, 2010; Robinson, 1996; Rousseau, 1990; Turnley & Feldman, 1999). However, a contract breach can foster negative feelings related to job security and decrease employees’ levels of trust with the organization, which can result in negative behavioral outcomes such as turnover (Blomme, Van Rheede, & Trompe, 2010; Restubog Bordia, Tang, & Krebs, 2010; Robinson, 1996). Psychological contract theory stipulates that job insecurity effects are due to a violation of the relational psychological contract and that permanent employees are more engaged in relational psychological contracting than other types of employees (e.g., temporary employees, contract workers; (De Cuyper & De Witte, 2006). The psychological contract would be considered violated if an employee perceives that the employer did not meet the promised or implied obligations of the contract. A violation is likely to lead to a more intense response than in the case of unfulfilled expectations (Robinson & Rousseau, 1994). Rousseau (1989) stated that several variables contribute to the intensity of a reaction including unmet expectations of rewards as well as the general beliefs one holds about the other parties in the psychological contract, the appropriate codes of conduct, and any other behavioral patterns involved in the contract. In our example, the furlough most likely transcended unmet expectations and constituted a psychological contract violation based on the expected obligations the employee felt were not met by their employer. SHRM Practices to Mitigate the Affective Psychological Contract Response Rousseau and Wade-Benzoni (1994) recognized that human resource practices are major determinants of employee psychological contracts that can impact performance, retention, and cooperation. Human resource practices such as recruitment, selection, appraisal, and inter-firm communication can signal company intentions and create patterns of behavior that employees associate with the organization that help create the terms of the

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psychological contract (Boon, Den Hartog, Boselie, & Paauwe, 2011; Mossholder, Richardson, & Settoon, 2011; Suazo, Martinez, & Sandoval, 2009). As such, when viewing the affective reactions to a psychological contract breach, it is important to consider what SHRM practices triggered the perceived breach or can be used to buffer the impact of the breach. Current research recommends that, in order to decrease negative employee outcomes associated with contract breach, firms should: (1) attempt to increase person-organization fit and person-job fit through selection methods (Cable & Judge, 1997; Kristof-Brown, 2000), (2) maintain a steady and open communication line between employees and the employer to guide perception of HR practices (Boon et al., 2011; Rousseau & Wade-Benzoni, 1994), and (3) create a strong organizational culture (Aggarwal & Bhargava, 2009). SHRM choices made by an organization can moderate employee affective and behavioral outcomes if these strategies and others are taken into consideration. As always, the goal of SHRM practices should be to reduce negative outcomes and create a positive work environment for employees. Ultimately, psychological contract violations are associated with a broad range of negative outcomes. We propose that the furlough, a negative work event, acted as a psychological contract breach with emotional and psychological ramifications (e.g., stress, perceptions of psychological contract breach) for employees that, based on AET, will lead to negative behavioral outcomes which will be discussed in later sections of this manuscript. In the following sections, we will discuss two more affective reactions tied to negative work events, stress, and psychological contracts: perceptions of organizational justice and trust (Kickul, Neuman, Parker, & Finkl, 2001; Robbins, Ford, & Tetrick, 2012; Rousseau, 1989). Proposition 2. Breaches of psychological contract due to the furlough will be moderated by human resource policies, where the presence of commitment-based human resource policies will decrease perceived breaches of psychological contract associated with the furlough and control-based resource policies will increase perceived breaches of psychological contract associated with the furlough.

Organizational Justice A major strand of research that has documented employee responses to varying organizational policies is organizational justice. It is separated primarily into two categories, distributive justice and procedural justice, and

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depicts the perceptions of fairness employees have at work (Colquitt, Greenberg, & Zapata-Phelan, 2005). Distributive justice outlines employee perceptions of how fair a work outcome (e.g., pay, reward, benefit) is allocated (Greenberg, 1990b). Traditionally, allocations are deemed fair when divided based on need, equality, or in proportion to value added (Adams, 1963, 1965). Procedural justice suggests that employees expect their organizations to use fair processes and procedures when allocating work outcomes (Greenberg, 1990b). Researchers have identified two paradigms of procedural justice event and social entity as contexts that guide employees’ perceptions (Choi, 2008). Event paradigm research suggests that people judge specific events (e.g., awards, appraisals, layoff policy) based on what they think is fair. People will judge each event on what they think would have been the best outcome. When employees have a say in the process, it leads to a “fair process effect” whereby employees react more favorably to outcomes, regardless of how fair those outcomes are to them (Folger & Cropanzano, 1998; Van den Bos, Lind, Vermunt, & Wilke, 1997). Social entity focuses on how fair an employee views the organization as a whole or the supervisors and managers in the organization. It states that employees perceive a specific level of fairness within the organization and use this expectation as a guideline for evaluating further events (Choi, 2008). As employees perceive changes to the organization or its procedures, they can reframe their perspective on fairness which may also alter their perspective on the psychological contract aspect mentioned above. Individuals directly affected by perceived injustice may express negative symptoms and behaviors. Some employees may retaliate through retribution behaviors such as aggression, unethical actions, or withdrawal (Brockner, 2010; Cole, Bernerth, Walter, & Holt, 2010; St. Pierre & Holmes, 2010). Additionally, a recent study by Skarlicki & Rupp, 2010, showed that employees indirectly affected by a negative event may exhibit retaliatory behaviors due to a deontic response (i.e., evolutionary, emotional response caused by witnessing a negative act that motivates the witness to engage in retributive behavior toward the transgressor) elicited by the act. Outside of retaliation, perceived organizational justice has been shown to predict negative health outcomes and absence in employees (Fox, Spector, & Miles, 2001; Robbins et al., 2012; Zohar, 1995). Understandably, most research on organizational justice has explored perceptions of events less rare than environmental jolts. By their very definition, environmental jolts are both powerful and uncommon events that are difficult to anticipate beforehand. As such, little research exists

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regarding environmental jolts and their direct relationship to perceptions of organizational justice. However, SHRM practices can have positive effects on employee behaviors following a negative change event (e.g., downsizing, promise breaking; Kickul, Lester, & Finkl, 2002; Paterson & Cary, 2002). These types of studies allow us to make inferences into the potential effects of SHRM practices during environmental jolts such as furloughs. SHRM Practices to Mitigate Negative Perceptions of Organizational Justice In our model, we propose that perceptions of organizational justice contribute to an overall affective reaction that mediates the relationship between the furlough and employee behaviors. In other words, the furlough causes a change in perception of organizational justice which leads to changes in employee behavior. Previous research indicates that both positive and negative organizational change influences perceptions of organizational justice and subsequent employee behaviors such as organizational citizenship (Moorman, 1991; Novelli, Kirkman, & Shapiro, 1995; Rodell & Colquitt, 2009). For example, while investigating the behaviors of Chinese employees, Zhang and Agarwal (2009) found that the SHRM practices of empowerment and communication positively impacted feelings of distributive justice and procedural justice, respectively. Further, they noted that psychological contract breaches affected perceptions of distributive and procedural justice. Similarly, human resource practices have the potential to either alleviate or boost affective reactions to change, depending on the organization’s goals (Choi & Ruona, 2011; Mossholder et al., 2011). We anticipate that the furlough will result in significant negative affective and behavioral responses in employees that will be moderated by SHRM practices. A deeper exploration of the link between organizational justice and powerful change events is necessary for understanding how perceptions of organizational justice are formed, changed, and maintained. Additionally, this allows for stronger evidence that SHRM practices may affect changes in organizational justice during change events. We encourage a deeper exploration between SHRM practices and perceptions of organizational justice in the future and hope that this manuscript can provide conceptual and theoretical material for future studies. Proposition 3. Perceptions of organizational justice due to the furlough will be moderated by human resource policies, where the presence of commitment-based human resource policies will increase perceptions of organizational justice associated with the furlough and control-based

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resource policies will decrease perceptions of organizational justice associated with the furlough.

Trust Maintaining and rebuilding trust after a negative work event can be a long, arduous process for organizations. While trust levels are commonly high early in an employment relationship and remain relatively stable without the emergence of opposing evidence, organizations can lose this resource quickly in the face of an organizational failure or incident (Gillespie & Dietz, 2009; McKnight, Cummings, & Chervaney, 1998; Robinson, 1996). Gillespie and Dietz (2009) propose several methods that can be taken at the organizational level to rebuild lost trust. They identify several internal and external factors that influence employees’ level of trust in an organization. The internal components leadership and management practice, culture and climate, strategy, and structures, policies and processes contribute to both perceptions of trust and organization-level failure. On the other hand, the external components public reputation and external governance are designated as drivers of organizational trustworthiness, but not organization-level failure because forces outside of the control of the organization influence these two factors heavily. Organization-level failure is any action taken by the organization that undermines its perception of trustworthiness. Examples include accounting fraud, deceit, incompetence, fatal avoidable accidents, and bankruptcies or catastrophic collapses in organizational finance. Organization-level failures are viewed as the direct result of an organizational action. The furlough was a direct result of a catastrophic collapse in organizational finance where the government was unable to pass a budget, causing automatic, across the board cuts. As discussed, this type of incident acts as an affective experience that has been shown to increase stress, act as a breach of psychological contract, and diminish perceptions of organizational justice and fairness. Trust violations due to environmental jolts have been observed in several organizational contexts including downsizing, sudden leadership change, and in the formation of new businesses (de Vries, Ramo, & Korotov, 2009; Mishra & Spreitzer, 1998; Weitzel & Jonsson, 1989). These studies and others have firmly established that trust violations resulting from environmental jolts cause stress within and between employees (de Vries et al., 2009; Mishra & Spreitzer, 1998; Weitzel & Jonsson, 1989). Our model extends literature in this area through the inclusion of SHRM practices as

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a potential moderator of these relationships (i.e., the relationships between a furlough and employee affective responses such as perceptions of stress, psychological contracts, perceptions of organizational justice, and trust). In some cases, affective variables may affect each other, as is the case between trust and psychological contracts (Rousseau, 2001). Psychological contracts and trust are explicitly related (Rousseau, 2001). Rousseau states that psychological contracts emerge based on the trust between parties, where information from trusted sources is deemed higher quality and more likely to impact the formation, maintenance, and revision of the contract. Further, Rousseau notes that “change recipients are less likely to believe in a hidden agenda or non-transparent motives when change instigators provide multiple and consistent messages regarding their intentions” (2001, p. 522). Rousseau’s insight mirrors our proposition regarding the use of SHRM practices to mitigate employee negative affective outcomes such as psychological contract breach or diminished levels of trust in the organization when an environmental jolt occurs. Organizational trust stems from a psychological contract employees believe they have when they work for the government. The organizational trust employees have is based on the assumption that the organization will perform actions congruent to what employees perceive is fair and reasonable. We expect this effect to be more prevalent on government work (Carnevale & Wechsler, 1992). Since the level of organizational trust evolves over time, if environmental jolts are prolonged, we anticipate trust to erode if environmental jolts are prolonged. In our example, furloughs counter perceptions of trust. Government employees expect continual employment; for example, a decline in long-term job security over the past 40 years has been noted in the private sector while public sector job security has remained relatively stable (Farber, 2010). When workers are sent home without pay, they begin to question the validity of the psychological contract they perceive to exist which further diminishes organizational trust. We anticipate that, if the furlough continues, these employees will lose trust in their organizations. As noted, external factors (e.g., political climate) will affect an employee’s perception of the event depending on the context. This may cause a reevaluation of the trustworthiness of the organization. Further, if the organization implements a strong HR control system, this policy could inhibit the development of trust (Mayer, Davis, & Schoorman, 1995). Increased levels of control and monitoring, especially when connected to an environmental jolt, may be perceived as distrust and diminish

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organization trust. Conversely, implementing HR policies that incorporate sensitivity or commitment to employees’ needs may increase organization trust. Proposition 4. Perceptions of organizational trust due to the furlough will be moderated by human resource policies, where the presence of commitment-based human resource policies will increase perceptions of organizational trust associated with the furlough and control-based resource policies will decrease perceptions of organizational trust associated with the furlough. Affective Reactions as Mediators of Behavioral Outcomes Stress, psychological contract breach, perceptions of organizational justice, and perceptions of trust are all affected by environmental jolts (e.g., furloughs). We propose in our model that, while negative affective outcomes may result, they are moderated by the human resource practices of the organization. Subsequently, changes in affect lead to changes in behaviors as employees react and cope to the jolt. Drawing from AET, we discuss predicted behavioral outcomes including deviance, diminished performance, and turnover (Weiss & Cropanzano, 1996). Deviance When organizations fail to clearly articulate HR policies or strategies, employees may respond with undesirable, or deviant behaviors. Deviance, then, is defined as voluntary behaviors that violate organization norms and threaten an organization’s well-being (Robinson & Bennett, 1995). Examples include workplace theft, purposeful lack of effort, unethical actions, shirking (avoiding work), and other counterproductive volitional with intent to harm the organization workplace behaviors (e.g., retaliation or revenge) (Spector et al., 2006). Although many forms of deviance are hard to detect and harder to measure, employee theft can be measured. As the furlough duration increases, employees may need to find ways to ease the financial pressure triggered by the furlough. For example, employees whose pay is reduced tend to have significantly higher theft rates than groups without pay decreases (Greenberg, 1990a). Theft, being one of the most pervasive and serious problems in HR management, represents the single most expensive form of nonviolent crime against organizations (Greenberg, 1990a). We anticipate that deviance among furloughed employees will rise as the duration of the furlough increases.

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The way employees were told about the pay cuts significantly affected the amount of theft after the announcement (Greenberg, 1990a). Separate plants at a firm received random experimental conditions. Plant A received an adequate explanation (e.g., more personal, respectful tone) of the pay cuts, plant B received an inadequate explanation (e.g., terse, callous) and plant C, the control group, did not receive a pay cut. The process at plant A more closely resembled a commitment type HR policy. Plant B received a dictated, authoritative, control style HR memo and meeting. Findings showed that during the pay reductions period, theft at plant A was significantly higher than in plant B which, in turn, was higher than in the control group, plant C. Theft, a more clearly measurable deviant behavior, is significantly related to the HR policy of the organization. We anticipate that similar results will materialize when government HR policies are compared across various organizations. That is, we suggest that when comparing control and commitment SHRM policies (as defined by their focus, fit, and form), control policies will lead to more deviant behavior while commitment policies will lead to less deviant behavior. These propositions are based on the previously discussed literature regarding control and commitment policies and their relationships to employee behavioral outcomes. In addition to the dangers of theft, absenteeism and sabotage have been documented as deviant behaviors following negative affective reactions (Avey, Patera, & West, 2006; Brief & Weiss, 2002; Rhoades & Eisenberger, 2002). For example, previous research of the AET framework proposes that behaviors such as absenteeism and sabotage could be conceptualized as adverse coping behaviors in response to a negative affective reaction to a stress appraisal. From a SHRM standpoint, little research exists examining its effects during environmental jolts on these specific behaviors. Proposition 5. Deviance will be lower in commitment human resource systems than in control human resource systems. Performance Employee performance is one of the most important outcomes for human resource scholars and practitioners. While there is no concrete definition of performance, it has been measured using supervisor evaluations, production, and time spent on the job, among other conceptualizations at the employee and firm level; one common form of performance measurement at the employee level is productivity (Arthur, 1994; Huselid, Jackson, & Schuler, 1997; Salanova, Agut, & Peiro, 2005). In a general sense, productivity is the quantity of work (units) completed (produced) over time. Using

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the government furlough example, it is easy to see how a furlough would impede productivity since employees remain at home and are prohibited from working. Furloughs have been shown to negatively impact employee performance (Halbesleben et al., 2013). Practically, a furlough. This translates into a loss of time on the job and means the employees must adapt to these constraints. Theoretically, this loss turns into a threat to employee resources that can result in resource loss and strain, which have been tied to decreased performance in the specific instance of furloughs (Halbesleben et al., 2013). Clearly, if employees are not working, there is no productivity. However, if employees were furloughed one day per week, it is possible that some employees may maintain a constant level of productivity for the week. As previously discussed, we believe effective SHRM practices will moderate this relationship. Namely, commitment-based SHRM practices should give the employee autonomy, an increased sense of value, and flexibility to address the furlough in an individualized and efficient manner that will translate into positive affective reactions and therefore higher productivity. Conversely, control policies will restrain employee behavior, which will lead to negative affective responses and decreased productivity. Proposition 6. Productivity in response to furloughs will be higher in commitment human resource systems than in control human resource systems. Turnover As employees are at home, they may begin to seek other employment opportunities. Bedeian & Armenakis (1998) explained a “cesspool syndrome” where the best people leave and the rest, “rise to the top” (Bedeian & Armenakis, 1998); an idea that was substantiated by the work of Wheeler et al. (2013) in their study of furloughed employees. If the most competent employees are not retained, then lower qualified, less knowledgeable employees are left to provide an organization’s future direction (Bedeian & Armenakis, 1998). This puts a disproportionate workload on fewer and potentially less qualified or knowledgeable, employees. Lucas (1988) showed that education (i.e., knowledge) is a major determinant of long-term growth. If people with more knowledge (i.e., high levels of human capital) leave, this “brain drain” effect can be detrimental to the organization (Beine, Docquier, & Rapoport, 2001). This effect can hinder organizational growth because of the imperfect substitution of unskilled for skilled workers (Piketty,

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1997). The cesspool syndrome is most likely to impact public sector organizations such as government agencies and the armed services because they are partially insulated from market conditions (e.g., guaranteed budget allocations buffer market conditions that may otherwise lead to layoffs) (Bedeian & Armenakis, 1998). While regular turnover cycles exist in every organization, it is furloughs (i.e., pay cuts) that drive employees to reevaluate their current job and consider prospective opportunities (Lee & Mitchell, 1994; Lee, Mitchell, Holtom, McDaniel, & Hill, 1999). Job attitudes and job alternatives predict turnover intentions because, as people become dissatisfied with their jobs, they may pursue other, more prosperous opportunities (Mitchell, Holtom, Lee, Sablynski, & Erez, 2001; Mobley, 1977). Natural or cyclical turnover can and has been modeled in various ways so that organizations can better predict which employees may leave under normal circumstances (Price & Bluedorn, 1979). However, highly skilled employees with more tacit knowledge are more likely to quit, which is atypical when employees are more satisfied (Mitchell et al., 2001). Thus, organizations risk losing more productive workers when they implement furloughs than when they implement layoffs (Campbell & Kamlani, 1997). Campbell and Kamlani (1997) indicate that while organizations would be able to lay off the least productive workers they risk losing the most productive workers when they furlough employees. Since furloughs require employees to spend less time at work, it follows that high-performing employees with other job prospects may begin to look for new work. As such, we propose that increased furlough duration will result in an increase in turnover due to employees feeling inclined to look for new positions and doing so. Greenberg (1990a) found that the majority of turnover came from employees who experienced the inadequate pay reduction explanation. The cesspool scenario, above, highlights the importance for HR policies that outline way to attract and retain the best talent. Further, based on this idea, and since government jobs are relatively stable, managers may have risen to their positions from previous times where the most competent employees left the organization. This is, clearly, where sound HR policy is important, especially during the precarious times spurred by environmental jolts. Proposition 7. Turnover in response to furloughs will be lower in commitment human resource systems than in control human resource systems.

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DISCUSSION, FUTURE DIRECTIONS, AND IMPLICATIONS Dissecting an environmental jolt is an important step for researchers to understand differences in employee behaviors and organization outcomes as times change. We can also investigate variance in management policies that can better help scholars, practitioners, and managers decide on which policies work under different conditions. These results, we anticipate, will be generalizable to other industries as these HR policies can be transferred across organizations. Each part of an HR system (e.g., recruitment, retention, performance incentives) can have psychological consequences to organizations. Future research should gauge the possibilities of incorporating incentives into work equations via commitment HR policies. For example, giving employees flexible work schedules may allow them to be more effective or efficient when they work. Researchers should identify the costs associated with these programs and compare the potential benefits. Determine which HPWS are most costly and which systems lead to higher levels of performance. Psychologically, applying HR bundles consistently to employees should generate higher morale and willingness to work. Applying bad news in a consistent manner that is well known, well understood, and fair should result in employees responding more favorably. For the government, future researchers should investigate the usefulness of Title 5 or 38 during an environmental jolt for evidence if there is a difference in these systems. If there is no difference, why have both? If there is, which one is best? Could it be that there is a better way to combine the best parts of both systems and then only have one system? Do these systems outline ways that industry firms use them? Relatedly, even though it seems obvious that making sure an organization works with its HR department to reap the benefits of its human capital would enhance performance, more research should examine the best combination of HR methods for all employees or specific HR bundles that can be separated and implemented across different employment groups. Empirically verifying which HR architectures differ and add the most value to an organization would help organizations align their strategy with an ideal HR architecture. Taken a step further, future researchers should identify which jobs within an organization are the most important “strategic jobs,” and how different employment modes allow managers to determine if larger proportions of resources, incentives, or different HPWS should be used to retain

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individuals in these jobs (Becker & Huselid, 2006; Lepak & Snell, 2002). Prioritizing resource allocation should help managers efficiently manage their workforce by seeing proportionately better performance outcomes in those areas where they have used varying HPWS and incentives. Researchers should empirically evaluate which jobs create the most strategic value in an organization and determine interdependencies between strategic jobs and nonstrategic jobs (Huselid, Beatty, & Becker, 2005). Finally, future research should demonstrate how the HR architecture leads to or changes specific employees’ attitudes such as deviance, trust, and organizational commitment. Understanding how to implement a strategy, or respond to an environmental jolt that, in turn, affects employee behaviors is critical to increasing performance. Studying these links (strategy, HR, and behaviors) empirically will lead to a better understanding of the process, which should lead to better performance.

CONCLUSION All organizations face operational dilemmas, especially when times become more challenging. By investigating an environmental jolt, we have been able to explain how HR policies can help buffer the negative impacts of turbulent times. We focused on the recent government furloughs and described how managers parse employees into categories. Using the knowledge-based view, we asserted that employees are a critical resource to each organization. Further, each employment situation is different. Psychological contract theory was a lens by which we explained how employees, especially government employees, perceive how they should be treated with respect to their work contacts. Although a furlough is consistently applied to organizations, each agency within the government had latitude to make employment decisions. These decisions are best when made with a strategic focus coupled with sound HR practices. Proper procedures in concert with excellent implementation allow employees to understand why they are being furloughed. As employees perceive organizational justice, they typically refrain from behaviors that cripple the organization. Overall, anticipating tempestuous times by incorporating employees into HR policies complemented by using slack resources should allow organizations to remain viable in difficult times.

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A DYNAMIC MULTILEVEL MODEL OF PERFORMANCE RATING Emilija Djurdjevic and Anthony R. Wheeler ABSTRACT The current chapter focuses on environmental and organizational factors that affect the performance appraisal context, performance evaluations, and rating accuracy. Drawing on the extant literature and focusing on current organizational practices, we propose a dynamic multi-level model of performance rating that takes these distal factors into consideration. In doing so, we also provide propositions explicating causal linkages between these distal factors, more proximal performance appraisal factors, and ultimately the accuracy of performance ratings. Furthermore, we identify current and emerging directions in performance appraisal research and practice. The implications of the current and emerging trends are then discussed in the context of our proposed model. Keywords: Performance appraisals; rating accuracy; organizational culture; HRM systems; top management teams Most ignore the shortcomings of performance appraisals and suffer through it, but that’s hard to do once you realize how incredibly expensive the process is. In 1996, Frederick Nickols estimated the cost at just under $2,000 per employee. My estimate, which includes a managers preparation time, employee time, HR processing time,

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opportunity costs, and advances in technology, still puts the process cost at over $2,500 per employee per year. Sullivan (2011)

The excerpt above provides some insight regarding the types of resources organizations have to allocate to conduct annual performance evaluations of their employees. In addition to being costly for organizations, performance evaluations are also used to make important administrative decisions (e.g., merit pay raises: Heneman & Werner, 2005). Performance ratings also have legal implications for organizations (Martin, Bartol, & Kehoe, 2000). Therefore, in order to ensure that organizations are protected against potential lawsuits, and to maximize the efficiency of the performance appraisal system as well as inter-connected HR systems, such as the pay system, it is important that performance appraisals are accurate (Lawler, 1990). Despite decades of human resource management (HRM) research devoted to understanding the factors that affect performance appraisals, in an effort to improve their accuracy, the relationship between actual performance and performance ratings remains fairly weak (Murphy, 2008; Viswesvaran, Ones, & Schmidt, 1996). Extant research in this area suggests that various performance and nonperformance factors, which may be considered part of the performance appraisal and organizational contexts, influence performance evaluations. The context has broadly been defined as “a heterogeneous mix of factors, ranging from the social and legal system in which the organization exists to the climate and culture within the organization” (Murphy & Cleveland, 1995, pp. 31 32). In part, the context has an effect on performance ratings through the rater, who conducts the performance appraisals (e.g., Cleveland & Murphy, 1992; Murphy, 2008). Scholars (e.g., Levy & Williams, 2004; Murphy & Cleveland, 1995) have conceptualized the context in terms of proximal and distal factors affecting the performance evaluation process. Specifically, distal factors represent societal and broader organizational issues, such as the economic, technological, and legal environments, as well as organizational goals, HR strategies, and an organization’s culture (Levy & Williams, 2004; Murphy & Cleveland, 1991, 1995). These distal factors, which influence the rater indirectly, should affect performance ratings through more proximal factors, or the influences that have a more direct effect on the rater (Murphy & Cleveland, 1995). Unfortunately, limited research has focused on the effects of the more distal factors on performance evaluations (Levy & Williams, 2004).

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Proximal factors comprise aspects of the performance appraisal context, such as performance evaluation purpose, training, and frequency of performance appraisals (Levy & Williams, 2004). These proximal performance appraisal factors directly affect the rater and the performance ratings being rendered (Murphy & Cleveland, 1995). For example, one proximal factor, rater training, has been shown to influence the accuracy of performance ratings. Frame-of-reference training (Bernardin & Buckley, 1981), for instance, may be used to improve the accuracy of performance ratings (e.g., Noonan & Sulsky, 2001; Sulsky & Day, 1994). This type of training is effective because, as theorized, it ensures a shared mental schema among raters regarding what constitutes performance (Gorman & Rentsch, 2009). At the same time, other types of training, specifically those interventions that focus on rater errors such as leniency and halo, may result in less accurate performance ratings (Bernardin & Pence, 1980). More recently, the significance of the social context of performance appraisal, which includes the social intricacies inherent in performance appraisals, has also received research attention (e.g., Judge & Ferris, 1993; Levy & Williams, 2004; Mero, Guidice, & Brownlee, 2007; Spence & Keeping, 2010, 2011). For example, studies have examined the effects of rating norms and accountability on performance ratings (Mero et al., 2007; Spence & Keeping, 2010). Generally, these and other studies provide some evidence that social contextual factors affect performance ratings. Taken together, considerable research has focused on performance evaluation and the factors that affect ratings. Little work, however, has examined the organizational (e.g., top management teams, organizational culture, and industry) and societal factors that may impact performance appraisals. Moreover, while there have been discussions of potential mediating variables (e.g., performance dimensions and standards) between the organization’s environment and performance ratings (Murphy & Cleveland, 1995), we lack a comprehensive theoretical framework that explicates causal pathways, considering the relationships between distal influences and the performance appraisal context, which is more closely linked to performance ratings. Here, we suggest that these limitations contribute to the remaining challenge of answering a seemingly simple question: Why aren’t ratings more accurate? We attempt to address this issue and provide a more comprehensive answer to the question. We do this by synthesizing relevant papers from the performance appraisal literature and considering additional potentially relevant factors. This allows us to provide a holistic and dynamic model of performance rating, along with testable propositions. We also identify

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emerging issues related to performance evaluations that have not been addressed in the performance appraisal literature, and discuss these in the context of our proposed model. At this point, we find it instructive to specify performance appraisals and rating accuracy in the larger context of performance management. Performance management encompasses four basic processes: definition, observation, documentation, and improvement of performance (DeNisi & Pritchard, 2006). Performance management is an ongoing process that occurs at multiple levels of an organization and serves a strategic purpose for an organization (e.g., balanced scorecards or management-byobjectives). Within the processes of observing, documenting, and improving performance, organizations must define the scope of the job (or mission of an organization), assess performance, and provide feedback (Aguinis, 2009; Cascio, 2006). From this perspective, performance evaluations and rating accuracy are affected by the individual rater (i.e., person) and the environment (including distal and proximal factors). Moreover, performance rating accuracy may be impacted by, and may impact, the four processes of performance management (i.e., definition, observation, documentation, and improvement). Our chapter follows the contours depicted in Fig. 1. As illustrated, we attempt to answer “why aren’t performance ratings more accurate?” by focusing on largely neglected organizational and environmental factors, and how they may affect the performance appraisal context and ultimately performance ratings. We approach our model from a strategic perspective, depicting causal pathways that link factors at various levels of the organization as well as the organization’s environment to the performance appraisal context and evaluations provided by raters. We begin by considering the effects of the most distal factors on performance ratings. These include general economic conditions and industry effects. It is these environmental factors that then influence top management teams in the creation of an organizational culture that either places emphasis on accurate performance ratings or suggests that performance ratings are used to play games to accomplish personal goals (Longenecker, Sims, & Gioia, 1987). We posit that strategic human resource management (HRM) systems carry this normative culture of rating accuracy to supervisors and subordinates. Thus, we propose that the extent to which supervisory performance ratings are accurate is dependent not just on the normative culture of rating accuracy, but also on interrelated HRM systems. That is, performance rating accuracy is about more than just the performance management function. We then consider the interplay between these distal factors and the

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performance appraisal context, illustrating how an organization’s culture and strategic HRM systems filter down to the performance appraisal context, ultimately affecting raters and the performance ratings that are rendered. Our strategic, macro-to-micro view of performance rating accuracy suggests that, similar to interactional psychology frameworks, such as person environment fit (see Edwards, 2008), individual employee behaviors are best understood as an interaction between focal employees and the sometimes unique contexts in which they work. As seen in Fig. 1, we posit that rater motivation is influenced by contextual factors that are several levels above the supervisor. While not depicted in the figure, one of these factors includes the aspect of time, which is also discussed in the present chapter. Organizational culture changes over time, through systematic transformational interventions, changes in leadership (Schein, 1985), or mergers or acquisitions (e.g., Schraeder & Self, 2003), for example. Organizational cultures can also become more insular, as the reinforcement mechanisms affect employee behaviors and create stronger agreement among employees about normative behaviors. Scholars (e.g., Kerr & Slocum, 1987) have suggested that the organizational culture should affect the organization’s HR systems. Here, we also argue that in addition to the performance appraisal system, organizational culture will also influence performance rating accuracy. Specifically, the accuracy of performance ratings will change with time and alterations in the organizational culture. This change is implied in our model. We present the remainder of our chapter in the following order. First, we explicate the model depicted in Fig. 1. While doing this, we provide a Organizational Environment

Top Management Team

Organizational Culture and Climate Performance Appraisal Context

Rater Motivation

Performance Ratings

Other HR Systems

Fig. 1.

A Dynamic Multilevel Model of Factors Affecting Performance Appraisals and Rating Accuracy.

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review of the literature, highlighting areas that have received scant research attention and including propositions that may be tested in future studies. Second, we describe how this dynamic multilevel model changes over time, with potential associated outcomes. Third, we discuss the practical and theoretical implications of our figure. Finally, we highlight emerging trends in performance appraisal research and practice, discuss these trends in the context of our figure, and provide future directions for research.

DISTAL FACTORS AFFECTING PERFORMANCE RATINGS In order to answer the question, “Why aren’t performance appraisals more accurate,” we begin with the distal factors, far removed from raters and ratees. While limited research has focused on these distal factors including industry, organizational culture, climate, structure, goals, and HR strategies affecting performance appraisals (Levy & Williams, 2004), they represent the environment within which the organization operates and employees work. Levy and Williams (2004) have reasoned that the scant research attention is likely due to various reasons, including the distal nature of these components and the difficulty of carrying out such research. For instance, to properly assess if the industry an organization operates in affects performance appraisal accuracy, representative samples of companies, raters, and ratees would be required. Nonetheless, Levy and Williams (2004) have noted the importance of conducting these types of studies. Unfortunately, research investigating the potential effects of distal factors on performance ratings has remained limited over the last ten years. Below, we review studies published after Levy and Williams’ (2004) review, which have focused on how distal factors may affect the performance appraisal system and performance ratings. The research examining the relationship between an organization’s external environment and performance appraisal factors that has been conducted provides some valuable insights. Results of a recent cross-cultural study (Peretz & Fried, 2012) suggest that society and culture affect organizational performance appraisal practices. In the multi-nation study, Peretz and Fried (2012) found that four national cultural aspects (i.e., power distance, future orientation, collectivism, and uncertainty avoidance) relate to performance appraisal system factors. For example, collectivism was negatively related to the number of rating sources and personal focus of

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performance appraisals (e.g., ratings used for merit pay raises and career development). At the same time, collectivism was positively related to performance appraisal systems focused on organizational development. Furthermore, power distance was also negatively related to multiple sources of performance ratings, while future orientation demonstrated a positive relationship with the number of sources. Both future orientation and uncertainty avoidance were positively related to formally structured performance appraisal systems. Future orientation also demonstrated positive relationships with performance appraisal systems focused on organizational development, ratings used for employee purposes (e.g., merit pay raises and career development), and the percentage of employees appraised. Another recent study focusing on national culture and performance appraisal practices was conducted by Chiang and Birtch (2010). Their findings, based on surveys from employees from various organizations across seven countries, suggest some differences in performance appraisal systems across a number of cultural dimensions (i.e., uncertainty avoidance, ingroup collectivism, power distance, and assertiveness). For example, results demonstrate that uncertainty avoidance and in-group collectivism are associated with a lower likelihood of using performance appraisals used for evaluative purposes. At the same time, these two national culture factors (i.e., uncertainty avoidance and in-group collectivism) are positively related to performance appraisals used for employee training and development purposes. Furthermore, nations with high power distance (e.g., Hong Kong and Singapore) used performance ratings more for administrative purposes (e.g., salary and promotion decisions) than lower power distance countries (e.g., Finland and Sweden). The latter were more focused on using performance evaluations for training and developmental purposes. Taken together, these studies, focusing on the relationship between national culture and performance rating accuracy, suggest that extraorganizational factors impinge upon the performance rating context. In western cultures, where individualism is emphasized, we assume that individual managers may be the key to understanding rater accuracy; however, even the cultural norm of individualism, as we will see later in this chapter, influences the types of ratings rendered by the rater. Whether we understand national culture from Hofstede’s (1980) framework or through GLOBE, the Global Leadership and Organizational Behavior Effectiveness (House, Javidan, & Dorfman, 2001), national cultures exert pressures on organizations. Therefore, it appears that national culture may have effects on the organizational culture. It stands to reason that even features of an organization’s environment, such as performance management, and the

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performance evaluations contained in that process, are subjected to cultural norms, both national and organizational. In our model, we propose that environmental factors, such as national culture, exert indirect effects on the rater and the accuracy of supervisory performance ratings. As we further review the literature below, however, it becomes evident that cultural differences affect rater perceptions of employee performance as well. This illustrates yet another way in which these distal factors may influence raters and the ratings they provide. Managerial perceptions of employees’ intrinsic versus extrinsic motivation and the extent to which these perceptions factor into performance ratings differ across cultures (DeVoe & Iyengar, 2004). In a survey of managers and employees from a multinational organization, representing countries in North America, Latin America, and Asia, DeVoe and Iyengar (2004) found that managerial perceptions of employees’ intrinsic and extrinsic motivation, as well as the relationships between these perceptions and employee performance ratings, exhibited variance across cultures. Specifically, managers in North America perceived employees to be more motivated by extrinsic than intrinsic factors. The opposite was found for managers in Latin America. Managers in Asia did not perceive a difference between intrinsic and extrinsic motivation, viewing employees as similarly motivated by both intrinsic and extrinsic factors. Furthermore, findings indicate that intrinsic motivation was more strongly related to performance ratings for North American managers, while only perceptions of employees’ intrinsic motivation were related to performance ratings for Latin American managers. For Asian managers, the relationships between perceptions of employees’ intrinsic and extrinsic motivation and performance ratings were comparable. These studies suggest that environmental factors influence performance appraisal systems, and appear to have some effect on performance ratings. As illustrated by these papers, and noted by others (e.g., Levy & Williams, 2004; Murphy & Cleveland, 1991, 1995), these distal factors should have an effect through more proximal factors. In our model, we propose that a variety of factors in the organization’s environment (e.g., economic conditions), some of which have been identified elsewhere (e.g., Cleveland & Murphy, 1991), will affect three more proximal factors: the top management team, the organizational culture and climate, and other HRM systems. The organization’s environment (e.g., legal conditions) may place constraints on the top management team, in terms of the appraisal system and other HRM systems that are implemented. For example, organizations with unionized employees are generally incapable of tying performance

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appraisals to administrative decisions, such as merit pay raises, as the focus is on rewarding seniority (Brown & Warren, 2011). These conditions dictate, and may restrict, what top management is able to do with the performance appraisals (i.e., the purposes for which supervisory performance evaluations may be used). It is worth exploring some of these factors in further detail, namely prevailing economic indicators, industry effects (i.e., bandwagon effects), and the role of collective bargaining agreements on performance rating accuracy. We begin with the effects of prevailing economic conditions on performance ratings, which, while indirect, affect the organization’s environment. Much of the research conducted on performance appraisal accuracy and the effects of rating accuracy on employee and organizational outcomes has largely been conducted during times of relative economic stability. Moreover, these studies were conducted mostly in economically developed nations, such as the United States, rather than developing countries. Interestingly, the Great Recession of 2008, which affected gross domestic product across the globe (World Bank, 2014), and its after-effects (Mamede, 2013), have given researchers the opportunity to develop new theories and models of behavior that might provide a more nuanced understanding of how supervisors and employees interact with a company’s performance appraisal systems. The recession and its after-effects caused massive lay-offs (Maertz, Wiley, LeRouge, & Campion, 2010), increased merger and acquisition activity (McCracken & Cimulluca, 2010), and resulted in the increasing use of employee furloughing programs (Vu, 2009). This raises the question of how these conditions of economic uncertainty, and subsequent reactions by organizations, might affect the performance appraisal system and the accuracy of performance appraisals. Based on our model, we would argue that it will first affect the decisionmakers in a company (e.g., the top management team). The decisions made by these executives will filter down through the company culture via HRM systems to ultimately impact how a supervisor chooses to rate employee performance. Economic instability forces top management teams to consider cost saving plans, which often include reductions in the organization’s workforce (Morrow, Johnson, & Busenitz, 2004). Despite evidence suggesting that cost retrenchment negatively affects an organization’s long-term success (i.e., cutting staff; Morrow et al., 2004; Morrow, Sirmon, Hitt, & Holcomb, 2007), these practices are common amid economic crises. How then, do managers decide which employees are retained versus let go? Evidence suggests that employee performance might not be the only

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factor that supervisors consider when making this critical decision, as supervisor and employee demographics appear to play a significant role in the decision (Dwyer & Arbelo, 2012). Furthermore, findings (Parayitam & Guru-Gharana, 2011) suggest that organizational performance has an effect on the performance ratings of employees. Specifically, the results of an experimental study conducted by Parayitam and Guru-Gharana (2011) suggest that participants gave the same employee higher performance ratings in high-performing organizations than low performing organizations. Taken together, this suggests that supervisors pay attention to more than just the employee’s level of performance when evaluating performance and making decisions that can potentially affect the organization’s long-term well-being. This all appears to be done in response to extra-organizational factors. Economic uncertainty may also affect the performance appraisal context, rates, and the accuracy of performance ratings in a more profound way. The uncertainty associated with the economy may actually reduce employee performance, such that the uncertainty itself may cause employees to decrease their performance. In a study of state government employees who experienced a furlough event (e.g., received a reduction in pay in exchange for unpaid days off), employee emotional exhaustion increased and employee job performance decreased as the furlough day approached (Halbesleben, Wheeler, & Paustian-Underdahl, 2013). Employee emotional exhaustion and job performance did not return to pre-furlough levels, even more than a week after the furlough. In a second study that focused on economic uncertainty on employee outcomes, high-performing employees were not only more likely to turnover after furloughs and mergers, but were also more likely to leave quicker than average or low performers (Wheeler, Halbesleben, & Paustian-Underdahl, 2013). These two aforementioned studies illustrate how external factors affect employee performance. In the case of the high performers leaving more quickly than low performers after a merger, is it likely that supervisors will attempt to forestall additional turnover by deflating the remaining employees’ performance ratings? Or, as in the case of emotionally exhausted employees working in a furlough environment, do supervisors mistake signs of employee burnout for poor performance, and then provide lower ratings for these employees than are actually merited, or as they would otherwise? Similarly, we expect industry effects to filter throughout the model presented in this chapter and ultimately affect the performance appraisal system and the accuracy of performance evaluations. Even though easily mimicked practices do not provide organizations with sustainable

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competitive advantages (Barney, 1991), organizations often find it difficult to ignore mechanisms that they perceive as being responsible for their competitors’ success (Fiol & O’Connor, 2003; Terlaak & King, 2007). Termed “bandwagon effects” (Fiol & O’Connor, 2003), organizations competing within the same market will sometimes adopt competitors’ practices as a means to negate any perceived advantage that the competition may have. For instance, Jack Welch is often credited with implementing a performance management practice, the forced distribution ranking system, at General Electric (G.E.) that many other organizations later implemented (Slater, 1998). Many large, publicly traded companies such as Enron (Gladwell, 2002), Microsoft (Buckingham, 2013), Yahoo (Bercovici, 2013), and pharmaceutical giant Pfizer (LaMattina, 2011) quickly followed suit and implemented this dubious performance management practice. In each case, the company failed to realize the gains that G.E. experienced, which were perceived to be associated with this practice. Enron’s implementation is often cited as key accelerant to the company’s unethical and illegal business practices (Gladwell, 2002). Microsoft recently abandoned the practice as employees complained that this type of performance appraisal system stifled innovation by pitting employees against each other, rather than fostering cooperation and collaboration (Buckingham, 2013). Yahoo, coming off of a change to its telecommuting policy, also implemented the forced distribution ranking system, and exacerbated a growing wave of employee discontent and turnover, which has threatened its position with competitors such as Amazon, Google, and Apple (Bercovici, 2013). Pfizer’s implementation of this practice has done little to create a culture of innovation and discovery, precisely at the time when Pfizer needed that type of culture to overcome the fiscal losses associated with its two biggest revenue producing drugs, Lipitor and Viagra, recently rolling off-patent and going into generic production (LaMattina, 2011). Interestingly, while these industry effects may start in a specific industry, they spread across industries. This typically occurs when companies, often looking for competitive advantages, benchmark their practices to those of organizations both inside and outside of their industries (Day, Armenakis, Feild, & Norris, 2012; McNamara, Haleblian, & Dykes, 2008). In many cases, these bandwagon industry effects begin in small organizations and then are scaled up within larger organizations (Terlaak & King, 2007). Regardless of the cause and source of the bandwagon industry effect, these effects also represent environmental factors that shape how organizational leaders establish or reinforce cultural norms. This should also extend to HRM systems and practices and ultimately to the accuracy of performance

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ratings. As with economic uncertainty, these bandwagon industry effects create norms for performance ratings that may be rooted in factors other than an employee’s actual performance. In the examples of organizations we have discussed above, forced distribution ranking systems conceptualize performance as a subjectively determined outcome. When supervisors have multiple good performers but can only rate a predetermined set as above average, nonperformance factors will be taken into consideration when performance ratings are rendered. These nonperformance factors may include variables such as the supervisor’s affect toward the subordinate being rated (Judge & Ferris, 1993). The decision then, comes down not to performance, but other various and idiosyncratic ratee and rater factors. In our model, as with the economic effects, bandwagon industry effects filter through the company culture and HRM practices to affect supervisors by motivating them to be either more or less accurate when providing performance evaluations for employees. The final extra-organizational factor that we propose affects the broader context of performance appraisal within any organization is the presence and nature of collective bargaining agreements. These effects are similar to bandwagon industry effects in that, especially in North America and Western Europe, union activity largely concentrates in specific industries (e.g., government, manufacturing, hospitals). Because many local labor unions operate as a local center for national or international labor unions, it is easier for bandwagon effects to spread from location to location. That is, the variance among different types of performance appraisal systems might be lower within industries with high levels of union involvement (Brown & Warren, 2011). Collective bargaining activity, however, differs from bandwagon industry effects in at least one important way. Collectively bargained agreements often define performance management in terms of seniority instead of performance (Verma, 2005). In fact, unionized workplaces often see less of a formal performance appraisal system than do non-unionized workplaces (Brown & Warren, 2011). This implies that organizational tenure signifies good performance, as a poor performing employee would have involuntarily turned over. The very notion of seniority-based promotions removes performance and performance ratings from those promotion decisions. Therefore, a supervisor’s motivation and ability to accurately rate the performance of an employee are both influenced by collectively bargained agreements. Taken together, this section leads us to the following conclusions about the influence of extra-organizational factors on top management teams, organizational environments, and HRM systems. National culture bounds

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HRM systems and the organizational culture relating to performance rating norms, as national cultures and laws, enacted to represent those cultures, influence the cultures of organizations operating within any given country. Industry effects also create normative pressures that influence performance appraisal systems and potentially rating accuracy. To this point, it appears that organizational culture varies more between industries than within industries, suggesting that an organization’s culture is at least somewhat constrained by environmental factors such as industry (Chatman & Jehn, 1994). These environment factors filter into organizations through top-management teams and affect the organization’s culture and HRM systems. For example, an organization with unionized employees may not be able to tie performance ratings to merit pay raises. As such, it appears that factors external to the organization can influence the performance appraisal system and supervisory performance ratings. This may occur by constraints being placed on the top management team, as well as by environmental factors affecting the organization’s culture and climate and HRM systems. These environmental effects should influence performance ratings in a trickle down fashion. Specifically, environmental factors will affect the organization’s culture and climate, HRM systems, and the top management team. These intermediate factors will affect more proximal aspects (e.g., rating purpose), which should have more direct effects on the raters providing performance evaluations and the accuracy of the ratings. As such, we posit the following: Proposition 1. The organizational environment has an indirect effect on performance ratings by more directly (a) influencing the organizational culture and climate, (b) driving the nature of HR systems, and (c) placing constraints on the top management team.

The Role of Top Management Teams in Establishing a Culture of Rating Accuracy We have outlined potential macro, or external factors, that set the broader context for understanding why performance ratings tend to be more or less accurate. These factors, whether economic, industry, or collective bargaining-based, exert pressures on organizations which ultimately affect how performance is assessed and what performance ratings are tied to. The factors influence the top decision-makers within organizations, as these are the employees tasked with managing an organization’s position within a

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market or industry. Given the operating question of this chapter why are supervisory performance evaluations of employees more accurate in some organizations than others our short response to that question is: Because that’s what the executives want and that is what is supported by the organization’s culture, climate, and HRM systems. While this response might appear simplistic, we summarize research suggesting that the answer to our question might in fact be explained by this rather simple approach. Longenecker and Gioia’s (1988) interviews with executives suggest that executives experience frustration with their own performance appraisals, citing problems such as poor execution and lack of useful feedback. Indeed, research in this area indicates that ratings of senior executives, while reflecting performance to some extent, also tend to be biased (Hutchison & Burch, 2011). While focusing on directors, rather than top management teams, research (Ingley & van der Walt, 2002) also indicates that the reason peer evaluations for board members are rare is due to politics, and the inherent social intricacies that are likely to result in some discomfort among the executives conducting these peer evaluations. If executives themselves have experienced performance rating contexts that they feel have been biased or useless, should we not expect them to translate their experiences into a culture of rating inaccuracy or indifference? In the present chapter, we suggest that these executives’ attitudes and experiences influence the organizational culture and climate, as well as the HRM systems in their organizations. Anecdotal evidence, in the form of interviews with managers and executives, conducted by Longenecker et al. (1987), suggests that executives affect raters’ perceptions regarding appropriate and effective ways to conduct performance appraisals. For instance, raters report that if higher-ups play games with the performance appraisal system, they will do the same, as it signals how things are done in the organization. Alternatively, if higher-ups take the process seriously, raters will also take the performance appraisal process seriously. Finally, empirical findings indicate that performance appraisal systems perceived as accurately capturing employee performance that is relevant for organizational success result in perceptions of trust in top management (Mayer & Davis, 1999). Many employees probably intuitively understand this set of summarized research, as they are likely to have experienced downward pressure from superiors from their companies to conform to executive expectations. Moreover, as executives express capriciousness or disdain about formal performance appraisal mechanisms, employees not only perceive cultural attributes about whether or not the company values accurate performance ratings, but employees

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also will role model their behavior after supervisors, as suggested by the interviews conducted by Longenecker et al. (1987). Taken together, this research suggests that the top management team’s effect on performance ratings, and the accuracy of those ratings, is carried through the organizational culture and climate created by the top management team as well as the HRM systems. Transformational leadership research often points to the role that top executives play in establishing an organization’s culture and subsequent policies and procedures implemented to formalize the culture (Bass & Bass, 2008). Interestingly, Halbesleben and Buckley’s (2009) theorizing around the effects of pluralistic ignorance on performance standards suggests that even if playing games with performance ratings is not the norm, it may nonetheless be perceived as being normative if there are vocal minorities who espouse this belief. As suggested by Halbesleben and Buckley (2009), this may potentially spread and ultimately affect performance ratings. Therefore, we predict the following: Proposition 2. The top management team has an indirect effect on performance ratings by more directly influencing the (a) organizational culture and climate and (b) HR systems.

The Role of Strategic HRM Systems in Carrying a Culture of Rating Accuracy Thus far, we have established that macro-environmental factors affect how key organizational decision-makers view the performance appraisal system as well as the extent to which they value performance rating accuracy in the more encompassing performance management process. These decisionmakers then implement policies and practices that are consistent with their views and values. Now an organization’s HRM systems come into play to further explain why some organizations have supervisors that provide more or less accurate ratings of employee performance. An organization’s HRM systems carry, or signal, its climate and culture (Schneider, 2000). If organizations value accountability, fairness, and sustaining and improving employee performance all outcomes we would expect from accurate performance ratings they will gear not just one single HRM function, like performance management, toward achieving those outcomes, but will integrate all HRM functions to achieve these outcomes. Integrating an organization’s HRM functions (e.g., recruiting, selection, compensation, performance management, training), and linking

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those integrated functions directly to the organization’s mission, is known as creating strategic high-performing work systems (HPWS, Huselid, 1995). For example, while this chapter focuses on a part of the performance management function performance ratings and performance appraisal accuracy that function directly ties to other HRM functions. Specifically, companies often use annual supervisory performance evaluations to determine employees’ merit or bonus pay increases (e.g., Heneman & Werner, 2005). Companies bundle HRM functions into HPWS in ways to specifically advance the company’s strategic goals (Lepak & Snell, 1999). These bundled HPWS can be structured in commitment or compliance-based ways (Lepak & Snell, 1999). Compliance-based HPWS focus on extracting employee performance at all cost. This is done through an emphasis on employee fit over KSAs, as well as the use of pay to exclusively reward or punish desired performance levels. Commitment-based HPWS, on the other hand, emphasize employee development, skill-based selection, merit compensation, and flexible job designs that foster employee commitment, job performance, and retention (Lepak & Snell, 2002). HPWS help organizations to attract, motivate, develop, and retain the unique human capital required for organizations to establish competitive advantages in their industries and markets (Huselid, 1995). Importantly, these unique HPWS create valuable and rare human capital that cannot be easily mimicked by other organizations or easily replaced by technological advancements (Barney, 1991). The hallmark of strategic HRM, as opposed to the traditional functional view of HRM, is the interdependence of the HRM functions. These serve to develop and reinforce (a) company sanctioned employee behaviors (Lado & Wilson, 1994), (b) strategically relevant employee KSAs (Cappelli & Singh, 1992), (c) strategically aligned employee expectations (Ostroff & Bowen, 2000), and (d) committed employees (Boxall, 1996). Essentially, an organization recruits, selects, and trains employees to ensure they possess specific KSAs and exhibit specific behaviors. These are then compensated and developed through performance feedback, helping the organization meet its mission, whether that mission is for profit or socially driven. For instance, Caterpillar, Inc., which designs and manufactures heavy equipment, values continuous improvement, specifically using the SixSigma framework (see Gillet, Fink, & Bevington, 2010). Caterpillar promotes its adherence to Six-Sigma principles when recruiting, and during the hiring process prefers applicants who possess continuous improvement and Six-Sigma backgrounds. Furthermore, the company operates “Caterpillar

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University,” intended to train employees, vendors, and customers on SixSigma principles (Caterpillar Inc., 2014). Moreover, Caterpillar links these Six-Sigma skills to differential skill-based compensation, as well as career and promotion opportunities for employees who continue to work on their continuous improvement skills. Similarly, Toyota integrated its HRM functions to develop HPWS around “lean” (Liker & Hoseus, 2008), while Google has implemented HPWS to enhance and reinforce employee KSAs related to innovation (Sullivan, 2013). If organizations align HPWS to support their mission and values, what should we make of organizations that allow for variability in the accuracy of performance ratings? If an organization values the positive outcomes associated with accurate performance ratings (e.g., legally defensible administrative decisions, clear connections between performance and pay raises), such as the ones resulting from commitment-based HPWS, we would expect to see that organizations develop a set of integrated HPWS around outcomes that help the organization meet its mission. That is, we would anticipate that organizations would provide training for raters, not just on the ins and outs of its performance management processes, but also on rating accuracy. Given the findings in the performance appraisal literature (e.g., Bernardin & Pence, 1980; Woehr & Huffcutt, 1994), organizations with HPWS using frame-of-reference training should be more effective in improving the accuracy of performance ratings than organizations using rater training focused on reducing rater errors (e.g., halo). We should also expect organizations valuing rating accuracy to assess the rater’s accuracy of subordinate performance ratings. Furthermore, this type of organization should be likely to incentivize rating accuracy, something that has been discussed by researchers (e.g., Mohrman & Lawler, 1983), but appears largely missing in organizations. One way organizations may be able to encourage rating accuracy may be through creating an organizational culture that supports accurate performance ratings. Given the arguments regarding the effects of pluralistic ignorance on rater’s performance standards presented by Halbesleben and Buckley (2009), it seems that pluralistic ignorance could potentially aide in creating this type of culture. Specifically, even if only a vocal minority espouses the importance and value of accurate performance ratings, raters may perceive that these are valued by organizational members and that rating accuracy is the norm. Alternatively, the organization could also choose to focus on establishing a culture of rating accuracy by implementing an integrated HRM infrastructure to support it. As the top levels of an organization establish an organization’s culture, they should also be able, and

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appear to be able (Longenecker et al., 1987), to establish norms surrounding performance appraisals. This may suggest that some organizations have more or less accurate performance ratings because that is what the culture and supporting HRM infrastructure develop and reward. Proposition 3. The organization’s HRM systems are reciprocally related to the organization’s culture and climate, such that these reinforce one another.

Organizational Culture, Climate, HRM Systems, and the Performance Appraisal Context Murphy and Cleveland (1995) have reviewed and discussed how intraorganizational factors, such as task characteristics and performance appraisal purpose (i.e., performance appraisal context factors) affect performance ratings. Moreover, Levy and Williams (2004) have provided a review of how social contextual factors, which are part of the broader performance appraisal context, influence performance appraisals. As depicted in Fig. 1, the performance appraisal context affects performance ratings through rater motivation (e.g., Cleveland & Murphy, 1992; Murphy, 2008). Here, we propose that the performance appraisal context, and thereby performance ratings and the accuracy of the performance ratings, are affected by the organization’s culture, climate, and HR systems. While it may not have been the explicit focus, a number of studies have informed our understanding regarding the relationship between an organization’s culture, climate, or HRM systems and the performance appraisal context. For example, Kozlowski, Chao, and Morrison’s (1998) findings suggest that the HRM systems related to the performance appraisal system influence the performance appraisal context. The data, from a military sample, indicate that raters provide high performance ratings for all employees to ensure that these employee’s careers are not negatively impacted, as ratings are tied to career progression. At the same time, raters intentionally alter the size of an employee’s comparison group, to send a signal about the employee’s promotion potential, as the size of the comparison group affects promotion decisions in the organization. This is consistent with findings that demonstrate different ratings as a result of rating purpose (e.g., Greguras, Robie, Schleicher, & Maynard, 2003). Together, these findings suggest that the manner in which an organization’s HRM systems are interrelated affects the performance appraisal context and

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performance ratings. Therefore, it is important to consider inter-related HRM systems (e.g., the pay system) when investigating the effects on the performance appraisal context on the rater’s motivation to provide accurate performance ratings and rating accuracy. Organizational culture and climate factors are also likely to affect the performance appraisal context. Again, while the effects of organizational culture or climate on the performance appraisal context were not the focus of the study, Wong and Kwong (2007) found that raters motivated to maintain group harmony generally provided inflated performance ratings. It appears that an organizational culture, for example one that emphasizes collaboration, is likely to tickle down to the performance appraisal context. More competitive organizational cultures, such as the one at G.E. under Jack Welch, for instance, also appear to affect the performance appraisal system as well as the context in which the performance appraisal process transpires. Unfortunately, limited research has explicitly focused on the effects of organizational culture and climate on the performance appraisal context. Here, we propose that the organizational culture, climate, and HRM systems will affect performance ratings through their effects on the performance appraisal context. Proposition 4. The organization’s (a) culture and climate and (b) HRM systems have indirect effects on performance ratings by more directly affecting the performance appraisal context.

NEW AND EMERGING TRENDS The Time Factor Time, which has received some research attention in performance appraisal literature, is likely to play a key factor in the performance appraisal context. For example, Reb and Cropanzano (2007) found that performance trends and variations in employee performance affect supervisory performance evaluations. Reb and Greguras (2010) also found that average performance and performance trends affect rater judgments of ratee ability and effort. These and other time-related factors may have an effect on the performance ratings supervisors provide for their employees. Therefore, it would be beneficial for future research to consider how time affects performance ratings, the performance appraisal context, and raters.

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Considering the factors discussed in the present chapter and depicted in Fig. 1, time is likely to affect various aspects of the model and therefore the accuracy of performance ratings. First, organizations can go through challenging or relatively prosperous economic times. These changing economic conditions may result in changes to the organizational culture and the manner in which an organization’s HRM systems are interconnected, affecting the context of performance appraisals. Another time-related factor that may be worthwhile investigating is the organization’s lifecycle. For example, performance ratings may be affected by how long the organization has been in existence. New startups, for example, may place a less emphasis on rating accuracy than well-established organizations. These and other time factors may potentially aide in improving our understanding of the performance appraisal process and performance rating accuracy.

Sources of Feedback Communication and Performance Information Another emerging trend is related to the increasingly common use of technology in organizations. Some research has been conducted on the medium through which performance ratings are conducted and the medium through which performance information is received by raters. With respect to peer ratings, empirical findings (Kurtzberg, Naquin, & Belkin, 2005) indicate that appraisals are more negative when using email versus more traditional paper-and-pencil appraisal formats. Specifically, Kurtzberg et al. (2005) found that negative evaluations, conveyed through email, reduced the raters’ feelings of social obligation. Interestingly, as the authors note, these findings are not necessarily consistent with theories suggesting that email and pencil-and-paper formats are identical in conveying information. Other studies have also found differences across electronic and paperand-pencil formats. In a quasi-experimental study that focused on electronic versus paper-and-pencil appraisal formats, Payne, Horner, Boswell, Schroeder, and Stine-Cheyne (2009) found considerable differences across these two formats. The investigation revealed that employees indicated greater rater accountability and participation with the online system. At the same time, however, employees reported lower levels of rating quality. These researchers also found that employees did not perceive differences in the utility of ratings or security of performance ratings. Finally, focusing on virtual employees, Golden, Barnes-Farrell, and Mascharka’s (2009) results indicate that employee performance information observed directly at work had a greater impact on performance ratings

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than information obtained virtually. Considering these studies in combination, the source of information and the communication medium appear to be factors in the performance appraisal context that affect performance ratings. As noted by Kurtzberg et al. (2005), some theories suggest that there should not be differences between the communication mediums; yet this is inconsistent with the findings of several studies. Research examining how these factors operate, in conjunction with other important contextual factors, is needed to provide a more holistic understanding of the effects of these factors on performance ratings. This is especially the case because organizations appear to be investing in electronic performance management systems (Lawler, Benson, & McDermott, 2012), potentially, without fully understanding all the intended and unintended consequences of these electronic performance management systems. Moreover, employees are increasingly able to work remotely by telecommuting, which may have implications for the way in which their performance is appraised. Furthermore, given the inter-related nature of HRM systems, these ratings, accurate or not, are likely to have implications for other important employee outcomes (e.g., pay raises and promotion decisions).

Calibration Meetings There is also a notable popular emerging trend in performance appraisal practice. This trend, and something that is being referred to as a best practice in performance management, is calibration meetings or sessions. Calibration meetings are generally held with managers responsible for rating performance, the executive(s) these managers report to, and an individual who serves as a facilitator, such as the head of human resources or an external consultant (Sammer, 2008). As the name implies, these meetings focus on standardizing performance ratings across raters, before performance ratings are finalized and administrative decisions are made. In these meetings, managers provide proposed performance ratings for their employees, along with rationale, followed by discussions, and possible changes in ratings to ensure consistency across performance ratings (Miller, 2011). The goal of these meetings is to ensure that evaluations are based on performance and that supervisors use consistent standards when evaluating employee performance, theoretically eliminating biases. Empirical research focusing on calibration meetings is practically nonexistent. The theoretical model presented in this chapter would suggest that these calibration meetings, if implemented by an organization, would be a

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part of the performance appraisal system and therefore a part of the performance appraisal context. To have a meaningful effect on performance rating accuracy, calibration meetings would have to be supported by top management, inter-related HRM systems, and the organizational culture. If an organization is willing to allocate the necessary time and resources to employee performance evaluations, perhaps these meetings are a step in the right direction, and may result in the improved accuracy of supervisory performance evaluations. However, calibration meetings appear to be focused on improving the raters’ ability to provide accurate performance ratings, as managers are given the opportunity to discuss the ratings they provided for their employees along with the reasons for providing them. It is reasonable to focus on standardization of ratings across supervisors, such that employees and their careers are not negatively affected by having less lenient supervisors, for example. Given the history of performance appraisal research in the human resources management literature, however, it is unlikely that calibration meetings represent a viable solution to inaccurate performance ratings. This is because calibration meetings, while intended to minimize biases, appear centered around the idea that managers have the motivation to provide accurate performance and disclose unbiased performance information to provide evidence for the performance ratings they intend to provide for their employees. Given the importance of rater goals and motivation (e.g., Mohrman & Lawler, 1983; Murphy & Cleveland, 1995; Wong & Kwong, 2007), calibration meetings may not result in improved accuracy of performance evaluations. Furthermore, if these meetings are more focused on rater errors than creating shared schemas regarding performance standards, they may not improve performance appraisal accuracy. Theoretical and empirical research on calibration meetings is needed before any conclusions can be made or recommendations can be provided to practitioners.

Practical and Theoretical Implications In the present chapter, we proposed a dynamic, multilevel model that attempts to answer why performance ratings are inaccurate. As seen in Fig. 1, we theorize that top management teams establish idiosyncratic organizational cultures. The top management team is also responsible for building integrated strategic HRM systems to support the organizational culture. The organizational culture then affects and is affected by the HRM system, such that these are mutually reinforcing. These three factors

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(i.e., the top management team, organizational culture, and HRM systems) combine to emphasize and place value on accurate performance ratings or suggest that managers use the performance appraisal system to accomplish personal goals. It is in this environment that supervisors will need to evaluate the performance of subordinates. We propose that a supervisor’s motives to provide accurate versus inflated for deflated performance ratings, will in part align with the company’s culture and what the top management team and integrated HRM systems encourage. That is, we argue that a supervisor will provide more or less accurate ratings of subordinate performance because the company will value and reward more or less accurate evaluations of employee performance. To provide theoretical rationale and propositions, we have drawn on extant research. It is our hope that these relatively broad propositions will be developed into hypotheses by researchers and tested in future studies. The holistic approach we have taken may provide some insights as to how the more distal factors proposed to affect performance ratings (e.g., Murphy & Cleveland, 1995) operate to affect the performance appraisal context, the rater, and ultimately the accuracy of performance ratings. Specifically, we suggest that the effects of the distal, both extra-organizational and intra-organizational factors, affect performance ratings through mediating mechanisms. These mediating mechanisms include the top management team, the organization’s culture and HRM systems. These factors have been proposed to affect the performance appraisal context, which has been shown to influence the rater, and ultimately rating accuracy (e.g., Spence & Keeping, 2010). In the present chapter, we have also identified a number of new and emerging trends in performance appraisal research as well as performance appraisal practice. One of these is a time factor. Researchers have focused on time, both in terms of changes in employee performance as well as performance appraisal factors, such as the frequency of performance ratings. Other time factors, however, may also be important. We have discussed a number of time factors that may affect various aspects of the model, and therefore the accuracy of performance ratings. Future research, both theoretical and empirical, focusing on how time factors affect performance ratings can provide important contributions to our understanding of how time affects both distal and proximal performance appraisal factors, the rater, and ultimately the accuracy of performance ratings. Another important trend appears to be the manner in which performance information is conveyed and how the evaluations and feedback are communicated to employees. The findings of a number of studies indicate

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that both the way in which performance information is obtained as well as the medium of evaluation communication (i.e., electronically versus in person), affect the ratings that are rendered. Little is known about how these factors operate in conjunction with other performance appraisal factors (e.g., rating norms). As performance ratings are tied to important employee outcomes, such as pay raises and promotion decisions, it is critical to understand how these factors affect supervisory performance appraisals. This type of research is especially relevant at the present time for two reasons. First, organizations have employees who telecommute. Second, many organizations either have an electronic performance management system in place or appear to be moving toward electronic performance management systems (Lawler et al., 2012). The final trend we identified, one that appears prevalent in performance appraisal practice, is calibration meetings. As discussed, calibration meetings are intended to provide standardization for employee performance ratings across supervisors. We acknowledge that organizations ensuring that supervisors are part of calibration meetings are placing some value on accurate performance ratings and may be signaling that rating accuracy is something that is valued by the organization. Much like frame-of-reference training, we believe that these meetings can have positive effects on the accuracy of supervisory performance evaluations. These positive effects should occur by ensuring that raters have a shared understanding of what constitutes high versus average versus low performance. At the same time, however, calibration meetings are unlikely to be a solution to inaccurate performance ratings. This is because they are largely focused on rater ability, neglecting the rater’s motivation to provide accurate versus inaccurate performance ratings. While calibration meetings are being recommended by consulting firms, no research we are aware of has actually focused on these types of meetings or their effects on performance ratings. Therefore, studies investigating calibration meetings and their effects are needed before any conclusions can be made.

CONCLUSION The multi-level model presented in the present chapter explicates causal mechanisms connecting distal factors to the performance appraisal context, raters, and ultimately the accuracy of performance ratings. Relevant current and emerging trends in performance appraisal research and practice

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are then considered in light of the proposed model. We know that organizations spend a considerable amount of resources on conducting annual performance appraisals (Sullivan, 2011). We also know that HRM systems are interconnected and that the ratings provided by supervisors can have serious implications for employees and organizations. Given the importance of performance appraisals, it is important to understand how these distal factors affect ratings through more proximal factors. Studies examining these issues are needed to move performance appraisal research and practice forward.

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TOWARD THE PATTERNORIENTED APPROACH TO RESEARCH IN HUMAN RESOURCES MANAGEMENT: A REVIEW OF CONFIGURATIONAL AND CATEGORY THEORIZING, METHODS, AND APPLICATIONS Alexandra E. MacDougall, John E. Baur, Milorad M. Novicevic and M. Ronald Buckley ABSTRACT On many occasions, organizational science research has been referred to as fragmented and disjointed, resulting in a literature that is, in the opinion of many, difficult to navigate and comprehend. One potential explanation is that scholars have failed to comprehend that organizations are complex and intricate systems. In order to move us past this morass, we recommend that researchers extend beyond traditional rational, mechanistic, and variable-centered approaches to research and integrate a more advantageous pattern-oriented approach within their research program.

Research in Personnel and Human Resources Management, Volume 32, 177 240 Copyright r 2014 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 0742-7301/doi:10.1108/S0742-730120140000032004

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Pattern-oriented methods approximate real-life phenomena by adopting a holistic, integrative approach to research wherein individual- and organizational-systems are viewed as non-decomposable organized wholes. We argue that the pattern-oriented approach has the potential to overcome a number of breakdowns faced by alternate approaches, while offering a novel and more representative lens from which to view organizational- and HRM-related issues. The proposed incorporation of the pattern-oriented approach is framed within a review and evaluation of current approaches to organizational research and is supplemented with a discussion of methodological and theoretical implications as well as potential applications of the pattern-oriented approach. Keywords: Pattern approach; latent analysis; categories research; configurational theorizing; typology construction

More than half a century ago, Boulding (1956) observed “the increasing difficulty of profitable talk among scientists as a whole” (p. 198). This difficulty, according to Boulding (1956), was attributable to specialization that influenced specialist groups to become more isolated and fail to communicate alternative research approaches to one another. Nearly sixty years later, most research in management and organizational studies has remained primarily variable-focused (Ferris, Hochwarter, & Buckley, 2012), dealing with the repackaging or relabeling of previously established constructs (Colquitt & Zapata-Phelan, 2007) through construct proliferation (Ferris et al., 2012). Given this one-sidedness, it is our imperative to use an alternative, yet complementary pattern-oriented approach as to facilitate true knowledge acquisition and transmission within our field. The excessive focus on the variable-based approach stems from a common goal within the community of organizational researchers to both build and test new theory (e.g., Colquitt & Zapata-Phelan, 2007). Although there are a number of different approaches to conceptualizing theory and determining what warrants a significant contribution to the empirical literature, the dominant approach to management and organizational research favors the examination of cause-and-effect relationships among constructs of interest. However, this conceptualization of theory carries with it inherent challenges because viewing theory as simply the relationship between independent and dependent variables can neglect influences stemming from the interrelationship among the many

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interdependent constructs associated with the phenomenon under investigation. As a result, conducting research in this way may yield an oversimplified conceptualization of the constructs that are examined. By drawing analogy to statistical terminology, we may argue that such approaches may yield under-identified or underdetermined models in that they may not sufficiently explain outcomes of interest. On the contrary, the pattern-oriented approach is grounded in configurational theorizing. Configurational theorizing posits that the notion of configuration, as the patterned composition of dynamically-interrelated parts and elements, is crucial for the design of effective management functions (e.g., human resources management (HRM)) and their optimal integration into the multi-level design of organizations as multifaceted complex systems (Payne, 2006). Configurations vary in the extent of their structural homogeneity “both ‘internal’ among organizational attributes within a configuration, and ‘external’ among configurations under the same conditions (or equifinality) as an organizational property that can be distinctively studied by CA” (i.e., configurational analysis of structural homogeneity) (Grandori & Furnari, 2013, p. 77). Thus, while the variablebased approach is focused on dimensions of a function of an organization, the pattern-oriented approach is focused on typological configurations of its attributes or practices. When these attributes are complementary and fit in a coherent and systematic way, the effectiveness of the function or the organization is likely to be the highest. The current state of affairs in our field would benefit from promoting the pattern-oriented approach that would provide greater clarity of our research, and help us to advance the extant research practices. The scarcity of pattern-oriented approach has had a negative impact on our field in the following three ways. First, it has contributed to the fragmentation of literature and the related breakdown in communication among the variety of subfields in psychology, management, and neighboring disciplines (Bergman & Magnusson, 1997), which all have exported their constructs, theories, and methods without examined patterns to the domain of management and organizational research. Accordingly, researchers should strive to identify different patterns that would open communication both within and between sub-disciplines, not only to mitigate specialization, but also to foster a greater extent of knowledge transmission through more integrated, interdisciplinary work where possible. Second, this would prevent an oversimplification of theory and viewpoints on management and organizational functioning perhaps due to differing conceptualizations of the related phenomena. Without considering the many nuances associated

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with the patterned nature of events, researchers do not capture a holistic perspective (e.g., Magnusson, 2003) of management functions and organizations and as a result might miss important and interesting phenomena. Third, rather than searching for incremental advancements within such a holistic framework, theorists are frequently pressured to producing groundbreaking research using the variable-based approach. This, in turn, may result in theory obstruction rather than clarification (Ferris et al., 2012), whereas incremental developments to preexisting theory may serve to both clarify and extend our understanding of organizational phenomena within the context of related constructs. These three aspects may have reciprocal roots at the field- and study-level. For instance, field norms dictate what is deemed a significant contribution in terms of publication practices, thus guiding scholars in their research endeavors. Conversely, fragmentation at the study level likely contributes to a fragmented literature, suggesting that one must first examine the structure of individual studies before a full assessment can be made of the overarching literature. The purpose of this paper is thus to begin addressing the issues associated with the “broken” organizational research system through a bottom-up approach. Specifically, we advocate a wider integration of the pattern-oriented approach into the research conducted in the area of management and organizations. While this approach has garnered modestly increased attention over the last decade (Foti, Thompson, & Allgood, 2011), the prevailing paradigm still favors a variable-centric approach to research (e.g., Weiss & Rupp, 2011a). The outcome of an overreliance on variable-centered methods has contributed rare use in leading journals of complementary patterned, or configural, techniques. This is unfortunate because patterns have been touted as providing “a dynamic system of interwoven components” that combine to provide a holistic perspective of the properties characterizing management and organizational systems (Bergman & Andersson, 2010, p. 155). Further, rather than focusing on isolated constructs, which is common practice in variable-oriented methods, the pattern-oriented approach focuses on a multidimensional, integrated whole that consists of complex and interdependent cause-and-effect relationships (Fiss, 2011). In this way, the configural perspective has the potential to provide a more realistic framework from which scholars can view and study management and organizational phenomena. Accordingly, through this chapter, we hope to shed light on new ways of performing management functions and on a “new form of organizing” (Puranam, Alexy, & Reitzig, 2014) as it relates to research that is based on novel configurational techniques for doing so.

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To this end, we first review the current state of the literature and varying perspectives surrounding the nature of organizations to identify the paths to examining management in general and human resource management in particular. Second, we review current approaches to organizational research and evaluate such approaches with regard to their practicality and applicability to organizational behavior and human resource management. In doing so, distinctions are made between the more traditional variablecentered approach and the pattern-oriented approach, and the respective utility of each is discussed. Third, we address the methodological and theoretical implications which correspond to pattern-oriented methodology, including a discussion of various approaches to pattern-oriented research as well as recommendations for those engaged in configurational thinking. Finally, we outline how adopting a pattern-oriented approach to organizational research may facilitate a more integrative and holistic understanding of organizational occurrences. In doing so, we offer a number of fruitful research avenues applicable to patterned, or configural, research.

THE NATURE OF ORGANIZATIONS Part of the difficulty in both conducting and navigating organizational research might result from the many conceptualizations of organizations. Daft and Weick (1984) note that “any approach to the study of organizations is built on specific assumptions about the nature of organizations and how they are designed to function” (p. 285). It is thus essential to first understand the current state of organizations, as well as the differing views of organizations, prior to conducting research in this domain. This task can, at times, prove difficult given the changing nature of organizations, particularly as they evolve into increasingly complex entities (CzarniawskaJoerges, 1989). Indeed, organizations have recently been characterized as having “rapid change, high volumes of information, high levels of uncertainty, increasing interrelatedness of parts within the system, diverse assumptions and perspectives, and continuous new information driving changes in [their] fundamental structure” (Takeda & Helms, 2006, p. 206). In their chapter discussing configurational analysis and organizational design, Grandori and Furnari (2013) speak to the many ways in which organizations operate and are understood vis-a`-vis configurational thinking. Specifically, Grandori and Furnari (2013) offer a typological framework for understanding organizational configurationism based in internal

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and external structural heterogeneity considerations. Through this lens, configurational theories are understood as varying in their complexity to the extent that they account for heterogeneity (1) among attributes within a given organizational configuration (internal structural heterogeneity), and (2) among configurations deemed effective under the same contingencies or conditions (external structural heterogeneity) (Grandori & Furnari, 2013). When organization theories assume both internal and external structural homogeneity, they tend to adopt a “one best way” viewpoint, qualifying as a simplistic approach to configurational theorizing. Conversely, when organization theories account for heterogeneity at both the internal and external level, they offer the most complex and novel theoretical perspective, most closely approximating organizational reality. Despite the complex characteristics of today’s organizations, researchers vary in their views concerning the nature of organizations (Kilmann, 1989b). As previously noted, differing viewpoints range in terms of their complexity. This can sometimes lead researchers to incidentally neglect important organizational phenomena within their theories. For example, the contrasting perspectives in conceptualizing organizations as either rational or natural systems has been suggested to potentially stem from the background and experience of the scholars (Lawrence & Lorsch, 1967). In this way, a training discrepancy arises such that some individuals are trained to adopt certain worldviews within their research whereas others are trained to adopt diverging worldviews, thus resulting in the application of correspondingly different research methods. An alternate explanation for the adoption of these differing worldviews is the incentivizing effects of publications and, potentially, academic tenure. As will later be discussed, certain worldviews lend themselves to more simplistic methodological approaches which may be appealing for those individuals seeking to publish at an expedited rate. Further, Scott and Davis (2007) suggested that the types of organizations examined may provide an alternative explanation for research findings such that the examination of only certain types of organizations produce results that do not generalize to all organizations and may therefore muddy the interpretation of the results. Kilmann (1989b) identified three differing worldviews that researchers adopt in organizational investigations including (1) the simple machine or rational system and its subsequently developed criticism the natural or organistic system, (2) the open systems approach, and (3) the complex hologram. The aforementioned typology introduced by Grandori and Furnari (2013) provides a useful foundation for contextualizing the subsequent discussion. Applied to this

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typology, the simple machine or rational perspective characterizes the most simplistic category of organizational theory. Conversely, the complex hologram characterizes the most complex form of theorizing with the greatest probability of yielding high-performing organizational configurations with respect to market-like, bureaucratic, and communitarian organizational elements (Grandori & Furnari, 2013). The natural or organistic system and open systems perspectives fall between these two extremes in that they may account for some form of structural heterogeneity, whether internal or external. According to Grandori and Furnari (2013), most configurational theorizing to date has been conducted in accordance with such perspectives in that an internally heterogeneous configuration is specified with regard to a particular configuration, or multiple internally homogeneous configurations are theorized as effective under the same conditions. Although Kilmann’s (1989b) perspectives are useful in guiding our thinking about organizational functioning, it is of note that they are not all-encompassing in explaining the nature of organizations or organizational research. In fact, gray area exists among such worldviews where approaches are adopted typifying aspects of more than one perspective. Similarly, where research is conducted in accordance with a worldview that does not match the complexity associated with the organization or topic of interest, meaningful information may be lost or misrepresented in the literature (e.g., Bergman & Vargha, 2013), perhaps contributing to the fragmentation issue.

Simple Machine According to Kilmann (1989b), the simple machine or the rational system perspective is the most basic of the three worldviews. This worldview relates organizations to closed-systems of functioning, thus generally neglecting consideration of the environment (Pondy & Mitroff, 1979). In particular, the simple machine worldview treats organizations as a machinelike mechanism, wherein problems can be identified and solved via single efforts of change, analogous to replacing malfunctioning parts within a machine (Kilmann, 1989b; Takeda & Helms, 2006). Therefore, the consideration of such a perspective as one of rationality is assessed under the more narrow sense that includes functional or technical rationality and is centered on the construction of the organization in such a way so as to accomplish preset goals while maximizing efficiency and focusing on the optimization, control, and coordination of tasks (Mannheim, 1950; Scott & Davis, 2007).

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More specifically, Kilmann (1989a) articulates that a simple machine is characterized by one-dimensional thinking and that it is both self-contained and self-maintaining. Therefore, in comparing organizational systems to locations on a map, Kilmann (1989a) contends that the simple machine approach would assess various towns and cities in isolation of one another, without consideration of their external environment. The rational perspective provides a mechanical model which conceptualizes organizations as a system of parts which can be manipulated to increase efficiency (Gouldner, 1959) and focuses on the importance of goal specificity and formalization. The use of specific goals addresses several organizational concerns which, as Scott and Davis (2007) note, include: (1) objective means for selecting among several alternative actions, (2) how the organization should be structured, (3) what the tasks are that should be performed, (4) what types of job candidates should be selected, and (5) how resources should be allocated. Likewise the formalization of the organization is considered a given in the rational perspective such that rules and roles are explicitly made clear which standardizes the work as well as creates standardized expectations of each employee’s behavior (Simon, 1997). In this way, then, the rational perspective seeks to examine the organization without consideration for the individual employees and therefore reduces the need to select high-level employees with leadership qualities or certain personality traits (Scott & Davis, 2007). Instead, what are considered as individual abilities such as leadership and innovation become routinized through the establishment of organizational structure (Galbraith, 1967; Schumpeter, 1947). There are several important early schools of thought that helped to push the rational system into the forefront of management research. Fredrick Taylor’s (1911) scientific management and the work by his successors the Gilbreths, Gantt, and Bedeaux, sought to analyze and standardize tasks in order to reach maximum efficiency. While Taylor focused on the tasks of the employees, Henri Fayol focused on the functions of management in a top-down approach that centered on the activities of coordination and specialization (Massie, 1965; Scott & Davis, 2007). Likewise, Max Weber’s exploration into the characteristics of Western society in his theory of bureaucracy (1968 trans.) identified three distinct forms of authority traditional, rational-legal, and charismatic, that each had a distinctive administrative structure (Bendix, 1960; Swedberg, 1998). Finally, in his theory of administrative behavior, Herbert Simon sought to identify how goal specificity and formalization can benefit organizations in part by reducing the number of tolerated ends to decisions thereby directing action

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(March & Simon, 1958; Simon, 1997). In doing so, Simon’s creation of bounded rationality is used to explain that individuals make decisions under a set of givens due to a cognitive inability to process all information and having specific goals and a formalized organizational structure allows for more givens to be added into the equation and therefore a more informed decision can be made that will satisfice the general expectations (Simon, 1997). Although the simple machine worldview may at times have merit, it typically fails to offer much utility in the organizational sciences. As noted by, Kilmann (1989a), the simple machine is already outdated despite being overwhelmingly favored in practice by managers. It is worth noting, however, that in certain instances, where examination of simple relationships in isolation of other organizational occurrences is of key concern, the simple machine may prove favorable. Nonetheless, on a large-scale basis, researchers should be directed away from the treatment and conceptualization of organizations as simple machines. The criticisms of strict formalization have lead scholars to suggest it is too rigid and inept and some have even suggested that “formality is all a fraud” (Stinchcombe, 2001, p. 1). Thus, while the simple machine perspective provides clarity and structure with regard to specific organizational constructs being investigated and practically implemented, it does so at the cost of subjective evaluation and the consideration of complex webs of relationships. As a response to the shortcomings of the simple machine view in the rational perspective, critics advanced an alternative view for natural systems. The natural view is premised in part in early institutional theory such as Herbert Spencer’s organistic approach (Scott, 2014). Spencer (1876, 1896, 1910) attested that society as a whole is best understood as a dynamic organic system composed of functional “organs,” or institutional subsystems (Scott, 2014). Extended to the organizational context, the primary advance in the natural system was to consider the impact of the employees as individuals and even more so through social networks and conduct (Blau, 1956, 1964). Employees are more than just a resource to be used but bring their own motives, goals, and expectations when joining an organization. Further, through power, political skill, and influence tactics, informal structures are created which can supersede the formalized structure that is central to the rational view. Therefore, organizations are considered primarily as collectives of individual employees that seek to adapt and survive (Scott & Davis, 2007). In this way, then, organizations are not able to merely pursue goals that maximize efficiency, but also must have goals that maintain and support themselves (Gross, 1968; Perrow, 1970). Early advocates of the natural view of organizations include the work done by Mayo

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with the Hawthorne Studies and the human relations perspective (e.g., Mayo, 1945; Roethlisberger & Dickson, 1939), Chester Barnard’s cooperative system (1938), and Philip Selznick’s institutional approach (1949, 1952, 1957, 1996).

Open Systems Approach Kilmann’s (1989b) second worldview is termed the open systems approach. Conceptualized as more intricate than the simple machine, open systems involves the adoption of an integrated approach to organizations (Takeda & Helms, 2006). In particular, Kilmann (1989b) suggests that the open systems approach is more interdependent than that of the simple machine. Indeed, this method views the organization and the environment as both containing a variety of systems which must simultaneously be balanced as to better manage the organization (Kilmann, 1989a, 1989b). In assuming an open systems approach, one is able to better integrate outside, environmental information within the organization (Daft & Weick, 1984; Pondy & Mitroff, 1979), while facilitating consideration of nested systems within the organization itself (Daft & Weick, 1984). In this way, it is clear that open systems theory offers a more comprehensive framework from which to study organizations than does the simple machine approach. The inclusion of the environment is of stark contrast to the rational view such that open system scholars recognized that no organization is self-sufficient but rather they must rely and depend on other agents to acquire needed resources (Pfeffer & Salancik, 1978). Therefore, the exchanges that organizations and environmental actors partake in are essential to the viability of the organization in the open systems approach (Buckley, 1967). Further, while the interdependence found in organizations according to the rational view are limited and constrained due to the rigidity of the organizational structure, in the open systems perspective it is less constrained and more flexible such that the focus is on more complex and loosely coupled organizational systems (Ashby, 1968; Scott & Davis, 2007). Also, in contrast to the rational view’s focus on goal specificity and preset rules to help guide action, open systems scholars have noted that there is frequently a weak connection or gap between the espoused and enacted goals and behaviors (Brunson, 1989; March & Olsen, 1976; Pfeffer & Sutton, 2000). While the open systems view of organizations is newer than the rational and natural perspectives, it has garnered the attention and support of many scholars. Some of the key directions focus on systems

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design (e.g., Huber & Glick, 1993; Khandwalla, 1974; Mintzberg, 1979), contingency theory (Lawrence & Lorsch, 1967), and the social psychology model of organizing (Weick, 1969, 1995). Kilmann (1989a) refers to the open systems approach as occurring at the surface level and thus being two-dimensional. In again drawing an analogy to a map, open systems theory allows for interrelationships among locations, but does not consider a great deal of depth associated with such relationships (Kilmann, 1989a). Instead, this approach tends to focus on easily observable and measurable occurrences. Despite the more integrative nature of open systems, it is still viewed as a limiting approach in that it tends to focus researchers’ attention on models of interest while often neglecting consideration of the broader empirical space or competing models (Pondy & Mitroff, 1979). For instance, while open systems theory attends to the interactive effects of factors both internal and external to the organization, it does not heavily emphasize how such relationships fit within the organizational entity as a whole.

Complex Hologram The complex hologram is advocated as the most sophisticated and complicated worldview surrounding organizational research (Kilmann, 1989b), as it typifies a holistic-interactionistic perspective to research (e.g., Bergman & Magnusson, 1997; Magnusson, 2003; Magnusson & Allen, 1983). This approach is often utilized as a means to better understand and manage the complexity typical of organizations (Takeda & Helms, 2006). Despite focusing on smaller units within the whole, the complex hologram places such work within a more holistic perspective (Mitroff, Mason, & Pearson, 1994), enabling researchers to consider the “systems of collective action” (Czarniawska-Joerges, 1989, p. 12). In doing so, an emphasis is placed on the interaction among various smaller parts, or systems, within the whole as well as how they fit together to make the whole. In this way, the complex hologram provides greater depth and breadth to both the organization and larger environment it is a part of (Takeda & Helms, 2006). This holistic approach adopts a three-dimensional perspective, attempting to understand various aspects within the organization as well as their interrelationships (Czarniawska-Joerges, 1989; Takeda & Helms, 2006). Specifically, it assumes that organizations are dynamic with nonlinear, interdependent functions such that they transform, adapt, and integrate various processes on a constant basis (Magnusson, 2003). According to

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Kilmann (1989a), the complex hologram adds a depth component to open systems theory, enabling researchers to better understand deeper aspects of organizational life that are less easily observed and measured. In referring again to a map analogy, Kilmann (1989a) suggests that the complex hologram would therefore require the use of X-rays and sonar. An alternate example of a complex hologram is the human physiology, characterized by an infinite number of interacting components at a variety of levels both internal and external to the individual. Just as various anatomical systems must work together to support human life, organizational subsystems must work together to ensure successful organizational functioning. As noted by Magnusson (2003), in adopting the integrated, holisticinteractionistic perspective, we assume that various processes “proceed and develop as irreducible wholes and cannot be decomposed into or understood as independent components” (p. 10). Therefore, in attempts to study and intervene within organizations, we should recognize how various systems influence one another and refrain from treating such systems as independent entities. As such, researchers should adopt the complex hologram perspective which will enable us to better capture the varying perspectives and changing nature of organizations (Czarniawska-Joerges, 1989). Indeed, the complex hologram is touted as being the most practical and compelling approach to organizational research (Takeda & Helms, 2006), namely as a result of its emphasis on the system as a whole rather than isolated details (Mitroff et al., 1994).

CURRENT APPROACHES TO ORGANIZATIONAL RESEARCH Given the wide variety in views of organizations, researchers have adopted a number of different approaches to studying organizational phenomena, and more specifically human resources management, ranging from the mechanistic approach, to the rational approach, the variable-centered approach, and the pattern-oriented approaches. Similar to the range in viewpoints surrounding the nature and functioning of organizations, approaches to studying organizations and HRM differ with regard to complexity as well. Whereas some approaches reflect a more simplistic model, others seek to capture more complex and integrative relationships. Accordingly, the following review seeks to (1) provide an overview of the various approaches currently implemented within organizational research,

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(2) identify basic assumptions surrounding such approaches, and (3) highlight both strengths and weaknesses associated with each method.

Mechanistic Approach Mechanistic approaches explain phenomena by analyzing and uncovering their internal causal structure (Chater & Oaksford, 1999) without insight into the structure of the external environment (Sakamoto, Jones, & Love, 2008). The mechanistic perspective is premised in scientific management, wherein employees are treated as smaller units or parts within a larger organizational machine (Stewart & Carson, 1997). The mechanistic approach is thus fitting for studies within traditional, hierarchical organizational structures but may not be adequate in explaining the more contemporary, ever-changing nature of work (Stewart & Carson, 1997). Applied to the HRM context, the mechanistic approach assumes that organizations influence employee behavior by “focusing on training and motivating employees and providing them with shared values and norms” (Homburg & Furst, 2005, p. 96). In particular, organizational guidelines, also referred to as standard operating procedures, are believed to guide individual cognition and behavior (Homburg & Furst, 2005). In this way, it is understood within the mechanistic approach that certain organizational constructs have the potential to influence alternate constructs of interest within organizations. However, by neglecting to consider the structure of the environment, mechanistic analyses focus on “an assortment of apparently arbitrary mechanisms, subject to equally capricious limitations, with no apparent rationale or purpose” (Chater & Oaksford, 1999, p. 58). By adopting a mechanistic approach, researchers are most closely placing organizations within the simple machine perspective. This is particularly evident given the lack of attention to environmental considerations and the objectification of work. Furthermore, although causal relationships are of key concern, the configuration of causal mechanisms is generally viewed as arbitrary (Anderson, 1991a) and examined in isolation of alternate causal relationships. Accordingly, while the mechanistic approach is essential and immensely valuable when concerned with specific causal relationships, it also has a number of deficits. First, as previously noted, mechanistic analyses do not consider the role of the environment as an influencing process. As a result, when the environment has a significant role in predicting organizational functioning, it is left unaccounted for when the mechanistic approach is adopted (e.g., Anderson, 1991a;

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Sakamoto et al., 2008). Second, because different mechanisms have the potential to lead to the same outcomes (Sakamoto et al., 2008), and given that the mechanistic approach assumes any combination of mechanisms to be essentially equivalent (Anderson, 1991a), identifiability problems exist such that different combinations of mechanisms can produce the same outcomes. Lastly, as noted by Sakamoto et al. (2008), mechanistic approaches often yield ad hoc explanations rather than working from a priori hypotheses, thus potentially reducing elegance and clarity of study findings.

Rational Approach The rational approach is a problem-based method that seeks to optimize a “cost function” based on characteristics of the environment (Sakamoto et al., 2008). The rational approach is thus termed for its emphasis on a mathematically motivated solution to the problem at hand. Specifically, rational analyses are “efforts to explain the behavior in some domain on the assumption that the behavior is optimized with respect to some criteria of adaptive importance” (Anderson, 1991a, p. 409). Adopting a rational approach involves an attempt to better understand desired behavioral outcomes within the context of a specific environment (Sakamoto et al., 2008). In particular, the rational approach seeks to (1) provide the purposive explanation, or goal system, driving an individual’s cognitive processes (Chater & Oaksford, 1999), (2) identify the structure of the environment (Anderson, 1990), and (3) specify constraints made on the system (Chater, 2009). Based on this process, the rational approach provides predictions concerning the most optimal behavior under specific circumstances. Because the rational approach assumes that people adapt and learn on an individual level based on the nature of the environment (Sakamoto et al., 2008), approaching research in this manner seemingly frames organizations as open systems. On the other hand, the rational approach does not emphasize interrelatedness or complexity surrounding internal organizational occurrences, thus simultaneously framing organizations as simple machines and implying that gray area exists with regard to Kilmann’s (1989a, 1989b) organizational worldviews. Taken together, a number of strengths and weaknesses can be identified with regard to the rational approach, particularly as it relates to the mechanistic approach. For example, where the mechanistic approach does not account for environmental influences, it is perhaps the defining factor of rational analyses (e.g., Anderson, 1991a, 1991b). As noted by Graetz and Smith (2010),

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the rational approach “concerns the alignment between an organization’s composition, competencies and state over time, and its environmental context” (p. 141) thus accounting for a wider range of influences as compared to the mechanistic philosophy. Similarly, whereas the mechanistic approach provides information concerning internal causal structure, it lacks “purposive explanation” from the external world which is afforded by rational analysis (Chater & Oaksford, 1999) as it holds as an underlying assumption that organizations are purposeful as well as adaptive and can thus be explained in a rational and linear fashion (Graetz & Smith, 2010). Nonetheless, the rational approach fails to identify interrelationships among constructs and to integrate the constantly evolving nature of the organization and broader environment as influencing both individual and organizational functioning. For example, one criticism of the rational approach is that it searches for rational solutions to specific problems rather than accounting for complexities within the environment and offering an integrated or dynamic solution (Chater, 2009). Therefore, while a solution is derived for a specific occasion, if the scenario changes so too must the solution. Thus, rather than providing a comprehensive model of problem solutions, a number of differing scenarios and solutions are examined in isolation, perhaps contributing to the aforementioned fragmented literature. In addition, rational approaches have been criticized for focusing over extensively on environmental influences while disregarding specific underlying processes characteristic in mechanistic approaches (Anderson, 1991a). Graetz and Smith (2010) support this contention in stating that rational methods ignore distinctive and important information which influences organizational outcomes. Among the information being disregarded in the rational approach is the human factor, and people are treated much more like objects than they are as active agents. This is particularly problematic for research in HRM, where the focus is on this human factor. Thus, rational models may not provide a complete lens from which to understand HRM as well as broader organizational functioning (Graetz & Smith, 2010). In fact, rational explanations have been referred to as abstract “just-so stories” which are formulated only after underlying behavioral findings have been elucidated (Sakamoto et al., 2008) and, therefore, may lack in providing new theory development when not coupled with mechanistic approaches.

Variable-Centered Approach As the most dominant and applied approach to organizational research (Bergman & Magnusson, 1997; Bergman & Andersson, 2010), the

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variable-centered approach has at its focus variables, both in theory construction and subsequent statistical analyses (Bergman & Andersson, 2010). In particular, a priori formulation of theory is conducted with respect to variables and hypothetical constructs (Bergman & Magnusson, 1997). Further, theory development is often premised in the causal relationships among such constructs, which are viewed as separate entities. These entities can differ between individuals, and can also vary within individuals over time (Bergman & Andersson, 2010). As an extension, statistical analyses follow theorized causal relationships, serving to relate constructs under examination and allowing results to be interpreted in the context of the theory (Bergman & Andersson, 2010). Thus, variable-centered methods seek to describe the relationship between variables of interest (Laursen & Hoff, 2006), and to isolate the variance accounted for by particular constructs (Foti & Hauenstein, 2007). Unlike mechanistic and rational approaches, variable-centered approaches do not inherently focus on either environmental influences or internal phenomena but instead focus on particular constructs of interest, whether environmentally or individually oriented. When applied to individuals, the variable-centered approach involves an effort to “emphasize differences between individuals and seeks to explain behavior in terms of dimensional concepts that represent ideas about interrelationships among variables” (Bates, 2000, p. 879). Accordingly, at the individual level, the variable-centered approach places an emphasis on individual differences and attempts to assess the extent to which variables relate to ultimately influence individual behavior in a consistent manner (Bates, 2000; Furr & Funder, 2004). Similarly, variable-oriented methods extend beyond the individual, facilitating understanding surrounding the interrelationships and predictability among organizational constructs of interest. Taken together, the variable-centered approach adopts Kilmann’s (1989a, 1989b) categorization of an open systems perspective in that it acknowledges and accounts for interrelationships among variables while also recognizing the potential importance of environmental or external factors on organizational functioning. A number of strengths can be identified with regard to the variableoriented paradigm, particularly in the context of the mechanistic and rationalistic philosophies. In fact, the variable-centered approach reinvigorated the field of psychology, resulting in a knowledge explosion upon its introduction (Bergman & Andersson, 2010). Consequently, specific benefits with regard to the measurement, quantification, and analyses applied to the variable-centered approach are of note. In this regard, the variable-oriented

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approach has been touted in a number of ways, among them, for “the objectivity that comes out of clearly defined measurements, the additional information value that comes out of good scales, the usefulness of inferential statistics based on variables, the strength of model testing, and the possibilities for causal inferences that may arise from the study of relationships with proper control for confounders, and so on” (Bergman & Andersson, 2010, p. 156). In this way, variable-centered approaches certainly offer complex and fitting analyses which can, depending on the goals of the research effort, be used to match the scientific endeavor (e.g., Mayer, Geiser, Infurna, & Fiege, 2013). In addition, given the variable-centric focus, the variable-oriented approach facilitates hypothesis testing (Bates, 2000) and benefits from the potential for parsimony where researchers are interested in simplistic models (Foti & Hauenstein, 2007). Clearly, the variable-oriented approach can be quite favorable, and as argued by Bergman and Andersson (2010), “this approach is so dominant, so natural to most of us, and so flexible that it runs the risk of being viewed as almost synonymous with the scientific approach in general” (p. 155). Despite the numerous advantages, there are several shortcomings inherent in the variable-oriented method. Perhaps the key limitation stems from the use of variables as the conceptual and analytical unit of analysis as opposed to individuals. Specifically, given that data is collected and analyzed with a variable orientation, it becomes difficult to translate information into meaningful properties which can be used to describe individuals as a totality, rather than as the summation of variables (Bergman & Magnusson, 1997; Foti & Hauenstein, 2007). While variables can inform our understanding of the relationships among organizational constructs, we are better served, particularly in the HRM domain, through an understanding of the individual as a whole, which this technique does not provide. Furthermore, Bergman and Andersson (2010) identify three limitations inherent in most applications of the variable-oriented approach including (1) a mismatch between theoretical formulations and statistical analyses corresponding to the scientific question, (2) the presence of restrictive assumptions, and (3) the appropriateness of scale level for statistical operations. Concerning the first limitation, the sophistication witnessed in psychological models is often not met with corresponding analyses within the variable-centered domain (Bergman & Andersson, 2010). As noted by Reitzle (2013), many psychological theories set out to explain human functioning, and yet aggregate path models claiming to address these theoretical questions are often not adequate. For example, researchers typically

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assume (sometimes incorrectly) that a linear relationship exists between constructs of interest; however, when a nonlinear relationship is present, the misapplication of linear techniques can lead to potentially incorrect conclusions. Similarly, as noted by Foti and Hauenstein (2007), most variable-oriented research adopts a cross-sectional approach, yielding static data limiting researchers attempting to understand the unfolding of constructs over time. Bergman and Vargha (2013) expound this criticism by distinguishing between interindividual and intraindividual analysis techniques and the corresponding inferences which can be drawn from each. In particular, the authors contend that, when interested in the unfolding of individual functioning over time, interindividual examinations are not sufficient for drawing inferences at the intraindividual level. Indeed, research findings from interindividual analyses provide information concerning average causality (i.e., group findings) rather than individual causality, limiting the extent to which findings can be used to inform individual functioning (Bergman & Vargha, 2013). Nonetheless, the standard approach to research within this domain continues to focus on interindividual variation (Molenaar, 2013). The distinction between individual and average causality is an important one, because it relates to the homogeneity assumption corresponding to variable-oriented techniques to be described in turn to follow. The second limitation holds that there are restrictive assumptions applicable to variable-oriented analyses. Indeed, the relationships among constructs are assumed to be linear, and errors are assumed to be random, normally distributed, and uncorrelated to true scores (Bergman & Andersson, 2010). In addition, model fit is viewed as describing the fit of the statistical model to the data. On the contrary, model fit is established in reference to the reproduced summary matrix (i.e., correlation or covariance), and is often done without consideration of potential interactions and nonlinearities (Bergman & Andersson, 2010). Finally, the variablecentered approach assumes homogeneity among the population concerning the influence of predictors on criteria, thus suggesting that the same model applies across individuals (Laursen & Hoff, 2006; von Eye & Bogat, 2006), characterizing the aforementioned interindividual approach (Bergman & Vargha, 2013; Molenaar, 2013). This is particularly problematic, given that individuals function differently both in terms of underlying characteristics and processes (Reitzle, 2013). Thus, difficulty arises when attempting to differentially characterize individuals with the variable-centered approach, as “individuals behave, learn, and develop in distinctive ways, showing

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patterns of variability that are not captured by models based on statistical averages” (Rose, Rouhani, & Fischer, 2013, p. 152). As such, Laursen and Hoff (2006) contend that the variable-centered approach fails to account for individual differences in patterns of change, which should be a central concern in HRM research. Reflective of this dilemma is the ergodic assumption, which holds that the structure of interindividual variation is equal to the structure of intraindividual variation of a given process (Molenaar, 2013). For this assumption to hold true, two conditions must be met. First, the process under examination must be stationary such that the mean and standard deviation are constant over time and no structural dependencies exist that aren’t attributable to the relative lag between time points. Accordingly, any dynamic processes that exhibit time-varying means, standard deviations, or sequential dependencies are deemed non-ergodic. Second, the process must be homogeneous across subjects. This assumption, as previously discussed, raises concern with the variable-centered approach in that individual variability can be incidentally dismissed when the population is believed to perform equivalently within a dynamic model. When heterogeneity among subjects is present, the ergodic assumption is once again violated (Molenaar, 2004, 2013). It is of note that both conditions must be present for the ergodic assumption to be held. In the case that it is not, methods assessing intraindividual variation as opposed to traditional interindividual variation are viewed as optimal. Given the dynamic, ever-changing nature of both organizations and employees, researchers interested in organizational and human resource considerations should thus be especially cognizant of their methodological approaches. Given these restrictive assumptions, we advise scholars to more closely examine assumptions applicable to their proposed methodological approach when conducting organizational research. Where these assumptions are met, the variable-oriented approach may very well prove sufficient. In the case that they are not met, however, researchers would benefit from the consideration of alternate methods more suitable for their purposes. Aside from the implications of violating methodological assumptions, recent literature put forth by Alversson and Sandberg (2011) champions the concept of problematization, which holds that new theories are born when scholars challenge the status quo by questioning and testing the underlying assumptions of prevailing theories. While the authors focus on the problematization of theoretical assumptions, it is our belief that

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researchers would benefit from extending this concept through the problematizing of statistical assumptions, thus paving the way for more appropriate methodological techniques as well as the potential identification of corresponding theoretical advancements. The third limitation relates to the appropriateness of scale level with regard to the statistical operations being conducted. Of note, scale limitations can impact both analytical procedures as well as the interpretation of results, thus resulting in the potential misrepresentation of study findings (Bergman & Andersson, 2010). Over and above these shortcomings, Magnusson (2003) identifies two additional weaknesses associated with the application of the variable-centered approach. First, no single factor can sufficiently explain organizational outcomes in and of itself. Second, studying variables in isolation of other operating and related components may not foster sufficient understanding concerning the phenomena of interest. Indeed, while the variable-oriented approach assesses the relationship among variables and acknowledges the importance of interactive effects in predicting outcomes, we are limited in the number of variables that can be simultaneously assessed with regard to outcomes in a holistic manner. Although this limitation is witnessed in a number of domains, Foti and Hauenstein (2007) recently addressed it within the leadership literature. Accordingly, we turn to this particular example, wherein it becomes apparent that the variable-centered approach can at times be insufficient in garnering a comprehensive understanding of the topics we are interested in. In their investigation, Foti and Hauenstein (2007) combined a variable- and pattern-orientation by implementing both approaches in an investigation of individual differences as they relate to leader emergence and effectiveness. While results from the variable-oriented analyses suggested that different individual difference variables predict leader emergence versus effectiveness, pattern-oriented methods exposed the utility of an underlying pattern of individual differences. Specifically, the identified pattern configuration consistently and incrementally predicted for both leadership criteria simultaneously. In this way, the role of the underlying pattern among the investigated variables was missed with variableoriented methodology. Without the complementary pattern-oriented techniques, study findings would have led to a misplaced emphasis on isolated variables, and consequently, an incomplete representation of this process. Accordingly, the authors contend “that a pattern approach views the person as a gestalt that cannot be understood from a simple summation of variables” (Foti & Hauenstein, 2007, p. 353).

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Pattern-Oriented Approach The pattern-oriented approach “adopts a holistic, interactionistic view in which the individual is seen as an organized whole, functioning and developing as a totality” (Bergman & Magnusson, 1997, p. 291). This totality, according to Bergman and Magnusson (1997), results from the constant interaction among underlying structures and processes that work together to influence functioning, whether of an individual or another organized whole. Indeed, the goal within the pattern-oriented approach is to understand human functioning and the gestalt of organized human behavior (Bergman & Andersson, 2010; Foti et al., 2011; Foti, Bray, Thompson, & Allgood, 2012), thus lending itself quite well to research examining HRM. Juxtaposed with variable-centered research, which assumes homogeneity within the population, the pattern-oriented approach is “based on the propositions that (1) distinct subgroups may exist and (2), if they exist, aggregate-level parameters may contradict parameters estimated for groups or individuals” (von Eye & Bogat, 2006, p. 390). Accordingly, to meet these assumptions, the pattern-oriented approach emphasizes the importance of the underlying patterns, rather than variables, associated with factors of interest. Specifically, a pattern refers to a characteristic where underlying factors form a clearly identifiable structure that can be used to explain something beyond random variation (Wiegand, Jeltsch, Hanski, & Grimm, 2003). Just as patterns are found in nature, so too can they be identified and utilized for research purposes. Specifically, inherent in the pattern-oriented approach is an integrated and holistic approach to research which provides a fruitful avenue for revealing patterns within individuals as well as within organizations that have potential implications for their functioning. A pattern-oriented approach identifies and isolates different subgroups (also known as profiles) of individuals and organizations with shared characteristics or similar multidimensional patterns across them (Foti et al., 2012; O’Shea, Foti, Hauenstein, & Bycio, 2009). Such patterns can be identified for a number of variables of interest, which in turn can be related to isolated outcome variables, or classes (i.e., patterns) of behaviors associated with an outcome of interest (Foti et al., 2012). Adopting the patternoriented approach helps to elucidate information that is “hidden” within natural structures or patterns (Wiegand et al., 2003). Indeed, as noted by Foti and Hauenstein (2007), the true essence of individual difference variables is found when they are viewed and understood as part of a configuration composed of other related individual difference constructs.

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Accordingly, examining such constructs without tending to their underlying pattern configuration fails to provide a holistic lens into underlying processes. Further, the pattern-oriented approach facilitates understanding of intraindividual development and complex processing (Bates, 2000) by identifying an individual’s overall behavioral pattern across contexts (Furr & Funder, 2004) and time (Foti & Hauenstein, 2007). Patterns enable researchers to capture dynamic processes within the environment, and account for the interaction among a variety of constructs such as demographic variables, dispersal characteristics, and additional constraining factors (Wiegand et al., 2003). As a result, the pattern-oriented approach appears to offer a significant alternative or extension to the other methods so commonly applied in organizational research by helping to overcome shortcomings associated with each. Part of the issue with the three previously mentioned approaches is that while they are all beneficial in elucidating important organizational phenomena, they do not fully encapsulate the constant interplay among such occurrences. Patternoriented analysis provides an avenue toward this end by helping to understand the interrelationship among variables and contexts studied within a variety of approaches simultaneously. For instance, one downfall of the mechanistic approach is that it often fails to identify environmental influences on individual processing (Sakamoto et al., 2008). The pattern-oriented approach can overcome this via inclusion of covariates in modeled relationships or by potentially identifying environmental patterns that influence individual and organizational functioning. Similarly, while the rational approach explicitly accounts for the environment, it tends to treat environmental influences within a vacuum by modeling such factors in isolation of one another. Conversely, the pattern-oriented approach offers an alternative wherein underlying patterns associated with a variety of related factors can be modeled and assessed together, in turn offering a wider range of variability and insight toward a more comprehensive understanding of the phenomena at hand. Finally, although the variable-centered approach emphasizes the relationship among variables which proves useful for the study of interrelated systems, there is a need to understand how such systems are configured and systematically connected as to inform dynamic organizational processes in a nonlinear fashion (Bergman & Magnusson, 1997; Foti et al., 2011). Pattern-oriented methods have the potential to meet this call by both complementing and extending research using alternate approaches. Given its holistic, dynamic, and integrative nature (e.g., Bergman & Andersson, 2010; Foti et al., 2011), the pattern-oriented approach frames

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research within Kilmann’s (1989a, 1989b) complex hologram organizational worldview. This becomes especially evident upon examination of the theoretical underpinnings associated with the pattern-oriented approach (e.g., Bergman & Magnusson, 1997; Magnusson, 1985, 1992; Magnusson & Allen, 1983). These underpinnings, or theoretical principles at the individual level, are summarized by Sterba and Bauer (2010) as follows: (1) individual specificity, (2) complex interactions, (3) interindividual differences in intraindividual change, (4) pattern summary, (5) holism, and (6) pattern parsimony. Taken together, it is clear that the pattern-oriented approach fosters an integrative conceptualization of the underlying processes associated with behavior. In fact, this is clearly explicated by Bergman and Andersson (2010), who contend that the individual, the pattern of information, and the dynamic process are all in focus when applying a patternoriented perspective. When extended to HRM and broader organizational settings, adopting the same approach would prove particularly beneficial by explicitly modeling multiple constructs simultaneously as contributing to underlying patterns. Using patterns in this way has the potential to offer insight over and above alternate approaches by assessing combinations of variables and their subsequent influence on outcomes of interest. This is just one among a number of benefits corresponding to the pattern-oriented approach. For instance, the pattern-oriented approach moves theory toward a recent call by Weiss and Rupp (2011a, 2011b) for a research agenda placing a greater emphasis on the worker and subjective worker experiences. Specifically, the authors contend that the refocusing of research in this way would reinvigorate organizational research. We, like Foti et al. (2011), believe that the adoption of the pattern-oriented approach is one means toward this end. In fact, the pattern-oriented approach makes possible the integration of qualitative and quantitative information (Amabile & Kramer, 2011), thus incorporating subjective experience in research (as advocated by Weiss & Rupp, 2011a, 2011b), albeit doing so with methodological rigor (Foti et al., 2011). Moreover, the holistic and interactionist nature of the pattern-oriented approach moves theory and research beyond linear and interactional models characterizing more traditional approaches (Fiss, 2011). Indeed, Fiss (2011) speaks to the multidimensional nature of configural or patterned research, suggesting that it better embodies the complexities inherent within actual organizational domains, wherein the complementary nature of organizational characteristics is of great importance. Similarly, some forms of pattern-oriented approaches have been advocated for their ability to track

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changes in a dynamic fashion over time (e.g., Amabile & Kramer, 2011; Bergman & Andersson, 2010). Accordingly, pattern-oriented research provides a framework for theory development and refinement, guiding the research process through concept formation, research strategy and methodology, and the interpretation of findings (Bergman & Andersson, 2010). Furthermore, upon construction of such theories, configurations provide a parsimonious framework or scientific shorthand wherein complex and interrelated causal relationships are more easily understood through the identification of underlying profiles (Fiss, 2011). Yet another strength of the pattern-oriented approach is that it allows for the environment to be considered (Foti et al., 2011). As noted by Bergman and Magnusson (1997), the holistic-dynamic system view is applicable in a variety of domains and at a variety of levels. Specifically, the authors contend that the pattern-oriented approach “applies to the cellular level, the cognitive system, the behavior system, and so on. It also expands the boundaries of the individual and includes the environment as well as interacting individuals” (Bergman & Magnusson, 1997, p. 291). Accordingly, this allows for theories, such as those relevant to HRM, to be placed within a broader context, accounting for multiple levels as well as linkages between the organizational structure, strategy, and environment (Fiss, 2011). Of course, this suggests that theorists in varying fields with differing specialties can apply pattern-oriented methods as a means to unify theory within and between their respective disciplines. To this end, Lacey and Fiss (2009) posit, “we argue that the comparative study of organizations would benefit from a move to a configurational understanding of multi-level effects and a focus on multiple, conjunctural causality to account for the embedded nature of level effects” (p. 92). This sentiment directly relates to the aforementioned communication barrier within organizational research, and also suggests that the divide between macro- and micro-scholars might be lessened through the use of patterned, or configural, methodology. Simultaneously, an increased emphasis on pattern-oriented methods across fields, particularly those characterized as sub-disciplines within the organizational sciences, would provide a general theoretical framework from which to study and transmit information. As a result, the communication barrier faced among researchers would be reduced while the ease of knowledge accumulation would increase (Bergman & Magnusson, 1997). Despite the numerous advantages of the pattern-oriented approach, corresponding shortcomings must also be acknowledged. For instance, scholars have pointed to the importance of ensuring high quality of data

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sources when conducting pattern-oriented research (e.g., Amabile & Kramer, 2011; Foti et al., 2011). In particular, considerations must be made up front with regard to sample size, as some methods require a larger number of participants than are required in variable-oriented methods (Amabile & Kramer, 2011; Foti et al., 2011). Furthermore, if adopting subjective, qualitative methodology, researchers must develop trusting relationships with their participants as to ensure that honest data is provided (Amabile & Kramer, 2011). Additionally, ambiguity exists surrounding patterned or configural methodology with regard to the collecting, analyzing, and interpreting of data (Amabile & Kramer, 2011). Of note, results in pattern-oriented approaches can be particularly sensitive to measurement error, and scholars must therefore take care when designing and implementing their research design. Moreover, Bergman and Andersson (2010) note the high demand for reliability that is present in pattern-oriented research due to the interpretation of measures at the individual level. To this end, Asendorph (2006) contend that perhaps the central disadvantage to pattern-oriented research is the loss of information that occurs in some pattern-oriented methods wherein continuous scores are translated to categorical data, thus reducing variability. As a result, Asendorph (2006) notes the reduced predictive power of dummy-coded categorical data as compared with continuous variables, suggesting that pattern-oriented methods suffer in predictive utility as compared to the variable-centered approach. Another limitation concerning the pattern-oriented approach concerns the sometimes simplistic nature of classification systems derived from such methods with little to no explanatory value (Doty & Glick, 1994; Fiss, 2011). For instance, Doty and Glick (1994) hold that “the cost associated with parsimony is that most typological theories are inadequately developed because the causal processes operating within each type of organization are not fully specified” (p. 230). In this way, while patterned approaches are equipped to provide explanatory utility, researchers do not always implement them in such a way that capitalizes on this ability. In such instances, we are left with descriptive information concerning underlying patterns or taxonomies that have not been examined with regard to their predictive utility. While descriptive information can be useful in understanding theoretical underpinnings, researchers attempting to understand the relationship among constructs should work to elucidate explanatory information (Doty & Glick, 1994). This limitation can therefore be lessened through rigorous theoretical and methodological efforts (Eppler, Hoffmann, & Pfister, 2011) wherein complex explanatory theories can be

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examined. Specifically, Doty and Glick (1994) contend that the rigorous construction of patterned, or typological, theories entails not only identifying underlying configurations, but also assessing the extent to which each pattern, as well as profiles deviating from those patterns, predict outcomes of interest. Accordingly, the authors hold that typologies should be examined via appropriate conceptual and analytical techniques that afford researchers the opportunity to answer questions pertaining to the predictability of identified patterns. Regardless of these limitations, it is our contention that the patternoriented approach has much to offer within the organizational sciences. Despite being touted in alternate contexts, the pattern-oriented approach is still in its infancy within the organizational sciences. Nonetheless, the multidimensional and dynamic nature of configural research affords organizational scholars a chance to more completely encapsulate the overall essence of organizational functioning within their research. Thus, whether implemented as a primary approach to research or synergistically to complement the variable-centered approach, pattern-oriented methods are likely to advance research in the organizational domain. Accordingly, scholars have recently advocated a shift in methodological approaches in organizational research in favor of a patterned, or configural, approach (e.g., Foti et al., 2011; Ketchen, 2013). Given the utility of the pattern-oriented approach, we are in agreement with this call and it is thus our goal to increase awareness concerning its applicability to organizational research.

IMPLICATIONS FOR METHODOLOGY Each of the four previously outlined approaches to HRM and organizational research carry with them inherent benefits and weaknesses. Approaches that neglect consideration of the interaction among variables may be particularly problematic in the organizational sciences, given that organizations and organizational research are highly multidisciplinary, involving the integration of a number of fields, theories, and methods (Buckley, Hamdani, Klotz, & Valcea, 2011). This problem was made particularly apparent by Pondy and Mitroff (1979) who, in reference to Boulding’s (1956) typology of system complexity, contended that empirical research currently treats organizations as static or mechanistic frameworks despite their being among the most complex of entities. Indeed, organizations are viewed as vast, fragmented, and multidimensional (Boulding,

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1956), thus requiring the adoption of research methods that are robust in framing and examining them as such (Daft & Weick, 1984). Given this information, researchers are encouraged to shift their focus to better accommodate and integrate the more integrative, holistic pattern-oriented approach within organizational research. When adopting pattern-oriented methods, von Eye and Bogat (2006) propose three criteria which should be considered. First, they argue that data are assumed to be collected from multiple populations. Accordingly, researchers should either specify a priori groups (e.g., male vs. female), or decompose data into distinct groups upon collection (von Eye & Bogat, 2006). Second, von Eye and Bogat (2006) contend that the external validity of groupings should be established. Specifically, this process involves examining the extent to which group structure generalizes to different variables. In addition, this criterion speaks to the importance of the predictive efficiency or validity of such configurations (Davison & Davenport, 2002; Meehl, 1950) as they can inform organizational occurrences via cause-andeffect relationships (Fiss, 2011). Nonetheless, configural research is often critiqued for its internal focus, neglecting consideration of diagnostic utility (Culpepper, 2008). Thus, scholars are encouraged to consider external outcome variables as they result from underlying configurations (Davison & Davenport, 2002). Lastly, groupings should be interpreted in the context of overarching theory (von Eye & Bogat, 2006) to provide greater coherence and clarity with regard to the implications of findings (Doty & Glick, 1994). There are several methodological techniques available to researchers interested in applying a pattern-oriented approach to research. In carrying out such methods, researchers are encouraged to bear in mind the three criteria provided by von Eye and Bogat (2006) as to ensure the optimal application of pattern-oriented techniques. These methodological techniques include, but are not limited to, latent class analysis, latent profile analysis, latent transition analysis, criterion-related profile analysis, and cluster analysis of profile deviations. It is important to note that although these techniques vary with regard to their corresponding strengths and weaknesses, a number of them move beyond what is often construed as traditional pattern-oriented research, namely, that it necessarily uses categorical data and involves static, rather than dynamic, modeling. On the contrary, pattern-oriented methodology can in fact be quite complex, involving nonlinear and dynamic systems (Foti et al., 2011). As stated by Bergman and Andersson (2010), a pattern orientation maintains that “the individual is regarded as a dynamic system of

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interwoven components that is best understood in terms of whole-system properties and often best studied by methods that retain these properties as far as possible, such as those that focus on individual pattern of information” (p. 155). Berg-Schlosser and colleagues held a similar sentiment in noting that “each individual case [in the configural approach] is considered as a complex combination of properties, a specific ‘whole’ that should not be lost or obscured in the course of analysis this is a holistic perspective” (Berg-Schlosser, De Meur, Rihoux, & Ragin, 2008, p. 6). Accordingly, scholars must take care in choosing methodology that is appropriate for meeting their overarching study goals. Details concerning a number of potential approaches is provided in a brief review to follow; however, researchers seeking a more comprehensive review of pattern-oriented methods are referred to Collins and Lanza (2010), Vermunt and Magidson (2004), Bergman and Magnusson (1997), Ruscio and Ruscio (2008), and Sterba and Bauer (2010), who provide a more thorough overview of pattern-oriented methodology, including topics which both overlap and expand on those discussed in this section.

Latent Class Analysis Latent class analysis identifies “a set of mutually exclusive, unobserved classes of [individuals] characterized by similar multidimensional patterns of items while accounting for measurement error in participant responses” (Coyle, Foti, Snead, & Thompson, 2013). Latent class analysis is analogous to the factor analysis model, wherein an underlying latent variable is thought to be accounted for by measured or observed variables (Collins & Lanza, 2010; Vermunt & Magidson, 2004). Accordingly, the goal of latent class analysis is to identify both the nature and number of latent classes (Kline, 2011). Despite their similarities, latent class analysis differs from factor analysis in that it is based on a contingency table whereas factor analysis is based on a covariance or correlation matrix (Collins, 2006). Furthermore, latent class analysis utilizes a categorical indicator and a categorical latent variable (e.g., Collins & Lanza, 2010; Foti et al., 2011; Kline, 2011), where each individual belongs to only one latent class (Collins, 2006). Thus, categorical latent variables are used to denote unobserved heterogeneity within a population (Muthe´n, 2002) and are conceptualized in this sense as having “qualitative differences [that] exist between groups of people or objects” (Ruscio & Ruscio, 2008, p. 203). Identification of such subgroups therefore provides a more comprehensive framework

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from which researchers can move forward. In particular, rather than working with variables in isolation of one another, it offers information concerning underlying patterns of behavior and therefore serves to integrate conceptually related concepts. Muthe´n (2002) identifies a three-step procedure that is typical for conducting latent class analysis, including (1) the latent class analysis itself, (2) classification of individuals on a probabilistic basis, and (3) running logistic regression analysis to relate classes to covariates. The inclusion of covariates within latent class analysis is of note, as it enables researchers to extend their models through the inclusion of predictor variables (Lanza, Collins, Lemmon, & Schafer, 2007). These predictor variables, or covariates, serve to explain the formation of latent class membership (Muthe´n, 2002). Thus, the inclusion of covariates provides researchers with more complex, interrelated models. Latent class procedures are beneficial in that they provide a probabilistic classifying approach (Wang & Hanges, 2011). Accordingly, by using their observed scores, individuals can be classified into groups after the latent class model has been established. In addition, the use of a probabilistic classification system accounts for uncertainty in the latent class model (Wang & Hanges, 2011). Nonetheless, there are several downfalls associated with latent class analysis. For example, the use of categorical variables results in a loss of information or decreases in variance. Gibson (1959) notes that this downfall prevents the use of latent class techniques as an alternative quantitative factor analysis. In addition, classification is a data-driven process and does not rely on a priori known groups, thus raising a question concerning the importance of theory as compared to empiricism. Even more, although latent class procedures assume that there are heterogeneous groups in the population, the classification system provided by latent class techniques assumes that individuals within each group are homogeneous; thus, while individuals are categorized into a specified group, there may be differences within the group that are left unaccounted for.

Latent Profile Analysis Similar to latent class analysis (Muthe´n, 2002), latent profile analysis is used to identify subgroups (i.e., profiles) of within-individual patterns of behavior (Foti et al., 2011). Latent profile analysis utilizes a categorical latent variable and continuous indicators (e.g., Foti et al., 2011;

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Collins & Lanza, 2010) which differs from factor analysis wherein both the latent variable and the indicators, or observed variables, are continuous (Collins & Lanza, 2010). Continuous latent variables refer to variables in which “people or objects differ quantitatively along one of more continua” (Ruscio & Ruscio, 2008, p. 203). More specifically, latent profile analysis is often used to “identify and describe a set of mutually exclusive and exhaustive latent classes (i.e., profiles or subgroups) whose members are characterized by similar response sets of manifest indicators” (Foti et al., 2011, p. 705). Thus, latent profile analysis is the extension of latent class analysis when working with continuous indicators (Gibson, 1959; Muthe´n, 2002). Accordingly, latent profile analysis, like latent class analysis, affords researchers an integrated view concerning variables of interest via the identification of patterns of related behaviors exhibited by individuals, and can be extended through the inclusion of covariates or predictors. Latent profile analysis offers several advantages as identified by Gibson (1959). Specifically, latent profile equations deal with magnitudes that are not influenced by sample size. In addition, latent profile analysis can account for curvilinear relations either between observed variables, or between observed variables and their corresponding dimensions. Aside from its advantages, latent profile analysis also comes with several shortcomings. Like latent class analysis, latent profile analysis derives groups from the data, and thus adopts a data-driven approach. In addition, latent profile analysis is limited in its inability to account for longevity (Weiss & Rupp, 2011a), or the transition between states and relation to external criteria (Collins, 2006; Collins & Lanza, 2010). Furthermore, like in latent class analysis, an assumption is made concerning homogeneity within specified categories, thus detracting from the potential identification of individual differences.

Latent Transition Analysis Latent transition analysis provides researchers the opportunity to examine underlying classes or profiles (i.e., patterns) as they relate to outcomes of interest. Specifically, latent transition analysis estimates the prevalence of latent classes as they translate to an alternate context through a longitudinal extension (Coyle et al., 2013). Latent transition analysis thus enables the examination of the predictability of latent classes to patterns of outcome behaviors (Collins & Lanza, 2010). In particular, it focuses on the

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prevalence of discrete states, or classes, and the incidence of their transition to different states (Collins, 2006). Thus, a distinction between static and dynamic latent variables is an important one to make, as dynamic latent variables can be modeled to change systematically over time (Collins & Wugalter, 1992). For example, according to Kline (2011), the transition model reflects a shift from one state to a new state, exemplified as transitioning from nonmastery to mastery of a skill. Taken together, the underlying goal of latent transition analysis is to assess change in class membership by examining the probability of an individual transitioning from one class to another over time (Muthe´n & Muthe´n, 2000). An extension of latent transition analysis is referred to as latent class regression, wherein both class membership as well as other variables related to class membership can be modeled and assessed (Kline, 2011). More specifically, the assumptions of latent class regression are less strict than those of methods previously described, given that both the predictors and outcomes can be continuous, categorical, or repeated-measures (Kline, 2011). Moreover, unlike alternate methods, latent class regression does not assume invariance in the prediction equation among cases (Kline, 2011) and, therefore, has utility in reducing measurement error. A number of advantages have been identified with regard to latent transition analysis. For example, latent transition analysis overcomes the limitation associated with latent class and profile analysis which restricts examination of longitudinal data (Collins & Wugalter, 1992; Foti et al., 2011). In this way, latent transition analysis accounts for dynamic latent variables, which allow researchers to examine stage transitions over time. Even more, latent transition models are characterized by a multipleindicator model, increasing accuracy of parameter estimates and reducing standard error (Collins & Wugalter, 1992). On the other hand, a key limitation must be noted as well. In particular, latent transition models often require more subjects than are required in more traditional pattern-oriented methods, given that they entail multiple observations over multiple times (Collins & Wugalter, 1992).

Criterion-Related Profile Analysis Davison and Davenport (2002) introduce “a multiple regression based, pattern recognition procedure that can be used to identify a pattern of predictor scores associated with high scores on a criterion variable” (p. 468). The identified pattern, or the arrangement of predictor scores

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as they relate to high scores on the criterion variable, is thereon out referred to as the criterion pattern and is examined with regard to the variation it explains in the criterion variable (Davison & Davenport, 2002). In advocating the adoption of this approach, Davison and Davenport (2002) describe the three steps which characterize criterionrelated profile analysis. The first step outlined by Davison and Davenport (2002) is to identify the criterion pattern by applying a pattern recognition procedure within multiple regression modeling. Specifically, this process involves the rewriting of the regression equation to account for level effects as well as pattern effects. The level component is defined as an individual’s mean score on the predictor variables, thus characterizing the individual’s height or level on a given profile. Conversely, the pattern component refers to the deviation about which the individual varies from his or her own mean (Davison & Davenport, 2002; Kim, 2013). Upon identification of the criterion pattern, Davison and Davenport (2002) suggest that multiple regression techniques be used to predict the criterion variable from the criterion pattern, including both the level and pattern effects. This process constitutes the second step in Davison and Davenport’s (2002) framework. In particular, it involves estimating the proportion of variance explained in the criterion variable by the identified criterion pattern and its subcomponents. Finally, the third step involves the cross-validation of the identified criterion pattern among alternate samples to examine the extent to which the variation accounted for by the criterion pattern remains stable across contexts (Davison & Davenport, 2002). The application of criterion-related profile analysis is advantageous on a number of fronts. For example, it distinguishes between an individual’s level effect and pattern effect, and differentially estimates the variance in the criterion variable that is attributable to each (Davison & Davenport, 2002). Further, criterion-related profile analysis deals with continuous variables up front, not only providing more meaningful information, but also facilitating comparison across patterns given that the raw data is in comparable units (Davison & Davenport, 2002). Despite these advantages, criterion-related profile patterns are limited in their initial generalizability to alternate samples and domains. Given that regression weights are often inconsistent among samples, and because profile patterns are derived from regression weights corresponding to one sample, their predictive utility might decline when applied to an alternate sample (Davison & Davenport). Accordingly, Davison and Davenport (2002) advocate the cross-validation of study findings as a final step in their method.

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Cluster Analysis of Profile Deviations In an attempt to better account for individual variation within patternoriented examinations, Asendorph (2006) proposed a novel approach which would determine the “typeness” (Asendorph, 2006) or “elevation” (Kim, Frisby, & Davison, 2004) of personality profiles. In doing so, the author suggests that while certain individuals exhibit similar personality profiles, they are not identical, and thus important information is being lost by treating them all the same. Accordingly, Asendorph (2006) contends that researchers should examine an individual’s deviation from the average profile, therefore providing not only a categorization but also a directional deviation for all subjects. In particular, Asendorph (2006) proposes the examination of an individual’s deviation from the average profile within a given sample. By doing so, the typeness is used to characterize individual personality profiles as compared to other similarity profiles. Thus, without losing categorical meaning, a greater degree of variation is provided for estimation. Asendorph (2006) holds that there are several ways to define, or measure, prototypic profiles including empirical definitions, a priori raw-score definitions, and a priori z-score definitions. Upon defining the prototypical configurations in the context of a study, an individual’s typeness, or individual profile parameter, is established through the use of intraindividual regression examining the impact of personality profiles on prototypical profiles (Asendorph, 2006). The resulting regression coefficients are conceptualized as an individual’s typeness, or their directional deviation in relation to the average profile within the sample. Accordingly, an individual is characterized not only by their overall profile, but also by their typeness with regard to that profile, and both aspects can be used to predict external criterion variables. Cluster analyzing profile deviations provides a wide range of advantages. Perhaps of most importance, this technique both acknowledges and accounts for intraindividual differences between profile scores. Accordingly, researchers need not compromise variability and explanatory variance when deriving categorical meaning. In this way, cluster analysis of profile deviations capitalizes on strengths from both the variable-oriented and pattern-oriented schools in that individual elevation and typeness scores are used to predict external criteria, while keeping the person as whole in focus through categorical membership (Asendorph, 2006). An additional advantage relates to the longevity and external validity associated with this technique. Specifically, Asendorph (2006) contends that

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profile parameters exhibit greater stability over time as compared to a factor structure, and that they yield similar, albeit slightly lower, external validity estimates as well. Accordingly, cluster analysis of profile deviations appears to provide a meshing together of variable-centered and patternoriented methodology, which may serve to facilitate conversation among the divided schools. Indeed, as stated by Asendorph (2006), “the concept of typeness could prevent these two worlds from drifting apart by providing a common typological language that can be used in different ways by different kinds of people” (p. 103 104).

THEORETICAL IMPLICATIONS Typology-Based Configurational Theorizing The pattern-oriented approach to analyzing organizations is based on configurational theory of organizations (Short, Payne, & Ketchen, 2008). Configurational theory posits that patterns of specific independent variables are associated in a coherent manner with the dependent variable that reflects some form of organizational effectiveness (Kalchschmidt, 2012). When those patterns or configurations are developed through theorizing in a top-down deductive way, they are called typologies that are typically multidimensional, and depicted as matrices. When the cells of the matrix are determined by their position relative to the matrix dimensions that make the rows and columns of the matrix, these typologies are called descriptive typologies. Conversely, when the cells of the matrix are the outcomes that are explained by the matrix dimensions that make the rows and columns of the matrix, these typologies are called explanatory typologies. Distinct from typologies are taxonomies that are empirically induced from data in a bottom-up manner (Collier, LaPorte, & Seawright, 2012). Configurational theorizing is the process of developing typologies that reflect the holistic, yet patterned nature of organizations (Ketchen, 2013). The components of the organization that are typically patterned in a configurational analysis include strategy, structure, people, and capabilities, as well as management processes and management philosophies. In the case of network organizations, innovation and adaptability are included as additional variables that are patterned (Raab, Mannak, & Cambre´, 2013), and organizational effectiveness is hypothesized to depend upon the extent to which these components are coherently aligned. The main assumption of

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configurational theory, which is called the assumption of equifinality, is that this alignment can be achieved in multiple ways (Snow, Miles, & Miles, 2005). The suggestion to use typologies as a form of theory building was for the first time suggested by Doty and Glick (1994). In contrast to the prevailing view, which held that typologies functioned to provide simplistic and comparable classification systems (Rich, 1992), the configurational approach was reframed as providing an avenue for unique and complex theoretical advancement and empirical examination. In support of their argument, Doty and Glick (1994) contended that typologies (1) differ from classification systems, (2) meet three criteria that constitute a theory (i.e., construct identification, specification of relationships among constructs, and falsifiable relationships), and (3) characterize more complex and multilevel phenomena than do traditional theories. Moreover, aside from qualifying as singular theories, typologies are argued to constitute multiple theories, namely, 1994, thus offering a gestalt concerning the phenomena being investigated for organizations at a broader level as well as an specific causal arguments surrounding the individual types and relating to the internal consistency of each identified type. While Doty and Glick (1994) paved the way for this new form of theory building, recent scholars have advocated diverging methods. For instance, Doty and Glick (1994) advocated the development of a priori expectations and definitions for modeling ideal types. More recently, Ruscio and Ruscio (2008) have suggested just the opposite; that is, empirically deriving categorical versus dimensional models to evaluate the relative strength and consistency of each. We are of the opinion that some combination of each is favorable. Configurational theorizing requires the development of typologies that are to be of high quality in terms of their rigor and relevance (Ketchen, 2013). The quality criteria of rigor require typologies to be properly defined, mutually exclusive, and appropriately specified, as well as to possess clear boundaries and one-to-one correspondence for assignment of membership to each cell or category in the typology. On the other hand, the quality criteria of relevance require typologies to be easily comprehended and visualized, practice-related, and distinctly and meaningfully labeled (Eppler et al., 2011; Raab et al., 2013). In organization and strategy studies, two exemplary typologies have been developed by Porter (1980) and Miles and Snow (1987). The configurational framework of these two typologies has the form of a 2 × 2 matrix with the row-and-column dimensions that are theoretically grounded and derived. The cells of this matrix should not overlap, and should delineate clearly the ideal types applicable to a broad range

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of organizations (Eppler et al., 2011). A more thorough description of quality criteria for typologies, along with guidelines for evaluating existing typologies, is provided in the following section. When a new typology of configurations is theorized, its power to explain organizational effectiveness is commonly tested by conducting multiple-case studies because this design allows for accommodating different configurations. The most appropriate analytical approach to testing these typologies is qualitative comparative analysis (QCA), particularly when it is conducted following the procedure suggested by Thiem (2013), which integrates crisp, multi-value and fuzzy QCAs. The ultimate purpose of the QCA analysis is to identify which configurations are effective and why they are effective so that relevant practical recommendations can be provided (Snow et al., 2005). A typology of ideal types can also be tested via a large-scale analysis by producing patterns of a taxonomy before conducting a QCA analysis. For example, this pattern-oriented approach to configurational analysis was used by Hotha (2013) to test the typology of national business systems. Alternatively, configural frequency analysis can be used instead of QCA analysis (O’Shea et al., 2009). When using any of these analytic approaches, researchers “focus on the identification of configurations (i.e., “idealtypes”) that represent internally and externally coherent solutions, which companies should refer to for their own practices” (Kalchschmidt, 2012, p. 783). An important assumption to make is that the configurational or patternorientated approach is not a substitute for but a complement to the variable-based (i.e., variance-analysis) approach. Specifically, “variance analysis can uncover primary configuration, as Pugh, Hickson, and Hinings (1969) demonstrated in respect to the structures of work organizations. A case-based configurational analysis can then explore further the nuisances between and within the primary categories, as well as features of the context that help to explain their presence” (Child, 2002, p. 783). The complementarity of the pattern-oriented and variable-based approaches is also valid under dynamic conditions. Therefore, longitudinal studies focused on examining variable or construct stability should be complemented with studies focused on examining configuration stability. These studies should be designed to examine configuration stability/variability across samples, time, and situations relative to organizational effectiveness. Such a dynamic test can be performed by conducting latent transition analysis (LTA) (Collins & Lanza, 2010), as it allows for testing the prediction of configuration membership. The results of this analysis could provide

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valuable insights about the dynamics of organizational effectiveness (Kam, Morin, Meyer, & Topolnytsky, 2013). Overall, the typology-driven theorizing is aimed at the reexamination of the extant typologies and the development of new typologies of descriptive, explanatory, and predictive power (Snow & Ketchen, 2014). The development of new typologies with the ideal types that can be measured in valid and reliable ways is particularly needed in the emerging domains (e.g., open innovation and crowdsourcing) where knowledge intensity plays a significant “patterning” role (Ketchen, 2013). The main challenge of theorizing in these domains is in identifying the foundational theoretical frameworks upon which the typologies can be appropriately theorized and built (Short et al., 2008). Only when the newly theorized typologies are exhaustive and reliable can they help us understand the complex linkages between the patterns of organization design and organizational effectiveness in today’s complex, globalized and knowledge-rich collaborative environment (Doty & Glick, 1994; Kalchschmidt, 2012). To capture this complexity, the process of theorizing new typologies should focus not only on extending but also on innovating existing frameworks. A unique way of innovating existing frameworks involves “reanalyzing data from a past study using more advanced methodology than was used in the initial study as it is a very effective way to advance knowledge. This approach can generate both theoretical and methodological contributions. Theoretically, relevant past data can highlight relationships that previously went undetected. Methodologically, “revisiting past data provides tangible evidence regarding the advantages of the newly deployed technique” (Ketchen, 2013, p. 306). However, those engaged in configurational theorizing should be aware of the typical, yet often neglected errors associated with developing typologies. The main errors developing typologies are (a) “confusing conceptual with explanatory typologies”; (b) “confusing typologies with numerical cross-tabulations”; (c) “the use of nonequivalent criteria in formulating the cell types”; and (d) “problems of recognition and presentation” that mask the building blocks of the proposed typology (Collier et al., 2012, pp. 223 224). The typologies that are developed by addressing the above risks and avoiding the above errors are valuable analytical tools for studying organizations. Those engaged in configurational theorizing may also face the risk of encountering criticism that typologies are built on categorical dimensions/ variables that entail the problems of ordinal scale and the difficulty of producing unidimensional measures. They have two options. One option is to

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follow the template that Collier et al. (2012) have outlined for rigorous development of typologies. The other option is to embrace the categorybased approach to configurational theorizing. Both options are explained in the subsequent section of this chapter, respectively.

Criteria for Rigorous Construction of Typologies Typological research has been criticized on several accounts, including claims that typologies are simply classification systems as opposed to theories (Doty & Glick, 1994; Rich, 1992) and that they are old-fashioned and unsophisticated (Collier et al., 2012). Given the aforementioned discussion surrounding common errors in the conceptualization and measurement of typologies, it is not surprising that the approach would be met with some criticism. However, through the adoption of appropriate methods for constructing typologies, researchers can overcome such errors and subsequent criticisms by developing typologies which serve not only as classification systems, but as complex theory building mechanisms, in turn providing a number of advantages (Doty & Glick, 1994). Indeed, as noted by Doty and Glick (1994), typological theories afford the opportunity to consider synergistic, rather than additive, relationships through use of configurations, thus moving forward from traditional linear or interactive models toward complex and integrative ones. Similarly, because of their holistic nature, HRM and organizational typologies incorporate the principle of enquiry, which states that multiple organizational phenomena must be considered simultaneously to better understand how they fit together to influence organizations as a whole. In addition, because typologies provide multiple combinations of constructs, ideal types can be identified and, as previously described, typological research incorporates equifinality. Lastly, Doty and Glick (1994) contend that typologies have the ability to elucidate novel process and structural configurations which, although previously unknown or unobserved, might improve organizational functioning. In this way, typological research provides a new way of thinking about the processes of managing, governing, and organizing (e.g., Puranam et al., 2014) Through their seminal work, Doty and Glick (1994) not only discussed the advantages corresponding to typological research, but further delineated a five-step approach to typology development. More recently, Collier et al. (2012) provided a template for best practices in the rigorous construction of conceptual (i.e., descriptive) typologies with regard to both

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theoretical and structural considerations. By integrating these two approaches, a four-step guiding framework is provided for researchers seeking to undertake configural work. It is our hope that these steps, as drawn from Doty and Glick (1994) and Collier et al. (2012), will serve as building blocks for future typological development. These steps are as follows: 1. Clearly conceptualize and articulate grand theoretical assertions. Before setting out to develop a typology, scholars must first determine precisely what it is that they hope to theorize with the typology. In a general sense, this involves clearly stating the purpose of the research to reduce any potential confusion among readers (Doty & Glick, 1994). More specifically, however, this involves continued clarification and refinement as needed throughout the completion of the remaining steps. As noted by Collier et al. (2012), concepts should be situated within a constellation or nomological network of related concepts, and hierarchical relationships should be identified between cell types, dimensions, and the overall theory. 2. Identify dimensions characterizing the grand theory. Dimensions can be identified by “disaggregating” the overarching theory into underlying constructs or elements (Collier et al., 2012). In turn, the categories or subcomponents of these dimensions form the rows and columns within the matrix formation. Accordingly, explicit theoretical linkages must be established between the dimensions and the grand theory to ensure both the plausibility and coherence of the dimensions in the context of the overarching theory (Collier et al., 2012). Further, scholars should discuss the relative theoretical importance of each dimension (Doty & Glick, 1994), given that typologies often consist of both core and peripheral elements (Fiss, 2011). 3. Describe cell types in accordance with underlying dimensions. Cells in conceptual typologies are derived through cross-tabulation of the columns and rows in matrix formation (Collier et al., 2012). As stated by Collier et al. (2012), each cell represents “a kind of” in relation to the grand theory (p. 228). That is, each cell represents a discrete type corresponding to the overall concept. In explanatory typologies, cell types correspond to theorized outcomes expected to be predicted by the row-and-column variables (Collier et al., 2012). Regardless of how the cell types are identified, care should be taken to clearly operationalize them upon their identification (Doty & Glick, 1994). Given that columns and rows represent categories of respective dimensions, and since cell types are

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identified based on their position in the matrix with respect to the columns and rows, each cell type should be defined in terms of its conceptual linkages with dimensional categories (Collier et al., 2012). Furthermore, the full set of cell types must be explicitly stated, and when theories allow for hybrid types, scholars must specify which combinations exist within the framework and how they are defined (Doty & Glick, 1994). 4. Empirically examine the typological theory via conceptual and analytical modeling. A final step, particularly when working with explanatory and predictive typologies, involves the empirical testing of theoretical assertions. Indeed, with the exception of conceptual typologies, the goal of most typological research is not simply to serve as a classification system, but instead serve to predict a priori dependent variable(s) (Doty & Glick, 1994). Accordingly, scholars should seek to examine the predictive properties of typologies, and as recommended by Doty and Glick (1994) should strive to include within their models the complete set of ideal cell types. Although this framework should serve as a starting point in guiding scholars interested in typological research, it is important to note the many nuances which must be addressed when conducting this type of research. For example, over and above their basic template to typological research, Collier et al. (2012) provide guidance on a number of issues relevant to typological research. Among them, the authors speak to the issue of dimensionality (i.e., unidimensional vs multidimensional), discuss the utility of both qualitative and quantitative approaches, and address issues concerning scale of measurement, and discuss the common error in distinguishing between conceptual (descriptive) and explanatory typologies. For a detailed review of these and a number of other issues relevant to the construction of typologies, readers are encouraged to visit Collier et al. (2012). Aside from properly developing typologies, typologies can and should be assessed with regard to their utility upon their construction. Specifically, Eppler et al. (2011) hold that “Good research is both: rigorous in execution and relevant to practitioners” (p. 3). Accordingly, the evaluation of typological research should entail the examination of both the theoretical and methodological rigor surrounding construction of the typology as well as the relevancy or applicability of the typology as it informs managerial thought and practice. Given that typologies involve a top-down approach and are conceptually derived (Doty & Glick, 1994), criteria used to evaluate traditional

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quantitative or inductive approaches cannot be applied in the assessment of typological work (Eppler et al., 2011). Instead, the evaluation of typological research involves the assessment of “credibility and subjectivity, contribution and generalizability of theoretical contributions” (Eppler et al., 2011, p. 3). More specifically, Eppler et al. (2011) surveyed the extant literature to compile a number of underlying elements which can be used to critique typologies. In particular, concerning the rigor with which the typology was developed, the authors contend that a management typology should (1) explicitly define the classification principle adopted as well as supporting theory, (2) differentiate between groups within the typology such that they are mutually exclusive, (3) define the scope of the classification system, (4) clearly define, via specific attributes, what constitutes membership within each category, and (5) denote explicit boundaries, consisting of inclusion and exclusion rules for group membership. By ensuring that such criteria are met, researchers will better establish and explicate their typologies, thus facilitating theory construction (Doty & Glick, 1994). In addition to evaluation based on rigor, typologies should also be evaluated based on their relevance to management. Accordingly, Eppler et al. (2011) recommend the consideration of five additional elements which can be used to guide the evaluation of a typology’s relevance. Specifically, to be relevant, typologies should (1) be structured in a simplistic and concise manner such that the typology is easily understood, (2) provide visual clarity through graphic representation, (3) offer utility in terms of theoretical or practical implications, (4) embrace typicality, using typical attributes to explain distinctions, and (5) provide unique and unambiguous labels to facilitate understanding and the distinction between categories (Eppler et al., 2011). Through the example of two typologies identified within the literature, Eppler et al. (2011) demonstrate the straightforward nature of their proposed evaluative approach, as well as the ease with which it can be implemented. Accordingly, by following the template provided by Collier et al. (2012) in terms of rigorous typology construction, and through the evaluation of resultant typologies based on rigor and relevance, we may better advance typological research through increased theoretical and methodological soundness.

Category-Based Configurational Theorizing The second decade of the 21st century has brought a major shift in configurational theorizing that emphasizes categories research (Kennedy & Fiss,

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2013). Categories “represent a meaningful consensus about some entities’ features as shared by actors grouped as audience” (Durant & Paoletta, 2013, p. 1100) or are produced by researchers, organizations themselves, or other actors (Editors, 2013). The process of assigning organizations as members to categories is called a categorization process (Hannah, Polos, & Carroll, 2007). This process, which is both cognitive and socio-cultural in its nature, sets often fuzzy borders among categories (Navis & Glynn, 2013), and is often modeled using fuzzy set theory (Baum & Lant, 2003). When an organization is assigned to a specific category (i.e., product market, product brand or process technology), this assignment of membership provides to external audience meaningful cues that are used for evaluation of the organization (Alexy & George, 2013). This evaluation is particularly relevant when the evaluated organization engages in new product launching or undertakes corporate venturing, as evidenced by the findings of studies conducted in the area of organization ecology (Hannah, 2010). Most categories research studies have been designed based on the assumption that categories are formed upfront to serve as sensegiving devices that provide meanings necessary for identification and evaluation of organizations (Foreman & Whetten, 2002; Hannah, 2010; Mervis & Rosch, 1981). This assumption originates from early studies on categorization that were designed based on the insights from cognitive psychology positing that organizational self-categorization based from the cues from the organization’s internal environment (Porac, Wade, & Pollock, 1989). Over time, category studies have taken more of a sociological frame studying audience categorization by audience enacting categories from the point of the organization’s external environment (Hsu, Negro, & Koc¸ak, 2010). Recently, initial efforts have been undertaken to bridge the two psychological and sociological approaches to the categorization of organizations (Corbett, Cornelissen, Delios, & Harley, 2013). Bridging different approaches to categorization is important for the uncovering of meanings embedded in categories of organizations. The uncovered meanings are instrumental to our understanding of how actors stratify organizational membership. This a complex task as meaning systems of producer and audience actors differ not only in their accuracy but also in their stability. Therefore, researchers are increasingly focusing on understanding the mechanisms of category recognition that are related to the underlying meanings’ stability (Staber, 2010). The emerging consensus is that the stability of meanings and related categories enables comparative evaluation of organizations relative to their position in the environment (Lounsbury & Glynn, 2001).

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The latest research line is grounded in the “ontological turn” in category studies, which is aimed at explaining the processes of “category emergence and dissolution” (Kennedy & Fiss, 2013, p. 1139). In particular, the researchers conducting these studies try to understand the ways in which organizations can make categories meaningful and relevant to various actors (Navis & Glynn, 2013). The main assumption is that organizations have a proactive agentic role in the categorization processes (Vergne & Wry, 2013). This means that the organizational agentic self-categorization is based on the assumption that organizations “try to shape category systems and influence the choice of categories into which they are classified” (Negro, Koc¸ak, & Hsu, 2010, p. 4), and, as a result of this agentic action, new categories may emerge (Fiol & Romanelli, 2012; Jones, Maoret, & Massa, 2012). Researchers have attempted to predict category emergence by configuring their multiple attributes and codes (Kennedy, Lo, & Lounsbury, 2010; Khaire & Wadhwani, 2010). Initial findings indicate that category emergence depends upon the extent to which the audience actors have the “capacity to make coherent sense of the categorical combinations they observe (Durant & Paoletta, 2013, p. 1112). This implies that researchers should configure not only category codes and attributes but also category meanings because they signal “identities” that point to “category naming” and reveal organizational “generative capabilities” to translate category meanings to others for their evaluation (Navis & Glynn, 2013, p. 1125). The emergence of new categories, which may refer not only to new categories of organizations but also to new categories of practices and strategies, is both constrained by external pressures imposed upon the organization and enabled by the organization’s proactive interactions with actors across multiple social networks in which the organization and actors engage to bring up new categories (Hannah, 2010). This process of producing and enacting new categories can be analyzed using Qualitative Comparative Analysis (QCA) as it combines “measures of multiple attributes into matrices” that capture how “cases are distributed in an ndimensional property space defined by these attributes” (Kennedy & Fiss, 2013, p. 1148). This in turn helps identify unfamiliar and unexamined configurations and the process of their change over time (Ragin, 2008). Alternatively, such configurations can be identified qualitatively through discourse analysis (Grant, Hardy, & Putnam, 2011; Mohr, 1998). The ontological turn in categories research, with its focus on explaining category emergence and dissolution, needs to be examined in terms of its philosophical assumptions. The ontological turn, which gives primacy to

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the plurality of worlds that are enacted (ontology) over the plurality of worldviews that are constructed (epistemology), is exemplified by ontological analysis. The ontological analysis is aimed at uncovering best practices that create the plural and diverse reality of the organizational worlds. For example, ontological analysis could uncover how best practices could be enacted to add value to organizational routines in which they are embedded. The ontological enactment of best practices accentuates both the agentic role of organizations and the enacting role of their audiences that shape the emergence and spanning of these practices as categories (Lynch, 2013; Woolgar & Lezaun, 2013). With its assumption of the “plurality of worlds,” the ontological analysis is aimed to unpack not only the diversity but also fluidity of labels naming categories of organizations and their best practices (Henare, Holbraad, & Westal, 2006, p. 11). The primary purpose of ontological analysis is to engage in “analyzing the norms embedded in practices while interfering in them through adding a novel, oblique analysis” (Mol, 2013, p. 38). These norms explain how the categories of practices interact to shape organizational identity (Navis & Glynn, 2013). Researchers engaged in the ontological analysis face, however, a latent tension between the philosophical foundations of category research (philosophical ontology) and the empirical foundations of the related methodology (practical ontology) (Kennedy & Fiss, 2013; Lynch, 2013). This tension needs to be resolved by establishing compatibility between the philosophical assumption about the diversity and plurality of worlds and the practical assumption about the emergence of categories through the processes of differentiation and identification. Specifically, the compatibility should be established between the philosophical ontology of “world making” and “world sustaining” (Lynch, 2013, p. 4444) and the practical ontology of “category emergence and dissolution” (Kennedy & Fiss, 2013, p. 1139). The ontological turn has particularly stimulated theorizing the dynamics of categorization among the categories with high levels of legitimization and acceptance (Hsu, Hannah, & Polos, 2011). This line of theorizing is focused on examining the advantages and disadvantages of category spanning vs. specialization that may entail typecasting by audience. The primary purpose of this theorizing is to predict the likelihood whether an organization’s new category entry will be legitimized by the audience. The success of this prediction would be instrumental to our understanding how categories eventually become institutionalized (Hannah, 2010).

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FUTURE DIRECTIONS IN THE APPLICATION OF THE PATTERN-ORIENTED APPROACH Given the numerous benefits of the pattern-oriented approach, particularly when combined with the variable-centered approach, we recommend an increased application and integration of pattern-oriented methodology within the organizational sciences. Of course, as we hope has become clear, there are a variety of approaches available to researchers interested in conducting this type of research, whether at an individual, patterned level, or at a broader, typological level. Nonetheless, as noted by Short et al. (2008), “The vast majority of configural research to date has focused on configurations composed of organizations. However, a number of organizational behavior frameworks could benefit from examining configurations composed of individuals” (p. 1070). Of importance to the current series, the emphasis on the individual is particularly beneficial within the human resources domain, as human resources management has as its focus employee personnel. Thus, garnering a better understanding of underlying individual processes, and their subsequent impact on organizational outcomes, is highly valuable. Accordingly, the following section describes several fruitful avenues for the application of this methodology within HRM and organizational research, both at the individual and organizational level. This brief review is not intended to be comprehensive; indeed, there are a plethora of potential applications of this approach. Instead, it is our hope that such topics may garner interest in this approach, serving as a catalyst for increased conversation and research in this domain, and we therefore encourage readers to challenge themselves in thinking of additional applications.

Strategic and International HRM Systems Perhaps of greatest importance to the current series concerns the implications for typologies and configurations as they relate directly to HRM, both domestic and international. In this regard, the configural perspective has “a useful insight about the internal aspects of the function, by means of the analysis of the synergic integration of the elements that build it. In this sense, the HRM system is defined as a multidimensional set of elements that can be combined in different ways to obtain an infinite number of possible configurations” (Martı´ n-Alca´zar, Romero-Ferna´ndez, & Sa´nchez-Gardey,

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2005, p. 637). HRM configurations have long been examined within the extant literature, with scholars attempting to classify various HRM systems in a variety of ways (e.g., Miles & Snow, 1978; Porter, 1980). Nonetheless, Patel, Thatcher, and Bezrukova (2013) contend that “Despite the interest in and importance of configurations in research for organizations, the empirical methods for assessing and classifying configurations has not kept pace with the theoretical advancements” (p. 287). Although on the one hand this suggests an outdated literature, it also implies a fruitful avenue for continued investigation. Chadwick and Capelli (1999) mirror this contention in a discussion of strategic human resource management (SHRM). In particular, the authors suggest that both empirical and theoretical advancements are limited, and that the generic typologies established within the SHRM literature are generally inaccurate and obsolete. In this way, empirical examinations should be grounded in and described with regard to the specific context that they seek to explain, as typologies which purport to summarize strategic HRM on the whole may misconstrue the range of insights and contributing factors of SHRM (Chadwick & Capelli, 1999). One potential explanation for this problem is the different goals adopted by researchers interested in SHRM. In particular, four goals can be identified including (1) how HR parties influence organizational performance outcomes, (2) how strategic organizational choices influence the development of HR parties, (3) how external fit can be established between HR practices and their general strategies, and (4) how the internal fit, or synergy, or HR parties influence organizational outcomes (Chadwick & Capelli, 1999). Researchers often differ in their intentions with regard to these goals. For example, Arthur (1992) tested a “strategic choice” proposition wherein they suggest that policies and practices are related to a firm’s business strategy. To do so, the authors examined typologies of business strategies (low cost and differentiation) and industrial relation systems (cost reducing and commitment maximizing), with results demonstrating that the two are interrelated. Also examining business strategy, Chao, Huang, and Liu (2008) identified patterns of HR practices (commitment, market, compliance, and collaboration) and business strategy (cost reduction, quality enhancement, and innovation), and examined these patterns as they relate to various organizational outcomes. Furthermore, Bae and Yu (2005) recently distinguished between two ideal types of configurations within HRM including (1) a control-based human resource system and (2) a highperforming human resource system. The authors further argued that organizations must make a choice between the two, and that this choice

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depends on the availability of resources as well as institutional force and strategic choice, in turn influencing the development of HR parties and subsystems (Bae & Yu, 2005). Through these few examples, it becomes clear that scholars often adopt different strategic definitions and that their corresponding goals with regard to their research differ. In addition to strategic considerations, configurational theory and methods can also inform HRM at the global level. According to Begin (1993), typical research examining international human resource management (IHRM) focuses primarily on how multinationals operate in other countries. Although this approach is useful in understanding the successful advancement of multinationals, Begin (1993) argues that a differing perspective, one which compares the HRM systems of different countries, warrants empirical examination as well. To this end, researchers would benefit from examining the extent to which consistent patterns of HRM systems can be found across nations, thus facilitating our understanding of the congruence between HRM systems in different contexts (Begin, 1993). This goal is arguably best achieved through use of a typology of international organizational HRM systems, which would identify ideal types of IHRM configurations optimal with varying contextual contingencies. Taken together, while there are a number of interesting questions to be addressed through the examination of strategic and international HRM configurations, future research would benefit first from clearly establishing its goal and the steps taken in the construction of configurations to more clearly explicate what the research seeks to examine and to reduce confusion concerning what it purports to accomplish. Further, as previously noted, where such research has been conducted, it often lacks in the empirical rigor needed to meet theoretical advancements. In this way, research in this domain would generally benefit from increased attention to both rigor and relevance of typology construction (e.g., Eppler et al., 2011) and from the application of the guiding framework provided here, as compiled from Collier et al. (2012) and Doty and Glick (1994) in doing so. Furthermore, while configurational approaches have also been applied to the international HRM domain, they have been sparse. As noted by Dickmann and Mu¨ller-Camen (2006), “given the importance of IHRM, it is surprising that relatively few studies have attempted to assess the IHRM configurations of worldwide operating enterprises” (p. 580). Specifically, the authors contend that empirical examinations concerning the types of IHRM configurations are underrepresented in the literature, thus providing an opening for future investigation.

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Personality and Individual Differences Personality, according to Allport (1937), is defined as “the dynamic organization within the individual of those psychophysical systems that determine his unique adjustments to his environment” (p. 48, as cited in Asendorph, 2006). In essence, then, personality as a construct consists of a withinperson organization, termed by Asendorph (2006) a “personality structure.” In such a domain, the person should therefore be at the center of focus. In fact, Carlson (1971) asked the question, “Where is the person in personality research?” and in seeking to answer the question, found that in the year prior to his investigation, not one published study held the person as the center of focus. Since Carlson’s (1971) investigation, research has arguably come a long way with respect to pattern-oriented examinations. In fact, personality psychology is perhaps one of the most advanced domains with regard to pattern-oriented methodology (e.g., Furr & Wood, 2013; Ketchen, 2013). However, this research has focused overwhelmingly on the identification of personality traits, rather than types (Asendorph, 2006) and has been largely ignored in the organizational literature. Thus, there is still a long way to go in both establishing prototypic personality profiles, and in extending the implications to organizational domains. For example, where patterned techniques have been applied to personality research, Furr and Wood (2013) contend that they are plagued in their simplicity, resulting in subsequent problems in terms of model coherence and ambiguity concerning analytic strategy and statistical issues. Concerning methods for dealing with such challenges, Furr (2008) and Furr & Wood (2013) provide a guiding framework that should prove beneficial in future investigations. Aside from patterned techniques, previous research adopting the between-entities, variable-centered approach has long examined the nomological network surrounding personality and various individual differences in hopes of better understanding construct relatedness and providing construct validation evidence. Within such investigations, personality has been assessed with regard other individual differences such as self-efficacy, career beliefs (Niles & Sowa, 1992), self-concept (Byrne, 1984), delinquency, psychopathology, and IQ (John, Caspi, Robins, Moffitt, & StouthamerLoeber, 1994), among others. By coupling the between-entities approach adopted within these investigations with the pattern-oriented approach, scholars would glean an increased understanding of the aforementioned dynamic and system-oriented nature of the personality construct, particularly as it relates to alternate individual differences, as claimed so long ago

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by Allport (1937). In particular, adopting the pattern-oriented approach would help us understand the “shared characteristics” (Buettner, BartleHaring, Andrews, & Khurana, 2010) among various personality traits, as well as commonalities found between both bright and dark sides of such traits (e.g., Judge, Piccolo, & Kosalka, 2009; Resick, Whitman, Weingarden, & Hiller, 2009). In addition, identification of various subgroups based on these shared characteristics would be made possible, and pattern-oriented analyses would enable the examination of the probabilities of which members of certain subgroups are likely to engage in certain behavioral outcomes of interest within the organizational context (Foti et al., 2012) such as performance, job satisfaction motivation, and turnover (Short et al., 2008), which, to our knowledge, have yet to be examined in such a fashion. Conceptualizing personality based on shared characteristics places personality in a configurational framework, thereby enabling researchers to “view personality as a complex pattern of relationships rather than a series of relatively discrete dimensions” (Short et al., 2008, p. 1070). Accordingly, an increased application of the pattern-oriented approach should elucidate personality types as opposed to traits (Asendorph, 2006), thus facilitating the integration of a seemingly disjointed literature and would provide a novel perspective from which to study this otherwise reasonably saturated literature (Wiegand et al., 2003).

Extra-Role Behavior A number of extra-role behaviors such as organizational citizenship behaviors, organizational commitment, and counterproductive work behaviors, among others, are likely explained by a number of shared characteristics. Indeed, previous research has linked organizational citizenship behaviors to organizational commitment, fairness, and leader support (LePine, Erez, & Johnson, 2002) as well as personal development, attitudes and moods, and interpersonal relationships (Spitzmuller, Van Dyne, & Ilies, 2008). Further, Van Dyne, Graham, and Dienesch (1994) found organizational citizenship behaviors to be related to job attitudes, workplace values, and motivation. Taken together, there likely exist underlying patterns associated with these extra-role behaviors. Nonetheless, such constructs and their interrelationships have not been subjected to a more in-depth analysis in accordance with pattern-oriented methodology. There are, however, several research questions that might be

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answered through the integration of the pattern-oriented approach with the more traditional approaches currently in favor. For instance, patternoriented methodology has implications for the combinations of behaviors individuals tend to engage in simultaneously as well as how such behaviors predict for later extra-role behavior as well as other organizational phenomena. In this way, the pattern-oriented approach would provide meaningful contributions by reframing such constructs in terms of their patterns rather than in isolation of each other. Given the increased emphasis that has been placed on extra-role behavior with regard to evaluative judgments within organizations as of late (e.g., Johnson, 2001), the undertaking of such research would be a timely one.

Motivation Similar to extra-role behavior, a number of theories currently exist which purport to influence motivational outcomes. Accordingly, Weiss and Rupp (2011a) point to the importance of a patterned approach with regard to work motivation. Specifically, they contend that motivation, particularly intrinsic motivation, is part of an employee’s experience at work, and that it should therefore be addressed via personal experiences. Although some researchers have started to adopt this perspective in their own undertakings of motivational research (e.g., Nielsen & Cleal, 2010), motivational research predominantly neglects such experiential and holistic components in favor of task characteristics and process links (Weiss & Rupp, 2011a). Such theories as goal-setting theory (Locke, 1968), expectancy theory (Vroom, 1964), job characteristics theory (Hackman & Oldham, 1976), social exchange theory (Blau, 1964), and social learning theory (Bandura, 1977), among others, would certainly benefit from the application of a pattern-oriented approach to research. Indeed, the configural stance would provide insight concerning the underlying patterns and probabilities of individuals engaging in various motivational behaviors and corresponding outcomes. One domain to which the pattern-oriented approach has been applied is goal orientations. For instance, profiles of goal orientation have been examined with regard to both subjective well-being (Tuominen-Soini, Salmela-Aro, & Niemivirta, 2008) as well as stability in academic performance and beliefs over time (Tuominen-Soini, Salmela-Aro, & Niemivirta, 2011). Such investigations have shed light on the distinct groupings of motivational profiles that exist with regard to goal orientation, in turn

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establishing their predictability, and demonstrating the applicability and utility of patterned approaches to motivational theory. Furthermore, given the highly interrelated nature of such motivational theories it is quite important to understand the facilitative or inhibitory nature of such motivational techniques when combined with alternate interventions. Additionally, in a broader context, the pattern-oriented approach would foster greater theoretical consensus among previously established theories and, particularly when coupled with an alternate method such as the variable-centered approach, could uncover myriad potential avenues from which to expand the literature.

Leadership Rather than focus solely on discrete leader traits, researchers have begun applying the pattern-oriented approach to leadership as a means to identify leader prototypes (e.g., Coyle, 2013; Foti et al., 2012). Pioneering the way for pattern-oriented analyses with respect to leadership, Foti and colleagues (e.g., Foti & Hauenstein, 2007; Foti et al., 2011, 2012; O’Shea et al., 2009) have demonstrated the utility of the pattern-oriented approach as both a dominant and complementary approach to organizational research. As previously noted, Foti and Haunstein’s (2007) research suggested that a pattern configuration of individual differences provided a more comprehensive and consistent understanding of leader emergence and effectiveness. In another study, Foti et al. (2012) assessed patterns of traits with respect to self and ideal leader profiles as a means to better understand the similarity hypothesis as it relates to follower preferences for leader profiles. In conducting this work, Foti et al. (2012) was able to assess both pattern-driven as well as trait-based constructs, offering convergence with alternate approaches while also providing a more comprehensive framework from which to understand the factors contributing to leader perceptions. Had Foti et al. (2012) not employed pattern-oriented methodology, the focus on prototypical leader behavior would have been lost, limiting the assessment and variability in leader-related outcomes. The leadership domain is thus at the forefront of research applying the pattern-oriented approach within organizations, and it has yielded a promising path for future investigation. For example, in a recent review of ethical leadership, Brown, Trevin˜o, and Harrison (2005) suggested that ethical leadership corresponds to a variety of leader traits including idealized influence, consideration, interactional fairness, affective trust, abusive

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supervision, and leader honesty. Similarly, the authors proposed that ethical leadership may result in a number of follower attitudes including leader satisfaction, leader effectiveness, extra effort, and problem reporting. In conducting such an assessment, one potential avenue would assess resultant behavioral patterns in followers as a response to prototypical ethical leaders. Zaccaro (2012) proposed yet another application of pattern-oriented methodology, suggesting that research examining individual differences and leadership would benefit from the adoption of such methodology. Continued research utilizing the pattern-oriented approach in the leadership arena should provide greater insight with regard to the interrelationship among various leadership theories as well as the traits of leaders who adopt certain leader styles. Additionally, it should serve to restructure the leadership domain, streamlining research in this area.

Career and Retirement Trajectories Burns (2013) recently spoke to the proliferation of typologies used in organizational research as a means to better understand and analyze career transition. One example of typological research in this domain holds that entrepreneurship, professionalism, and leadership (ELP) are three key dimensions which characterize boundaryless career concepts (Chan et al., 2012). In particular, patterns of each of these career aspirations are found by Chan et al. (2012) to serve as motivational profiles which in turn predict the extent to which individuals are likely to favor boundaryless and selfdirected career attitudes versus more traditional career attitudes. A similar stream of configural research has examined adjustment trajectories upon employee retirement, suggesting that retirees are not homogeneous in the processes by which they adjust to retirement (Hesketh, Griffin, & Loh, 2011; Wang, 2007). Accordingly, variables such as wellbeing and satisfaction (e.g., Wang, 2007; Pinquart & Schindler, 2007) as well as familial and societal considerations (Hesketh et al., 2011) have been considered in a configural nature with regard to retirement trajectories. In fact, such research has identified a number of transitional roles, falling under two profiles (individual and contextual), that influence the adjustment process upon retirement (Wang, 2007). Thus, where variable-centric approaches are adopted in the absence of complementary configural methods, important information will be overlooked. Researchers are therefore encouraged to continue pursuing research examining career and retirement trajectories through a configural lens as to identify additional factors which

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may contribute to the ease with which employees transition and ultimately retire from work. In addition to typological research as a methodological tool, Burns (2013) argues that three forms of typological thinking can be identified, including typology as method, typology as a method theory bridge, and typology as a theoretical mode, or tools to “think with.” With regard to these groupings, Burns (2013) holds that the final grouping, or the application of typologies for use as interpretive tools, is perhaps most effective. Specifically, according to Burns (2013), typologies should theoretically relate to broader social considerations and processes within the workplace. Accordingly, the reframing of typologies in this way (i.e., as thinking tools) and especially in the context of social considerations and processes as advocated by Burns (2013) should aid in extending the typological research applied in better understanding career and retirement trajectories.

Corporate Responsibility Ketchen (2013) recently reviewed configural theory and method within the organizational sciences, and in doing so, acknowledged the need for configural research applied to both corporate governance and corporate social responsibility. In particular, Ketchen (2013) notes that past research examining corporate governance has typically examined the influence of underlying variables in an independent or isolated fashion. In other words, research in this domain has predominantly adopted a variable-oriented focus. Nonetheless, these studies have often yielded ambiguous findings, likely as a result of the complexities and interconnectedness among governance factors (Ketchen, 2013). Thus, a configural approach to corporate governance research appears to be a favorable next step in this domain. Similarly, research in corporate social responsibility would also benefit from typological approaches. Indeed, “it would be difficult to identify a topic in greater need of more configurational thinking than corporate social responsibility. Any given firm’s approach to a social issue is driven by a complex milieu of organizational culture, managerial priorities, stakeholder pressures, industry norms, and other relevant factors. Meanwhile, a firm’s approach may vary across different issues” (Ketchen, 2013, p. 306). Clearly, configural or typological research would aid in identifying the underlying profiles or patterns characterizing socially responsible behavior. Even more, despite the common conception that corporate social responsibility is an organizational activity, Crilly, Schneider, and Zollo (2008) argue

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that there are a number of factors at the individual level such as employee affect, perceptions, values, and reasoning, which influence a manager’s likelihood to engage in socially responsible conduct. The authors further contend that corporate social responsibility has large-scale, if not primary, implications at the societal level, thus suggesting that research in this domain should be examined across the individual, organizational, and societal level. Nonetheless, scant research has empirically examined this contention, providing a fruitful avenue for scholars interested in doing so via configural or patterned approaches. Reexamination of Prior Theory and Data An additional point to address concerns the utility of applying configural or pattern-oriented techniques to previously existing theory and data. Revisiting past data by analyzing and interpreting it in a new light serves a function of replicability, but further, it stretches the research domain by providing new insight into already established research arenas. This goal can be accomplished by scholars through (1) the adoption of typological research to well-known organizational theory as a means of elucidating novel theoretical considerations and (2) the application of novel configural methodology to past examinations. The latter approach might entail a reframing and subsequent configural analysis of research that had previously been variable-centered. Alternatively, it might involve the application of newer, more advanced configural methods where typological research has already been established. As previously addressed, this process might require the reanalyzing of past data in hopes of uncovering previously undetected relationships and better establishing novel methodological techniques (Ketchen, 2013).

CONCLUSIONS At present, organizational science research is proclaimed to “operate within a system that obscures true knowledge generation” (Ferris et al., 2012, p. 97). As organizational scientists, we should strive to mend this system in an attempt to foster greater theoretical consensus, in turn facilitating divergent thinking that can lead to the “path breaking research” that we as researchers so deeply long for (Colquitt & Zapata-Phelan, 2007, p. 1287). Incorporating the pattern-oriented approach within HRM and organizational research

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offers one path toward this end by providing both integrative and novel conceptualizations of current theory. Similarly, the pattern-oriented approach should offer practical implications concerning the probabilities of individuals engaging in certain patterns of behavior based on their identified class. Most importantly, however, the pattern-oriented approach fosters an increased understanding and application of methods relevant to viewing organizations as complex holograms rather than simple machines or open systems, thus providing a more realistic and all-encompassing viewpoint from which to study organizational behavior. Nonetheless, while an emphasis has been placed on advocating an increased use of the pattern-oriented approach, it is worth noting that its applicability is dependent on the problem at hand. For instance, in the case that complex, structural interactions are not of key concern, simpler methods may be deemed preferable. However, pattern-oriented methods have utility in a variety of situations. Where such methods are applied, additional value may be found in integrating variable-centered and patternoriented approaches as a means to offer insight concerning both the processes and patterns influencing organizational outcomes (e.g., Laursen & Hoff, 2006). As noted by Kilmann (1989a), it is essential to confront complexity with a completely integrated system. In sum, we recommend that scholars interested in human resources management and broader organizational functioning further integrate patternoriented methodology within their research. The pattern-oriented approach is a feasible and beneficial method for researchers within our field and as such, we encourage researchers to be cognizant of its utility and to adopt corresponding methodology as deemed appropriate. Indeed, the adoption of the pattern-oriented approach should prove valuable, perhaps most notably by fostering a greater extent of fecund theoretical unification among subfields (Buckley et al., 2011), in turn enabling researchers to more accurately and clearly communicate their research story with others.

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THE ROLE OF REPUTATION IN THE ORGANIZATIONAL SCIENCES: A MULTILEVEL REVIEW, CONSTRUCT ASSESSMENT, AND RESEARCH DIRECTIONS Gerald R. Ferris, John N. Harris, Zachary A. Russell, B. Parker Ellen III, Arthur D. Martinez and F. Randy Blass ABSTRACT Scholarship on reputation in and of organizations has been going on for decades, and it always has separated along level of analysis issues, whereby the separate literatures on individual, group/team/unit, and organization reputation fail to acknowledge each other. This sends the implicit message that reputation is a fundamentally different phenomenon at the three different levels of analysis. We tested the validity of this implicit assumption by conducting a multilevel review of the reputation literature, and drawing conclusions about the “level-specific” or “level-generic” nature of the reputation construct. The review results permitted the conclusion that reputation phenomena are essentially the same

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at all levels of analysis. Based on this, we frame a future agenda for theory and research on reputation. Keywords: Organizational reputation; defining reputation; levels of reputation; antecedents of reputation; reputation theory

Reputation is something we learn to converse comfortably about, even at a relatively young age, under the assumption that it is a very important concept. Indeed, there is little more important to us as social beings than the “estimation in which a person or thing is commonly held, whether favorable or not” (“Reputation”, 1997). Witness the very long history of interest in this concept, whether it was actually referred to by this term or something similar. For example, duels and long, expensive legal battles have been fought over the importance of one’s name, status, image, standing, or reputation, which go back centuries as does Machiavelli’s extensive emphasis on personal reputation in his treatise The Prince (Machiavelli, 2001). Also, one of the hottest new books of this year discusses at great length those individuals who have developed reputations as either “givers” or “takers” (Grant, 2013). No less attention has been devoted to reputation in and of organizations over the years. For many years, Fortune magazine has published the results of its reputation index, and companies all over carefully monitor how they are perceived by their various constituencies, which include customers, financial investors, and the labor market. Unfortunately, there has been no systematic attempt to critically review and organize the vast literature on reputation in and of organizations to date, despite its recognized importance to the fundamental understanding of organizational behavior. In 2003, Ferris and his colleagues addressed the need for research in reputation, but they focused only at the individual level of analysis, specifically on “personal reputation in organizations.” In the present paper, we argue that reputation phenomena are essentially the same across levels of analysis, and we conduct a comprehensive critical analysis of the literature, organized by several key issues in this area of inquiry. Although the work of Ferris, Blass, Douglas, Kolodinsky, and Treadway (2003) serves as a foundation for our review, we also draw upon the work of numerous reputation scholars at the individual, unit/team, and organizational levels of analysis. From this broad perspective, we extract the common and defining characteristics of reputation, and then we draw conclusions about what we know and don’t know, and present these conclusions as a basis for developing important directions for future research.

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Studying reputation poses an interesting paradox in that it is intuitively accessible, yet scientifically elusive. Most people instinctively know what reputations are, and why they are important. Nevertheless, several distinct academic fields (e.g., marketing, management, and economics) have been studying reputation for decades, they readily acknowledge that the concept is complex, and also admit that there remains much to be learned about the topic. Furthermore, scholars have studied reputation in and of organizations for decades, and it virtually always has separated along level of analysis lines, whereby the separate literatures on individual, group/team/unit, and organization reputation are treated as totally independent, and typically they fail to acknowledge each other. This sends the implicit message that reputation is a fundamentally different phenomenon at the three different levels of analysis. Although this may or may not be an accurate framing of the reputation construct, it does represent the manner in which reputation scholars have approached the subject matter. To address the veracity of this framing, we conduct a multilevel review of the reputation literature, and draw conclusions about the “level-specific” or “level-generic” nature of the reputation construct. For example, Hollander (1958) argued that people earn idiosyncratic credits by simply complying with group norms, which subsequently they may exchange for the discretion to deviate from group norms. Much later, organization reputation researchers found that legitimacy is a precondition of reputation (e.g., Deephouse & Carter, 2005). In other words, organizations must act in accordance with socially prescribed dictates for some time before they can deviate from them, which is a path to forming an organization reputation by eventually differentiating itself from other firms. This example demonstrates how insights from one level may be comparable to, and profitably transferred or applied to, another level. We expect that an interesting and important new research agenda can be derived from a thorough cross-level analysis, and the conclusions that can be drawn from such a review.

REVIEW OF REPUTATION THEORY AND RESEARCH Nature of the Reputation Construct We emphasize three areas of investigation in our review: (1) the nature of the reputation construct, (2) antecedents, and (3) consequences. We begin our review with an analysis of the nature of the reputation construct.

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Individual Level Two recent reviews of individual reputation in organizations served as the base for our continued examination into this literature. Ferris et al. (2003) provided one of the most comprehensive reviews of individual reputation, drawing on sources from a variety of fields (i.e., accounting, sociology, economics, marketing, organizational theory), as well as theoretical perspectives in the management literature (i.e., power, recruitment, human resources reputation, impression management). Although each of these fields may refer to the concept we call reputation by a different name (e.g., accounting and good will, marketing and image, economics and reputation), in effect, they are all discussing the same thing (Shenkar & Yuchtman-Yaar, 1997). Based on this integration of work and understanding from a variety of fields, Ferris et al. (2003) defined personal reputation as “a perceptual identity reflective of the complex combination of salient personal characteristics and accomplishments, demonstrated behavior, and intended images presented over some period of time as observed directly and/or reported from a secondary source” (p. 215). Building on this foundational definition, Zinko, Ferris, Blass, and Laird (2007) attempted to further the theoretical understanding of individual reputation in organizations by developing a theoretical model for the creation, function, and outcomes of personal reputation in organizations, which underscored the importance of reputation denoting a deviation from the norm. Based on the definition proposed by Ferris et al. (2003), and the continued research in the area of individual reputation, there appear to be two key components to individual reputation: (1) the factors that inform reputation (e.g., personal characteristics, behaviors, images presented), and (2) the perceptions of others (e.g., observation, report, perception). Although not specifically a part of the Ferris et al. (2003) definition of reputation, there is an understood third component of reputation, which consists of the results of reputation, or the value and function of individual reputation. Informing Reputation. “Reputation is influenced by an individual’s personal characteristics and accomplishments, which reflect certain observable qualities or attributes of an individual” (Ferris et al., 2003, p. 216). The foundation of personal reputation is the evidence of an individual’s past behaviors, actions, and personality as well as their human capital (e.g., education) and social effectiveness (e.g., social skill, political skill; Zinko, Ferris, Humphrey, Meyer, & Aime, 2012). It is from this information and the observation of these actions that others are able to form perceptions

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about an individual. These perceptions then go on to form that individual’s personal reputation in that particular context. This distinction between internal cognitive and affective processes versus the observable behavior as reflective of reputation also has been addressed by Hogan in his research on personality (e.g., Hogan, 1983, 1991; Hogan & Shelton, 1998). Hogan’s conceptualization views personality as consisting of three broad categories of concepts: Motivation, identity, and reputation. The motivation concept assumes that fundamentally, people are motivated to “get along” (i.e., establish good relations with others), and to “get ahead” (i.e., to maximize control of power and resources). Hogan sees the identity concept as what he calls “personality from the inside,” and suggests that this refers to how we want others to think about us and how we think about ourselves, which collectively serve to guide one’s behavior in social interaction processes. Finally, reputation is the third personality concept in Hogan’s conceptualization, and he sees this as “personality from the outside.” Reputation refers to “how others think about and evaluate our efforts to get along and get ahead” (Hogan & Shelton, 1998, p. 142). Perceptions. In their review, Ferris et al. (2003) described reputation as “perceptual and highly subjective in nature, defined in the ‘eye of the beholder,’ more of a socially constructed reality than an objective one” (p. 216). This concept of perception by others is fundamental to understanding reputation, because, as Ferris et al. explained, reputation exists as a socially constructed phenomenon. Also, it is important to note that an individual is capable of possessing a number of reputations simultaneously, each within a specific context or environment. Function. Although not mentioned specifically in the definition provided by Ferris et al. (2003), personal reputation clearly does serve a function. As discussed later, a strong, positive personal reputation can provide an individual with a number of positive and desirable outcomes within organizations (e.g., increased power, higher performance evaluations). This function, and the definition of reputation previously proposed, suggests that reputation is not a static thing, nor something that simply springs suddenly into existence. Rather, reputation is temporal. It appears, grows, and changes over time. The development of a reputation is not necessarily a quick process. It can span years or even an entire career or lifetime, and yet it can be forever altered or destroyed with a large enough misstep. Two key processes go

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into the creation of a reputation: Development and maintenance (Ferris et al., 2003; Zinko et al., 2012). All told, the information, perceptions, functions, and temporal dimensions that make up what we understand as reputation combine together to create a sort of synergy that allows for the development and use of personal reputations in organizations. Leader Reputation. Because reputation is a social phenomenon, one’s reputation is likely to impact other individuals, groups, or organizations in a variety of forms as well. Leaders’ reputations, be they a CEO or the leader of a much smaller work team, can benefit the team or organization (e.g., using contacts to acquire greater resources), but such reputations also can come at a cost (e.g., increased decision latitude for the leader allowing the leader to make damaging decisions). Petrick, Scherer, Brodzinski, Quinn, and Ainina (1999) described leader reputation as a commodity, and as such, the associated reputational capital it provides is a key asset by which competitive advantage can be achieved and maintained. They suggested that, because reputation is such a core component to sustainable competitive advantage and, thus, success, organizations should go so far as to employ a chief reputation officer to actively monitor and manage the organizations,’ and its leaderships’, reputations. Leaders with positive reputations can provide many benefits for their organizations. Ranft, Zinko, Ferris, and Buckley (2006) found that “star” CEOs, or those with strong, positive reputations, received greater compensation themselves, and can improve the share prices of the company by inspiring confidence in investors. Additionally, these CEOs, with their established reputations and accompanying greater decision latitude, can allow their companies to reform in the image of their CEO and the CEO’s reputation. In terms of costs, the CEOs themselves can become scapegoats for failure and high expectations. Organizations may suffer when CEOs are constrained or commit some act of impropriety with their greater decision latitude (e.g., Enron). In sum, reputation is an important facet of leaders. It can result in both benefits and costs for the organizations they lead, and has many implications for both the leaders’ and the organizations’ success. Unit/Team Level Despite an increasing shift in the focus of work accomplishment and task performance from individuals to teams (Morgeson, DeRue, & Karam, 2010), few investigations have been conducted that address reputation in the unit or work team context (Bar-Isaac, 2007). Further, our literature search resulted in a scarce number of articles from traditional management

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and organizational science journals. Indeed, the search yielded many articles from economics, finance, and public relations journals. Studies that have explored reputation at the unit or team level generally can be classified as addressing one of the following three areas: the reputation of individuals within units/teams, the reputation of specific units/teams (e.g., top management teams, boards of directors, or human resources units) as proxies or signals of organizational reputation, or the actual reputation of work teams. The Reputation of Individuals within Units/Teams. There have been two distinct approaches to the study of individual reputations within teams. The first has assumed that those outside the unit/team (e.g., customers, investors, or other stakeholders) do not distinguish the reputation of the individuals within the team from the team itself (Bar-Isaac, 2007). That is, an individual’s actions can affect the reputation of the team. The second stream has assumed that units and teams are so large that one individual’s actions cannot substantially affect the reputation of the collective. Regardless of stance taken, the nature of individual reputation within teams has predominantly adopted a conceptualization of reputation as a signal to others in situations marked by incomplete information (Jeon, 1996). That is, reputation gives an indication of expected behavior, effort, and/or performance (Bar-Isaac, 2007) based on past performance. These expectations can be based on the direct monitoring of team members by others, or based on information gathered from others (Price, 2006). As Galang and Ferris (1997) noted, merely being present is not enough. Therefore, a behavioral conceptualization indicates that entities cannot maintain the same reputation while remaining static (Ching, Holsapple, & Whinston, 1992), whether the reputation in question is theirs or the team’s itself. However, the reputation of individuals sometimes can be subsumed by the reputation of other members of the team (Bar-Isaac, 2007), or of the team itself. For example, Ertug and Castellucci (in press) operationalized team reputation as the aggregate of individual member performance. Thus, the incentive to continue exerting effort is weaker in teams because of the “free rider problem” (Jeon, 1996). Further, Jeon pointed out that individuals’ reputational concerns are stronger if their abilities are less known, or if their partners’ abilities are better known. The Reputation of Units/Teams as Organizations. Similar to conceptualizations of individual reputation, people use reputation information to make decisions about units/teams (Jones, 1996), including decisions about

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granting legitimacy, a concept noted as related to reputation by Galang, Elsik, and Russ (1999). Legitimacy conferred through reputation can be informed by characteristics of teams. For example, Certo (2003) argued that investor perceptions of board of director prestige could serve as an indication (i.e., signal) of firm legitimacy during the initial public offering process. Alternatively, legitimacy/reputation can be transmitted by individuals within a department to other units/teams through boundaryspanning behavior (Jones, 1996). Relatedly, Galang and Ferris (1997) argued that HR departments signaled information about the firms through symbolic action. Jones (1996) related reputation to concepts like image, both of which signal firms’ key characteristics to their constituents. Similarly, Hannon and Milkovich (1996) noted that companies must maintain, and advertise good reputations, and that this could be done through departmental actions that serve as signals. Thus, signaling theory has been a popular approach to treatments of unit/team reputation as proxies or surrogates for organizational reputation. However, reputation is a very broad concept, which is evident from the number of different theoretical perspectives that have been used. Ferris et al. (2007a, 2007b), in their discussion of human resources (HR) department reputation, noted prior use of power, resource dependence, signaling, institutional, resource-based view, social comparison, social influence/impression management theories. Much of the attention to unit/team reputation in the organizational sciences literature has been focused on HR departments (e.g., Ferris et al., 2007a, 2007b; Galang & Ferris, 1997; Galang et al., 1999; Hannon & Milkovich, 1996; Jones, 1996). However, many of these treatments look at the construct of HR reputation, which has been defined as shared judgment of company’s HR philosophies, policies, and practices (Ferris et al., 2007a, 2007b). These studies often address the HR reputation of a firm in comparison to that of other firms (e.g., Galang & Ferris, 1997; Galang et al., 1999), rather than of the actual HR department’s reputation within the firm (e.g., Ferris et al., 2007a, 2007b). For example, Galang and Ferris (1997) discussed the differences in power and reputation of HR departments between firms, whereas Ferris and colleagues (2007a, 2007b) included discussions about the reputation of the HR department and its impact on the overall image of the organization. The Reputation of Units/Teams. As noted, there is little research addressing unit/team reputation in general, and even less devoted to the reputation of units/teams as stand-alone entities (Bar-Isaac, 2007). A few studies at this

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level, largely economic in nature, have examined sports team reputation (e.g., Czarnitzki & Stadtmann, 2002; Jones, Paull, & Erskine, 2002). Some have addressed the reputation of functional departments within organizations (e.g., Ferris et al., 2007a, 2007b). However, our literature search uncovered only one study that examined work team reputation within organizations (i.e., Tyran & Gibson, 2008). Much of the treatment of unit/team reputation has been similar to that outlined in the previous two sections discussing this level of analysis, in that team reputations are built based on prior behavior, and serve as signals about team capabilities and expected future performance. For example, studies using sports teams have noted that reputation was something built up over time based on historical performance (Czarnitzki & Stadtmann, 2002), or that was conveyed to other parties regarding prior team behavior (Jones et al., 2002). Thus, stakeholders (e.g., potential patrons or rules officials) had a source of information from which to base decisions about team performance. Also, examinations of units/departments have argued that power may be gained through reputation (Ferris et al., 2007a, 2007b), as HR departments have gained power through the development of a reputation for abiding by organizational norms (Galang et al., 1999). Further, Ferris et al. (2007a, 2007b) noted that HR department reputation depends on the ability of the department to meet expectations and demands of constituencies. Interestingly, very little consideration has been given to reputation as a team outcome. Rather, much of the team reputation literature has noted the importance of reputation as a factor in attaining outcomes (e.g., additional supporters, Czarnitzki & Stadtmann, 2002; increased revenues, Ertug & Castellucci, in press; more power, Ferris et al., 2007a, 2007b). However, Kilduff and Krackhardt (1994) specifically classified team reputation as an important team outcome defined as an opinion about a team. Tyran and Gibson (2008, p. 49) adopted this conceptualization in their study of retail banking teams, and noted that reputation was “an important outcome because it encourages subsequent interaction” with other parties such as customers, other teams, alliance partners, etc. Organization Level We examined two recent reviews as starting points for our analysis of the organization reputation literature. In his systematic review, Walker (2010) set out to address three fundamental problems in the corporate reputation literature: Definition, measurement, and theory. He concluded that reputation is multidimensional, issue specific, and dependent upon

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the stakeholders making evaluations. He also found that the three most common theories used in the literature were institutional theory, signaling theory, and the resource-based view of the firm. His findings enabled him to define corporate reputation as a “relatively stable, issue specific aggregate perceptual representation of a company’s past actions and future prospects compared against some standard” (Walker, 2010, p. 370). In another review of the organizational reputation literature, Lange, Lee, and Dai (2011) addressed the definition as well as antecedents and consequences of corporate reputation. They made the case that reputation is three-dimensional: “Being known,” “being known for something,” and “generalized favorability.” They stressed that these dimensions interact and also depend on the audiences making the evaluations, which makes reputation a complex construct. In our review of the organization reputation literature, we found that the nature of the reputation construct may be categorized by: (1) behavior, (2) perceptions, and (3) functionality. Firms and other related entities do things that inform reputations. Reputations involve interactions between perceptions of various internal and external stakeholders. Finally, reputations exist because they fulfill important functions. These three themes are discussed in turn. Behavior. It is intuitive to view reputations as symbols (or memories) of past actions. Some researchers have claimed that reputations amount to accumulated past actions of firms. According to Flanagan and O’Shaughnessy (2005), reputations can be thick or thin, depending on the quantity of observed past actions. A firm that is seen as very active typically will possess a thick reputation. From this point of view, the nature of reputation is that of an activity record. Of course, context matters. For example, a firm’s reputation is a function of its own market actions, as well as the market actions of its competitors (Basdeo, Smith, Grimm, Rindova, & Derfus, 2006). This perspective views actions of non-focal entities, such as competitors, as being important to the nature of reputation. Behavior remains the central element. Some researchers focus on the behavior of certain members of the firm. As an example, reputation is sometimes seen as something that is actively managed and significantly influenced by the firm’s top management team (Carter, 2006). Again, the central element is behavior. Another consideration, in addition to behavior, involves stakeholder perceptions of those behaviors. The nature of reputations can range from

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precarious to stable, depending on the actions of the firm and evaluations by their stakeholders. Mahon (2002) outlined a typology, where: symbolic actions viewed as substantive allow for free rider effects; substantive actions viewed as symbolic do not achieve optimum credit for the firm; symbolic actions viewed as symbolic lead to precarious reputations; and substantive actions viewed as substantive lead to the most stable reputations. The focal element of this conceptualization is firm behavior. In sum, the nature of the reputation construct involves behavior of the focal firm, and behavior of entities associated with it. It also involves the evaluations of behavior. In the next subsection, we discuss perceptions in more depth. Perceptions. Corporate reputations are collective (or social) representations (Bromley, 2000). Hence, some amount of consensus is involved in forming a reputation. This means that individuals do not unilaterally determine reputations. Indeed, Davies, Chun, da Silva, and Roper (2001) conceptualized organization reputation as being a collective term that incorporates all stakeholders’ impressions related to both image (i.e., external views) and identity (i.e., internal views). Thus, reputations are collective perceptions. Some researchers argued that the criteria for reputations vary with different stakeholders (e.g., see Cable & Graham, 2000). Cable and Graham suggested that social identity theory probably explains some of this variation; in particular, job seekers tend to evaluate reputations based on their own personal identities and needs. As another example, the media reputation of a firm is defined as its overall evaluation presented in the media (Deephouse, 2000). The author argued that media reputation is important because the media both influences and is influenced by the public. Hence, the media seems to be a significant linking factor for reputation creation. The main idea here is that how the collective is defined is an important factor in determining the nature of reputation, because different collectives may have different perceptions. The last point we make is that reputations also involve the nature of what is perceived. Some researchers (e.g., Gioia, Schultz, & Corley, 2000) have viewed reputation as a form of image (i.e., perceptions that are internal and external to the organization, both projected and received). Reputation may involve perceptions of certain properties. For example, some have argued that reputation consists of perceived quality and prominence (Rindova, Williamson, Petkova, & Sever, 2005). The perceived quality dimension is rooted in the economic perspective, whereas prominence is

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rooted in the institutional perspective. Hence, the nature of the reputation construct depends on what collectives perceive. In sum, the nature of the reputation construct includes how perceptions of firms are made, who makes them, and what perceptions are made. Collectives, not individuals, make the relevant perceptions. It is important to define the collective, because different collectives may hold different perceptions. Finally, things like quality and prominence are what are perceived. In the next subsection, we discuss the importance of reputations. Functionality. There seem to be two predominant functions of reputations: (1) to influence firms, and (2) to influence stakeholders. Reputations can be viewed as both a credit and liability to the focal firm (Rhee & Haunschild, 2006). The stakeholder expectations and increased visibility associated with higher reputations can be both an advantage and disadvantage. Particularly in the form of rankings, reputation is a potentially powerful form of normative control on firms (e.g., see Martins, 2005). In other words, firms with good reputations tend to acquiesce to outside expectations in order to maintain their reputations. Firms also view their reputations as feedback related to the credibility of the firm’s identity or self-definition (Whetten & Mackey, 2002). Hence, a perceived incongruence may influence change behavior. Reputations also influence stakeholders. Milgrom and Roberts (1982) viewed reputations as the bases of expectations in situations involving asymmetric information. In particular, potential new entrants rely upon reputations when gauging what existing firms might do when challenged. Based on institutional theory, reputation can be viewed as a measure of social approval (Staw & Epstein, 2000), which typically has a positive influence on stakeholders. Reputation emphasizes comparisons among organizations in order to determine relative standings (Deephouse & Carter, 2005). This implies that reputation includes more than legitimacy. In other words, a group of legitimate organizations may have different reputations. Hence, it helps stakeholders decide which firms, among a set of legitimate firms, to deal with. Or, to put it more succinctly, reputations reduce stakeholder agency costs. As a result, reputations may be viewed as intangible assets that can create value (e.g., Roberts & Dowling, 2002). In sum, the nature of the reputation construct involves control. Reputations constrain the firms who possess them. Also, good reputations positively influence stakeholders. Overall, the reputation construct functions as an important governing factor in the market. In conclusion, the nature of the reputation construct involves the interplay among behavior,

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perceptions, and functionality. At the organization level of analysis, these elements seem to align in ways that facilitate market coordination. Some scholars have argued that corporate reputation still lacks definitional clarity and theoretical development (e.g., Wartick, 2002). Perhaps one avenue for future research is to develop a theoretical framework based on these three elements.

Antecedents of Reputation Individual Level The framework of reputation proposed by Zinko and colleagues (2007) listed several antecedents of individual reputation, including aspirations of the individual, human capital, social capital, and attributions for the causes of individual’s behavior. Our review of the literature found support for these antecedents and revealed additional others that can be separated into three categories: (1) situation and the environment, (2) individual characteristics and behavior, and (3) perceptions. The situation and environment involves the context in which reputation is being developed and maintained. Individuals’ abilities and personal characteristics allow for them to develop a reputation within a certain environment. Finally, the way an audience perceives the environment and an individual’s behavior within the environment will impact the person’s reputation. These categories now are discussed in further detail. Situation and Environment. A primary aspect of a situation that is an antecedent of reputation development is uncertainty. People are unable to acquire information about every aspect of other people’s behavior. One of the primary tools used to fill gaps in information and help form an opinion of an individual’s reputation, is to evaluate the social networks of an individual (Anderson & Shirako, 2008). Siebert, Kraimer, and Liden (2001) found that through the development of social networks, social capital has a positive impact on career success. Social networks and centrality in these networks also has been found to impact reputation. Anderson and Shirako (2008) found that an individual’s centrality in social networks leads viewers to perceive an individual as a better leader, even when controlling for objective performance. The perception that an individual is central to a social network helped people to form stronger reputations for the individual, even when they were engaging in the same behaviors as those with less network centrality. Wong and Boh (2010) also

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found that a manager can benefit from having a network that offers a wide information exchange, and a lack of overlapping contacts. Advocates in the extended network can “spread the word” of a focal manager’s reputation. This is further evidence that the social environment in which an individual exists impacts the formation of reputation. A second environmental antecedent of individual reputation formation is behavioral norms and deviation from those norms. Organizations have social norms that are defined by the business and type of organization, and the level of the role or position within the organization (Tsui, 1984). Individuals may seek to deviate from the social norms in an effort to have others view them as they view themselves (Baumeister, 1982). As individuals generally think highly of themselves, they will observe what others, whom they aspire to emulate, are doing and the rewards those others receive in response to those actions. Individuals will then seek to imitate those actions with the hope that they too will receive the same rewards. When individuals deviate from the social norms, the audience will reevaluate these individuals based on the actions they demonstrate versus what was expected of them (Weick, 1979). In sum, the situational uncertainty regarding individuals and the social norms they are working within will influence the reputation formed. The centrality of individuals within a network, and the way they act relative to social norms, are important predictors of reputation. Individual Characteristics and Behavior. Another important category of antecedents of individual reputation involves the abilities and personality characteristics of individuals and their related behavior. These involve the human capital of individuals, their personality traits, and their social aptitude. Although many of these characteristics have not been directly related to reputation formation, they lead to behaviors that are associated with a positive reputation. Human capital was defined as a “composition of employees’ knowledge, skills, and abilities (KSAs)” (Ployhart, Van Iddekinge, & Mackenzie Jr., 2011, p. 353), that enable them to act in certain ways and perform at a certain level (Coleman, 1988). Whereas human capital involves education and expertise, Zinko et al. (2007) pointed out that studies have shown age, gender, and race also can play a role in human capital return on investment. For example, while age is often associated with seniority, a younger person who has reached a level of seniority equal to someone of a more advanced age may gain a reputation of being more successful and talented. Higher levels of education also can be perceived as a positive that would give an

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individual a positive reputation. A meta-analytic review by Schmidt and Hunter (1998) found that another KSA, general mental ability (GMA), is the single most important predictor of future job performance. Individuals’ high GMA, and thus potential for good future job performance, likely would impact their reputation in a positive way. A large stream of research has found certain personality traits to predict future job performance (e.g., Barrick & Mount, 1991). Again, as mentioned above, it is reasonable to expect the predictability of positive future job performance to impact reputation in a positive way. Another aspect of personality and social effectiveness found to positively affect individual reputation is political skill (Liu et al., 2007). Political skill enables an individual to navigate the social and political structure of an organization and to influence others by portraying a desired image. As such, political skill has been theorized and found empirically to be related to reputation (e.g., Blickle, Schneider, Liu, & Ferris, 2011; Laird, Zbjo, Martinez, & Ferris, 2013; Zinko et al., 2012). In sum, individuals’ capabilities and personality influence reputation development. This can occur through observers’ beliefs that certain KSAs predict future success, individuals’ ability to navigate the social structure of an organization, or through actual observed behavior over an extended period of time. Individual differences and abilities will impact the formation of reputation. Perceptions. A final category of antecedents of reputation is the audience’s perception of individuals, and the situation around them (Zinko et al., 2007). Time and the behaviors observed over time affect the perception an audience has of an individual. Additionally, how the audience attributes an individual’s behavior will impact reputation formation (Zinko et al., 2007). Generally, reputation is considered to be formed over time (Ferris et al., 2003; Zinko et al., 2007). Zinko and colleagues (2012) found that the combination of performance (career success) over a period of time was positively related to reputation. Furthermore, Anderson and Shirako (2008) found that an individual’s history of behavior was important, and became even more important as the individual’s network centrality increased. The observed behavior of an individual over an extended period of time impacts the formation of reputation. The attributions an audience makes for an individual’s behavior will impact the perception of that behavior and, in turn, the reputation formed. Politically skilled individuals are able to present themselves in a way that is perceived as positive by an audience (Treadway, Ferris, Duke,

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Adams, & Thatcher, 2007). Political skill leads to positive reputations through the presentation of an image that is desirable and alters the audience’s attributions. Individuals may perform the same behaviors as others, but the way in which they are able to present the behavior may change the attributions made for their benefit. Additionally, the network an individual has developed can influence the attributions of the audience. If an audience receives information from a third party that leads them to believe an individual has a positive reputation, an observed behavior that is contrary to what the audience was told may be attributed elsewhere (Wong & Boh, 2010). In sum, the length of time over which behaviors are observed can influence the perceptions of the audience. Additionally, the way the audience attributes behavior can be impacted by third parties and the individual’s political skill. In all cases, the perception of the audience will impact the formation of an individual’s reputation. This section regarding the antecedents of individual reputation identified three categories. The situation and environment involves the forces outside of the individual that will affect reputation. An individual’s abilities and personal characteristics are the features of individuals that they can use to navigate the environment to affect their reputation. Finally, the way the audience perceives individuals, and their interaction with their environment, will impact reputation. Noteworthy in the literature is that some research examined aspects of reputation that incorporate both situation/environment and personal characteristics and behavior. Indeed, Hall, Zinko, Perryman, and Ferris (2009) tested a model that positioned organizational citizenship behavior (OCB) and reputation as mediators of the relationship between accountability (i.e., in the work environment) and job satisfaction and performance. Specifically, accountability was hypothesized to lead to OCB, which led to reputation, which, in turn, was associated with job satisfaction and performance. The hypothesized model demonstrated strong support, and was superior to three alternative models tested. Unit/Team Level “Many factors may contribute to the formation of a teams’ reputation” (Tyran & Gibson, 2008, p. 49). Indeed, antecedents of reputation at the unit/team level, whether for individuals within teams, for teams as organizational proxies, or for actual units/teams, can be classified as actual team behaviors (i.e., prior performance), objective characteristics of the team and/or its members, or from third-party reports.

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Behaviors. Team reputation may be formed over time based on experience with the team or its members (Tyran & Gibson, 2008). For example, Price (2006) noted reputation within teams could be based on how much individuals actually contribute to the team or their perceptions of cooperativeness. Thus, individuals’ reputations for hard work or “free riding” were based on observations of prior contribution, or perceptions regarding whether previous absences were intentional and intended to skirt work. Similarly, Ertug and Castellucci (in press) used behavioral outcomes (i.e., prior NBA player performance) as an antecedent of player reputation formed by teams seeking to acquire player services. Finally, Galang and Ferris (1997) found evidence that the performance of symbolic actions contributed to HR department reputation, and Ferris et al. (2007a, 2007b) noted HR reputation was based on fair treatment of employees. Characteristics. Without actual experience with units/teams or with their members, constituencies may form perceptions regarding team reputation based on known information about the team. Thus, work team reputation may be formed based on the organization or division with which the team is associated (Tyran & Gibson, 2008). Similarly, in instances where teams (e.g., boards of directors) serve as proxies for organizations, characteristics of team members may provide information about the team. For example, Certo (2003) noted prestige as an antecedent of board of director, and subsequently firm, legitimacy. Specifically, he argued that investor perceptions of board prestige were formed based on the aggregate skill, experience, and social connections of the members that made up the board. Third-Party Reports. Finally, absent any direct behavioral or observational information about a team, constituents may form perceptions about team reputation based upon the reports of third parties. Thus, customers speaking highly (or poorly) about previous interactions with service teams or their members may serve as indicators of team reputation (Tyran & Gibson, 2008). Within organizations, this may occur as a result of boundary-spanning interactions between members of different teams (Galang et al., 1999). Evidence of the effects of such third-party communication regarding reputation was provided in the Jones et al. (2002) study on European football officials. Their simple manipulation priming football officials as to whether a team possessed an “aggressive” reputation resulted in significant differences in the severity of called penalties. To summarize, this section regarding the antecedents of unit/team level reputation identified three categories. Team reputation formation over time

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is based on experience with the team or its members. Absent experience with the team or its members, reputation is formed based on known observable information about the team. Lastly, absent any direct behavioral or observational information about a team, constituents may form perceptions about team reputation based upon the reports of third parties. Organization Level The review conducted by Lange et al. (2011) found that some of the key antecedents in the organizational reputation literature were performance, actions, industry, affiliates, and demographics. Our review of the literature revealed three main categories of antecedents of reputation: (1) circumstances and results, (2) behavior, and (3) perceptions. Circumstances, such as situations involving uncertainty, and results (i.e., especially a firm’s financial results) are key factors for reputation development. Certain behaviors demonstrated at the firm level and its associated entities lead to reputation formation. Finally, certain perceptions that are made in firms and their associated entities also help to form reputations. These three categories are discussed in more detail. Circumstances and Results. Two circumstances that are significant antecedents of reputation formation include uncertainty and evaluator characteristics. Asymmetric information is a fundamental requirement for reputation formation (Milgrom & Roberts, 1982). This makes sense, as reputations would be useless in situations involving high certainty. Bromley (2000) considered size (i.e., the number of individuals who form an impression) and degree of consensus to be two important antecedents of firm reputation. In other words, a collective consisting of many individuals, who agree on a particular firm’s attributes, would be more likely to predict reputation formation than a collective of just a few individuals with widely divergent views. Some organizational results that lead to firm reputation include isomorphism, financial performance, quality performance, and social responsibility. Antecedents of reputation include isomorphism and financial performance (Deephouse & Carter, 2005). Isomorphism helps to demonstrate legitimacy. Financial performance affects reputation because it is a proxy for future performance (e.g., Roberts & Dowling, 2002). Quality performance is another important antecedent (Rindova et al., 2005). For example, product defects (e.g., in the form of recalls) may diminish quality reputation (Rhee & Haunschild, 2006). Corporate social responsibility that fits the firm will increase its reputation (Brammer & Pavelin, 2006). On the

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other hand, corporate social responsibility that does not fit the firm will decrease its reputation. Therefore, corporate social responsibility is a case for balancing performance and fit. In sum, circumstances outside of the firm’s control can be antecedents of reputation formation, and, organizational results that may have been in the firm’s control also can be antecedents of reputation formation. Behavior. According to Milgrom and Roberts (1982), another important factor for reputation formation includes repeated actions that are observable, as past behavior is a proxy for future behavior. The quantity and complexity of a firm’s market actions determines its reputation, as well as the timing and similarity of its competitor’s market actions (Basdeo et al., 2006). Reputation is bolstered when competitors significantly lag the focal firm’s market actions, and when the focal firm’s repertoire of actions is similar to its competitors’ repertoire of actions. Firms may engage in particular actions to bolster their reputations. For example, firms whose actions followed popular management trends improved their reputations by gaining legitimacy or cultural support, even if adopting these trends did not actually improve their performances (Staw & Epstein, 2000). As another example, reputation management activities (e.g., advertising, press releases, press conferences, etc.), orchestrated by top management groups, are designed to increase a firm’s reputation (Carter, 2006). Behavior does not necessarily have to be isomorphic to improve reputation. Staw and Epstein (2000) found that media exposure also affected reputations. Deephouse (2000) implied that firms with media reputations are likely deviating, or perceived as deviating, from norms because deviations from norms make interesting stories. Hence, deviant behavior may benefit some firms in some situations. In sum, observable behavior that fits the situation tends to develop reputation. Sometimes a firm’s behavior ought to be consistent with its competitors’ behavior, and at other times it ought to deviate. Some actions that affect reputations are designed to influence reputations, and other actions are not intentionally designed to influence reputations. Finally, the focal firms are not the only influential actors (i.e., competitors, and other stakeholders, also are important). Perceptions. As mentioned in the previous section, reputations may be based on symbolic or substantive organizational actions, which are evaluated by stakeholders as being either symbolic or substantive (Mahon,

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2002). The most stable reputations are those based on substantive actions evaluated as substantive. Job seekers tended to consider industry, perceived opportunity for development, organizational culture, profitability, and previous exposure (and familiarity) as the key antecedents of firm reputation (Cable & Graham, 2000). Internally attributed negative actions, such as layoffs, negatively affect reputations of firms (e.g., Flanagan & O’Shaughnessy, 2005). Media reputation is informed by public knowledge and opinion (Deephouse, 2000). An important element of this view of reputation is stakeholder perception (i.e., whether accurate or inaccurate). Third parties may facilitate perceptions. Credible third parties, who provide feedback regarding organizational effectiveness, are important for reputation formation (e.g., see Martins, 2005). Signals that organizations send are antecedents of perceived ability, whereas influential third parties are important antecedents of prominence (Rindova et al., 2005). In the organization level literature, credible third parties seem to be one of the strongest determinants of firm reputation. In fact, Fortune’s Most Admired Companies rankings are the most commonly used measures of firm reputation (Walker, 2010). Outside perceptions are not the only perceptions to consider. A firm’s identity claims are probably the most predictive characteristics of an organization; hence, are important antecedents of reputation (Whetten & Mackey, 2002). How an organization defines itself will lead to actions and perceptions that aim to support that identity. The objective is to create an image that is consistent with identity. Therefore, a firm’s perceptions (i.e., of itself and of others’ evaluations) are important antecedents of reputation formation. To conclude this section regarding antecedents of reputation, we identified three general categories at the organization level. Circumstances and results are environmental and historical preconditions that affect reputation formation. Behavior and perceptions are more immediate factors that affect reputation formation. Finally, the collective nature of reputations suggests that focal organizations, as well as other actors in their fields, are significant for reputation formation.

Consequences of Reputation Individual Level The consequences, outcomes, or indicators of personal reputation in organizations generally are both positive and desirable because “the indicators

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of an effective personal reputation include the work-related outcomes we typically use as a measure of success in organizations” (Ferris et al., 2003, p. 229). Based on the conceptual model of reputation presented by Zinko et al. (2007), there are two primary groups of outcomes stemming from reputation: direct consequences (e.g., discretionary behavior, power, performance, compensation) and indirect consequences (e.g., individual wellbeing, career success). Direct consequences of an individual’s reputation impact the individual relatively immediately, whereas indirect outcomes occur as a product of the direct outcomes. Further, because reputation involves the perceptions of others, these consequences impact not only the individuals but the perceiving others as well (e.g., influencing supervisors’ performance evaluations). Tinsley, O’Connor, and Sullivan (2002) found that novice negotiators, when told that a negotiating opponent has a reputation for distributive (competitive) negotiation, were less likely to create, invest, and maintain a relationship with their opponent. In this study, the more experienced negotiators were hurt by their distributive reputations to the degree that they were unable to outperform their novice opponents. In contrast, in the control group where no reputations were discussed, the experienced negotiators were much more successful than their novice opponents. In sum, it was found that the reputation of an individual, whether justified or not, affected the actions of others in a way that impacted the success of the principal individual. Power. As the reputation of an individual improves and increases, the power of that individual also increases (Pfeffer, 1992). Of the five bases of power proposed by French and Raven (1959), reputation most directly impacts two: referent power and expert power. Referent power refers to the desire of others to be associated with the individual holding this power, as the simple association may reflect well on the others’, and may, in fact, improve the power or reputation of the others. Similarly, expert power comes from the perception that an individual is particularly skilled or possesses some expertise in an area and, thus, the individual to whom others defer regarding the topic for which the individual has the reputation of expertise. Both of these bases of power are products of others assigning the power to an individual based on their knowledge of the individual and the individual’s reputation (Zinko et al., 2007), further illustrating the importance of the perceptions of others with regard to reputation. The other three bases of power (i.e., reward power, coercive power, and legitimate power), while

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less directly influenced by an individual’s reputation, are still subject to its effects. An assessment of a subject’s likelihood to exercise reward, coercive, or legitimate power, would be based on their reputation for such use or nonuse in the past, thereby increasing the predictability their use or nonuse in the future. Power in organizations allows individuals to act and get things done within the organization. Additionally, an individual’s power can be used to accomplish tasks and improve the individual’s reputation, which, in turn, can improve the individual’s power (Pfeffer, 1992). In these ways, power stemming from a personal reputation can be viewed as analogous to the resources garnered by organizations at the higher organization level of analysis. Performance and Compensation. Because performance evaluations typically involve a rather subjective process and open to influence by others (Ferris & Judge, 1991), it would follow that a rater’s perception of an individual’s performance likely could be swayed and distorted by that individual’s reputation (Zinko et al., 2007). Again, reputation serves as a substitute for complete information, and individuals can work to manage their reputations in an active attempt to manage the impressions, and thus the ratings, given to them in a performance evaluation context. Similarly, reputation can impact an individual’s compensation. Wade, Porac, Pollack, and Graffin (2006) found that individuals with stronger reputations were more highly rewarded than their peers with weaker reputations. Some previous research has suggested that an individual’s strong reputation in a particular area (e.g., reputation as an expert in an area) can be linked directly to the financial compensation that individual receives (Bartol & Martin, 1990). Similar to the relationship between power at the individual level of analysis and resources at the organization level of analysis, the performanceand compensation-related consequences of personal reputation are similar to the concept of “affinity” for an organization derived from the organization’s reputation. Discretionary Behavior. As noted earlier, an individual’s reputation can serve as a substitute for complete information, with observers assuming and expecting individuals to behave in accordance with the reputation they have established with past behaviors. As individuals continue to develop their reputations, they tend to be given a greater level of discretion in their behaviors (Diamond, 1989). This is likely because the more well established and defined an individual’s reputation, the more likely others are to trust that the individual will behave in a particular way (Zinko et al., 2007).

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Again, as with the consequences of power and performance and compensation, discretionary behavior parallels an organization level consequence of reputation; that is, expectations. Much like organizations are held to certain expectations based on their established reputations, individuals can be given a measure of discretion in their behavior and decision making related to their personal reputations, but with the expectation that they will perform in accordance with their reputation. Indirect Consequences. Zinko et al. (2007) noted that the outcomes of reputation do not end with the direct consequences, but in addition, there are a number of indirect consequences experienced by individuals as a result of their reputations. These indirect consequences stem from the benefits provided by the direct consequences of reputation. Two key indirect consequences of an individual’s reputation are the individual’s promotions and career success and the well-being experienced by that individual. Positive personal reputations can improve individuals’ chances of being favored for promotion within their organization, or considered for quality positions in other organizations. Individuals who have a reputation for meeting expectations and being successful are more likely to be advanced and rewarded than those who have a reputation of falling short of expectations (Tsui, 1984). Strong reputations can have the ability to perpetuate themselves, with a positive reputation allowing for the ability to improve one’s reputation (Zinko et al., 2007). For example, because a positive reputation can contribute to more positive performance evaluations, individuals’ reputations influence others’ impressions and, thus, can impact promotion considerations and decisions. Because the outcomes of a positive personal reputation are, themselves, positive, and generally desired by individuals in organizations, it stands to reason that the individuals experiencing these positive consequences have an improved state of subjective well-being (Zinko et al., 2007). Hall et al. (2009) explored and were able to further establish this by demonstrating that personal reputation served as a key linkage between accountability and both an individual’s job satisfaction and their job performance. Unit/Team Level As a result of the most common operationalization of reputation at the unit/team level (i.e., ranges of scores from lower to higher or better reputations), reputational outcomes generally are associated as positive. Further, unit/team level consequences generally could be conceptualized as being financially or nonfinancially related.

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Financial Consequences. Although there is some debate over whether reputation determines performance or performance determines reputation (Hannon & Milkovich, 1996), the results of several studies at the unit/team level of analysis have indicated that there is quantifiable financial value of unit/team reputation. Ulrich (1997) argued that progressive HR departments (i.e., what he called Human Resource Champions) add substantial value to organizations in their own right. Several studies regarding HR have shown that HR reputation does have an impact on the greater organization (Ferris et al., 2007a, 2007b). More specifically, Hannon and Milkovich (1996) found effects of HR reputation signals on subsequent firm share price. For example, they quantified the impact of Proctor & Gamble’s placement on the “best companies for working mothers” list as a $162 million increase in market value. Additionally, Bar-Isaac (2007) noted that in service (e.g., law and engineering) and related industries, the reputations of teams directly dictates price, as price is determined in advance of service by expectations of the clients regarding future performance. Relatedly, team reputation, in this regard, can drive financial performance by increasing customer attraction and retention (Tyran & Gibson, 2008). Further, team reputation can signal constituents regarding the greater organization. Pfeffer and Salancik (1978, p. 145) noted “prestigious or legitimate persons or organizations represented on the focal firm’s board provide confirmation to the rest of the world of the value and worth of the organization.” Similarly, Certo (2003) argued that board of director reputation would impact subsequent initial public offering price by enhancing firm legitimacy. Nonfinancial Outcomes. Team reputation also can result in nonfinancial consequences. In addition to attracting and retaining customers (Tyran & Gibson, 2008), team reputation can aid in the attraction and retention of employees (Hannon & Milkovich, 1996). For example, Brooks (1994) noted that some employees sought to join teams within the organization because of reputations for enthusiasm. Consistent with attraction, there is some evidence from HR investigations that reputation can influence the attitudes and behaviors of current employees (Acito & Ford, 1980). Additionally, simultaneous investigation of the effects of reputation on quality and revenues found that team reputation has a stronger effect on quality than on revenues (Ertug & Castellucci, in press). Further, team reputation often is considered an outcome of team effectiveness (Tyran & Gibson, 2008) rather than as a direct effect on financial performance. To this end, in some instances (e.g., Pelled, 1996) team

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reputation was included as part of a measure of team effectiveness. Also, Galang and Ferris (1997) used social influence theory to argue that increased symbolic actions by HR departments lead to impressions of increased strategic importance of HR departments. Results of this study indicated that the HR departments that displayed more symbolic actions were able to perform a wider range of activities. Finally, reputation, as prior knowledge about a team, could affect any number of individual, other team, or organizational decisions. Jones et al. (2002) argued that heuristic decision-making theories indicate that entities use prior knowledge to inform current and future decisions. Jones et al. (2002) found that priming European football officials with information about the aggressive reputation of certain teams influenced the severity of the fouls called, but not the number of fouls called, when viewing video footage of football matches in an experiment. This touches on an important point raised by Tyran and Gibson (2008) regarding the impact of team reputation on outcomes. That is, it is important that the object of reputation match the outcome criteria. For example, the aggressive team reputation impacted the severity of the foul called, which often requires a subjective judgment of attribution of intentionality. Relatedly, Tyran and Gibson (2008) pointed out that team reputation for customer service would be expected to impact team ratings for customer service. However, reputation for customer service may be a result of extended time spent with customers. Thus, customer service reputation may not be related to objective performance or to overall effectiveness ratings from an external team leader who bases effectiveness on other criteria. Organization Level The previous review by Lange et al. (2011) found that some of the key consequences in the corporate reputation literature were economic outcomes, perceivers giving reputable firms the benefit of the doubt, liabilities to fulfill expectations (somewhat negative), and other generally positive outcomes such as attracting employees and customers. We identified three general categories of consequences of organization reputation: (1) resources, (2) affinity, and (3) expectations. Good reputations are viewed as intangible assets. Organizations with good reputations are more liked. Finally, reputations produce certain expectations that must be met. These outcome categories are discussed in some more detail below. Resources. Based on the institutional view of reputation, consequences of a positive reputation may include the securing of valued resources and/or

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external support (Staw & Epstein, 2000). Reputation affects financial performance (e.g., see Roberts & Dowling, 2002). The authors argue that this is partly due to customers valuing associations with reputable firms, and their willingness to pay premiums. A valuable consequence of a reputation is its ability to reduce uncertainty that stakeholders face; as a result, reputable firms can command price premiums (Rindova et al., 2005). Roberts and Dowling (2002) also explained that employees may work harder, and for less compensation; and finally, that there would likely be lower transaction costs with suppliers. Reputations also provide a base of power for organizations. The ability to direct the attention of the public (i.e., to frame) is a function of reputation (Mahon, 2002). Thick positive reputations can absorb single negative actions (Flanagan & O’Shaughnessy, 2005). Organizations with robust reputations have more power. In short, good reputations are intangible assets (Roberts & Dowling, 2002), and also regarded as valuable resources that can be leveraged (e.g., Fombrun, 1996). Affinity. Stakeholders tend to prefer organizations with better reputations. There is a higher likelihood that stakeholders would want to exchange resources with more reputable firms than with less reputable firms, due to increased confidence and reduced perceived risks (e.g., Basdeo et al., 2006). Reputations affect individual impressions of organizations (Bromley, 2000). As one example, organization members’ identification with their firms is a consequence of organization reputation (Whetten & Mackey, 2002). As another example, the study conducted by Cable and Graham (2000) implied that job seekers would be more likely to apply for jobs at firms with better reputations. Resources and preferential treatment are typically positive consequences of reputation. In the next subsection we discuss some less positive consequences of reputation. Expectations. Reputations inevitably are tied to expectations. Reputations are associated with stakeholder expectations and increased visibility (Rhee & Haunschild, 2006). For example, a firm with a reputation as a predator will deter new market entrants (Milgrom & Roberts, 1982). This is because new market entrants expect these firms to live up to their reputations as predators. Obviously, this would be a positive result for firms wanting to deter new market entrants. In terms of increased visibility, media reputation influences public knowledge and opinion (Deephouse, 2000). This brings more stakeholder expectations. For example, customers may expect consistent quality from more reputable firms.

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Reputations exert institutional pressures on organizations to change and adapt to acceptable criteria (e.g., see Martins, 2005). This kind of pressure may or may not be viewed as a positive consequence of reputation. Reputation, as a form of image, affects a firm’s identity, often acting as a destabilizing force on identity (Gioia et al., 2000). In other words, reputation is a form of feedback that an organization uses to think about itself. As a final point, organizations with higher reputations are expected to deviate from norms, whereas organizations with lower reputations are expected to conform to norms (e.g., see Deephouse & Carter, 2005). In a way, this is the market’s way of assigning roles to different organizations, based on merit. This notion considers reputation as a market coordinating mechanism. In conclusion, organizational consequences of reputations include attainment of resources, affinity, and expectations. Analogous to individuals moving up in hierarchies, increased organizational reputations seem to be associated with increased rewards as well as increased responsibilities. Hence, perhaps requiring the meeting of expectations is one reason that reputations generally are built on demonstrated merit. Meeting higher expectations requires more ability, and those organizations that meet expectations deserve rewards and esteem.

RESULTS AND CONCLUSIONS FROM REVIEW We assessed the validity of the implicit assumption (i.e., that there are substantial differences in the way the reputation construct appears to operate, be defined, and otherwise reflect similar or truly different phenomena at different levels, with similar or different antecedents and consequences) by conducting a multilevel review (i.e., individual, unit/team, and organization) of the reputation literature, and drawing conclusions about the “levelspecific” or “level-generic” nature of the reputation construct. The review results informed the conclusion that reputation phenomena are essentially the same at all levels of analysis. Based on this, we report review results and conclusions, and frame a future agenda for theory and research on reputation.

Level Generality of Reputation: Collective Characterization of the Construct Comparable Antecedents and Consequences across Levels of Reputation A review of the reputation literature has revealed similar antecedents and consequences across the three primary levels of reputation (i.e., individual,

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unit, organizational). Antecedents common to across the levels involve the role of behavior and characteristics expressed over extended periods of time, the context within which the entity is acting, and the perceptions of stakeholders. Consequences common across the levels involve the value gained and the rewards granted to the entity. Behavior, and its consistency over extended periods of time, has been found to influence reputation. At the individual level, researchers have found an individual’s political skill (Liu et al., 2007), performance, and history of behavior over time (Anderson & Shirako, 2008) influence reputation, and that individual KSAs including GMA (Schmidt & Hunter, 1998) predict future performance. At the unit level, Ferris et al. (2007a, 2007b) reported HR department reputation was based on the behavior toward and treatment of employees, and Ertug and Castellucci (in press) found player reputation was impacted by the behavioral outcomes of teams attempting to acquire player services. At the organization level, the literature reveals that the quality of performance (Rindova et al., 2005) behavior management by executives (Carter, 2006), and isomorphism and financial performance (Deephouse & Carter, 2005), all impact reputation. The literature shows clearly that the past behavior and performance of an entity over time impacts reputation at all three levels of reputation. The situation surrounding an entity and the way stakeholders perceive behavior within the situation also influences reputation. At the individual level, researchers have found that uncertainty influences reputation formation. An individual’s centrality in a social network influences perceptions of reputation (Anderson & Shirako, 2008), and third parties’ can provide information and affect individuals’ reputations (Wong & Boh, 2010). At the unit level, Tyran and Gibson (2008) found team reputation was formed over time, and was based on the experience with team members and the team as a whole. Also, unit level reputation was found to be greatly influenced by the reports of third parties and stakeholders perceptions of teams based on these third-party reports (Jones et al., 2002; Tyran & Gubson, 2008). Researchers at the organization level found asymmetric information is a requirement for reputation formation (Milgrem & Roberts, 1982). Stakeholders also form evaluations of organizational culture and profitability over time (Cable & Graham, 2000), and are often influenced by credible third parties that can impact the perception of an organization’s reputation (Walker, 2010). The literature across the three primary levels of reputation reveals that the situation surrounding an entity and the perceptions of stakeholders is a consistent antecedent of reputation.

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The literature review found the consequences of a good reputation to be primarily positive. There is great consistency in the consequences across the three levels which can be summarized into the value gained by an entity and the rewards received by an entity. At the individual level, Pfeffer (1992) found that reputation gives one increased power, which in turn, permits access to resources that allow individuals to accomplish tasks and further improve their reputation. Reputation also leads to increased compensation (Wade et al., 2006), and greater discretion in individuals’ behavior (Diamond, 1989). Unit level research also found a relationship between reputation and access to resources. Hannon and Milkovich (1996) found that teams with positive relationships were able to better attract and retain employees, and may even improve the attitudes and effort of current employees (Acito & Ford, 1980). Additionally, it was found that positive unit level reputation is positively related to financial performance (Hannon & Milkovich, 1996; Tyran & Gibson, 2008). At the organization level, researchers have found that reputation leads to increased power (Mahon, 2002) and increased access to resources (Staw & Epstein, 2000). Researchers also found that reputation leads to increased financial performance (Roberts & Dowling, 2002), and allows organizations greater discretionary behavior and the ability to influence institutional norms (Deephouse & Carter, 2005). The literature clearly reveals similar consequences across the three primary levels of reputation. As the summary of the antecedents and consequences just reviewed visibly shows, there are great similarities across the three primary levels of reputation. This suggests that reputation is a singular construct that can be studied and understood across multiple levels, and that it is an invisible asset and resource that can be leveraged to gain access to other resources. Dimensionality of Reputation Scholars studying the reputations of organizations have discussed the multidimensionality of the reputation construct. Rindova et al. (2005) proposed that reputation is made up of two dimensions prominence and perceived quality and that these dimensions have different predictors and performance consequences. Rindova, Petkova, and Kotha (2007) viewed organization reputation as being represented by the dimensions of visibility, strategic character, favorability, and esteem. Additionally, Lange et al. (2011) focused on three dimensions of organizational reputation: Being known, being known for something, and generalized favorability. As noted by Lange et al., the Rindova et al. (2007) four dimensions map on to Lange et al.’s three dimensions as follows: Visibility is similar to “being known,”

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strategic character being similar to “being known for something,” and favorability and esteem align with “generalized favorability.” Scholars in the field of social psychology have identified several dimensions of reputation including expertise, trustworthiness, competence, and objectivity (see Pornpitakpan, 2003 for a discussion). Those individuals who have developed more favorable reputations tend to be viewed as more trustworthy (Ostrom, 2003), competent, and legitimate, (Gioia & Sims, 1983), which seem to collapse conveniently into the two dimensions of performance/results (from which “competence” can be extrapolated) and character/integrity. Zinko et al. (2007) argued that reputation is reflected by the two basic higher-order dimensions of performance/results and character/integrity. Furthermore, Laird, Zbjo, and Ferris (2012) demonstrated empirical support for the reputation construct consisting of these two underlying dimensions. It seems clear that a past record of consistent performance, producing results, is what fuels the performance/results dimension. However, the character/integrity dimension seems a bit broader, and probably is driven by a number of different types of behaviors demonstrated in the past, including prosocial or citizenship behavior, as well as behaviors that reflect an “other orientation” by providing assistance and support to others (e.g., Flynn, 2003; Flynn, Reagans, Amanatullah, & Ames, 2006). Indeed, as Grant (2013, p. 77) noted: “there’s something magical about getting the reputation as someone who cares about others more than yourself. It redounds to your benefit in countless ways.” Also, we might argue that the two dimensions of performance/results and character/integrity are virtually identical to the two principal types of job performance criteria: task performance and contextual performance, respectively (e.g., Borman & Motowidlo, 1993). Mayer, Davis, and Schoorman (1995) suggested that when individuals are perceived to be trustworthy, others tend to evaluate them to also possess high dependability and integrity. Therefore, increased research attention has been focused on how reputations for trustworthiness are developed (Burt, 2005; Kreps & Wilson, 1982). Recently, Wong and Boh (2010) demonstrated that a manager’s social contacts and those contacts’ networks can influence the manager’s reputation. Prominent in past research on reputation at all levels of analysis is the notion that past performance is a prominent antecedent, because it provides confidence in the prediction of future entity performance. For example, Rindova, Pollock, and Hayward (2006, p. 54) characterized organization reputation as the “beliefs of various stakeholders regarding the likelihood that the firm will deliver

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value along key dimensions of performance (Rindova & Fombrun, 1999), chiefly product quality and financial performance.” The other dimension that focuses on character/integrity found by scholars studying reputation at the individual level (Laird et al., 2012; Zinko et al., 2007) seems to have much in common with Lange et al.’s (2011) dimension of “being known for something” in this case, being known for consistently demonstrating high-quality behavior. However, we would add a third dimension to reputation dimensionality, which gets at Lange et al.’s notion of “being known,” and what Rindova et al. (2005) describe as “prominence.” These both make reference to just how well or widely known is some entity (e.g., individual or organization). Thus, it appears that performance/results, character/integrity, and prominence represent the three core dimensions of reputation. However, we would tend to agree with some previous research that suggested that although prominence is very important for reputation, it is not an actual dimension of reputation, such that it serves as a correlate of the other two dimensions. More specifically, we tend to agree with Boyd, Bergh, and Ketchen (2010) who provided support for a reputation model that showed reputation as leading to prominence, which then led to a measure of business school performance. It might be the case that through demonstrating reputation performance/results and/or character/integrity, individuals become better known (i.e., more prominent). Characterizing Reputation Reputation has been characterized, described, and defined in a number of ways at the individual, unit/team, and organization levels of analysis. Issues that have been associated with reputation have indicated that it is a resource (Fombrun, 1996), it has value (e.g., Rindova, Williamson, & Petkova, 2010), is based on past behavior (Ching et al., 1992; Jensen & Roy, 2008; Raub & Weesie, 1990; Weigelt & Camerer, 1988), serves to guide and predict future behavior (Baumeister, 1982; Whitmeyer, 2000), is associated with and influenced by stakeholder expectations (Podolny, 2005; Tsui, 1984), and it is based on direct observation and/or information from third parties (Anderson & Shirako, 2008; Bitekine, 2011). These and other observations from our multilevel review of the literature allow us to extract several common conclusions that characterize and define the reputation construct: 1. Reputations have value. 2. Reputations are resources to be leveraged.

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3. Reputations are retrospective and time-dependent, focusing on patterns of past behavior over time. 4. Reputations are perceptual, reflective of a shared view by others (i.e., collective assessments or judgments), which can be the result of direct observation, and/or third-party accounts transmitted via “word-ofmouth.” Thus, reputations can appropriately be construed as socially constructed realities. 5. Reputations are short-hand synopses of more detailed information about the entity, which contributes to efficiency in communication. 6. Reputations are sensitive to social networks and positioning/centrality within such networks. 7. Reputations are informational they reduce uncertainty or ambiguity. 8. Reputations can be influenced by both distinctiveness (i.e., differences from a norm or others) and inclusion (i.e., similarities to a norm or others). 9. Reputations are reflective of intentional efforts involving “signaling” of information to stakeholders in the marketplace. 10. Reputations are associated with stakeholder expectations for future behavior. These 10 observations and conclusions from our extensive literature review help better characterize and define the reputation construct as it operates at all three levels of analysis, and frame future directions for research in reputation. However, to collapse all ten of these issues and observations into the development of a single definition of the reputation construct would be difficult if not impossible to accomplish in a reasonably concise or succinct way. Thus, as we have highlighted above the key aspects we have seen in the reputation literature over the past decade and more, we feel that the definition of the reputation construct presented by Zinko et al. (2007, p. 165), that expanded somewhat on the Ferris et al. (2003) definition, with some minor modifications, can serve as a useful general definition of our multilevel reputation construct as: Reputation is a perceptual identity formed from the collective perceptions of others, which is reflective of the complex combination of salient entity characteristics and accomplishments, demonstrated behavior, and intended images presented over some period of time as observed directly and/or reported from secondary sources, which reduces ambiguity about expected future behavior.

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DIRECTIONS FOR FUTURE RESEARCH Our review suggests that reputation is a multilevel construct, that reputation is essentially the same thing at each of the levels of analysis examined (i.e., making it difficult to defend a level-specific designation for this construct), and that reputation phenomena reflect patterns of relationships replicable across different levels of analysis. Therefore, we chart an agenda for future research that is aimed at developing a more informed understanding of entity reputation.

Measurement of Reputation Once we have clarity on the nature and characterization of the cross-level reputation construct domain, and its underlying dimensionality, the next step is to decide how to most accurately and representatively measure reputation in ways that precisely and fully tap the construct domain. This is where theory and method need to work closely together, and where method and measurement need to closely reflect theory and construct characterization and definition (e.g., Van Maanen, Sorensen, & Mitchell, 2007). In the sections that follow, we examine both the objective and subjective measurement of reputation, review what approaches have been taken in past research, and propose some future directions to consider. Objective Assessment In their review, Lange et al. (2011) concluded that reputation is considered by many to be an objective characteristic of an organization, despite the fact that those who subjectively perceive the organization and its actions play a part in creating it. However, because there is this objective element or interpretation of reputation, there have been some attempts made to objectively measure reputation, or a dimension of reputation, particularly at the organization level of analysis. For example, Shamsie (2003) captured reputation through the objective measure of a firm’s market share and dominance in their particular industry. Deephouse and Carter (2005) used an objective measure of financial performance and objectively coded positive and negative descriptions in the media as their measures of financial and public reputation. Dimov, Shepherd, and Sutcliffe (2007) used media visibility and past investments as

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their measure of organizational reputation. Further, research by networks scholars also has sought to directly assess an individuals’ reputation based on those individuals’ networks, their use, and their history of interaction in highly objective computer simulations (Sabater & Sierra, 2005). Despite these attempts to objectively measure reputation, the perceptions inherent in the formation and operation of reputations have led to most reputation measurement being subjective in nature. Furthermore, some of the abovementioned measures of objective reputation appear to confound an entity’s reputation with its performance, which further complicates the nature of the reputation construct, and does nothing to clarify. Subjective Assessment Reputation has been subjectively assessed at multiple levels in a variety of ways. The subjective measures of reputation vary considerably, from very simple, one-dimensional measures that essentially just ask whether an individual, team, or organization has a good reputation (e.g., Gioia & Sims, 1983) to more detailed, multidimensional measures of reputation (Hochwarter, Ferris, Zinko, Arnell, & James, 2007; Rindova et al., 2005). Other measures have attempted to capture reputation in specific contexts or through the fulfillment of particular demands (e.g., reputational effectiveness and satisfying multiple different demands and constituencies; Tsui, 1984). A reasonably large amount of reputation research at the organization level has used the Fortune’s Annual Most Admired Companies (AMAC) list to assess an organization’s reputation, particularly in relation to other organizations (Lange et al., 2011). This is a perceptual assessment of organizations on a large scale, with selected individuals rating large organizations in their industry on eight attributes related to reputation. There is some concern about the use of this measure, as it does not actually appear to measure much more than firm financial performance (Chun, 2005; Fryxell & Wang, 1994). Although information on financial performance is valuable and can explain some degree of firm reputation, the other factors are lacking. Also, the Fortune AMAC approaches reputation as essentially a one-dimensional concept, which might be an oversimplification of the richer, multidimensional nature of reputation that other measures are able to tap (e.g., Hochwarter et al., 2007; Rindova et al., 2005). The 12-item reputation scale developed by Hochwarter and Ferris in 2007 is the measure that has been used in much of the empirical work published at the individual level of analysis in the past five years or so

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(e.g., Hall et al., 2009; Hochwarter et al., 2007; Laird, Perryman, Hochwarter, Ferris, & Zinko, 2009; Laird et al., 2012; Laird et al., 2013; Zinko et al., 2012). Consistently, it has demonstrated good reliability, and in some studies, the two-factor structure (i.e., performance/results and character/integrity) has emerged cleanly (e.g., Laird et al., 2012). If scholars studying reputation wished to continue using that measure, they might be well advised to add items tapping a third dimension, as suggested above, which would get at “prominence” or how well-known one is. That being said, it may be an opportune time to consider the development of a new measure that might be able to provide more precision in measurement, and which captures the full extent of the reputation construct domain. We would simply underscore the importance of increasing research activity in this important area. Another example is the measure used by Rindova et al. (2005) who also take a subjective, multidimensional approach to their measure of reputation, examining empirically the two dimensions of perceptions of quality products and perceptions of organizational prominence. Again, these are subjective assessments based on the perceptions of the observer of the organization and the organization’s actions, but this measure does capture the prominence dimension mentioned earlier as a likely valuable inclusion in any further measures of reputation. Additionally, the measure of reputation developed by Rindova and colleagues goes beyond the traditional pencil and paper ratings of how “good” an organization’s reputation is and employs more direct measures of observers’ perceptions of perceived prominence by allowing raters to nominate the organizations they would like to rate rather than simply rate a list of organizations. This more natural means of capturing this dimension of perceived prominence may be the most effective means of assessing this otherwise difficult dimension, or it could at least provide a foundation for future reputation measure development. The Harris Poll Reputation Quotient is an example of a measure of an organization’s reputation that incorporates both subjective and objective elements (Harris Interactive, 2013). This measure of corporate reputation examines 20 unique attributes grouped into six larger areas of corporate performance over a year (i.e., vision and leadership, social responsibility, emotional appeal, products and services, workplace environment, financial performance), aggregating an organization’s scores in order to determine the organization’s reputation score, which can then be compared. Some of these categories are primarily subjective (e.g., emotional appeal), while others are primarily objective (e.g., financial performance). This

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combination of subjective and objective assessment might be worth considering in future measure development for reputation. One other emerging area of interest in the study of reputation across all levels of analysis deals with the increased use and importance of social media (e.g., Twitter, Facebook, LinkedIn) for individuals, teams, and organizations. Presence on social media gives everyone, from individuals to complete organizations, the opportunity to interact with their networks and connections and provides the opportunity to engage in reputation management and creation. With social media use becoming more ubiquitous, assessing how this impacts reputation becomes more relevant. Beyond that, an individual or organization’s use of these social media tools and the reactions online to their actions and statements might be used as a sort of measure of that entity’s reputation. For example, at the individual level, one example of an assessment of one’s online and social media reputation is a Klout Score (klout.com), which is a measure of one’s potential influence online based on online activity and others’ responses to that activity. Further research into reputation in a work-related context could attempt to tap into similar means of assessing online and social media presence for individuals, teams, and organizations.

Current Status of Reputation Theory There actually is no theory of reputation, and one never has been proposed. Instead, reputation research to date has tended to use other theoretical bases or foundations to support the operation of reputation, like signaling theory (Spence, 1974, 1973), social and political influence theory (see work by scholars such as Tedeschi & Melburg, 1984; Ferris, Treadway et al., 2007b, etc.), and even social and emotional contagion theory. Walker (2010) found that the three most common theories used in the organization reputation literature were institutional theory, signaling theory, and the resource-based view of the firm. Bergh, Ketchen, Boyd, and Bergh (2010) argued that new theoretical insights are needed for the field of organization reputation. They proposed some new thinking about reputation that draws from the resource-based view, transaction cost economics, signaling theory, and social status research. Further examination of the literature at the individual level of analysis indicates that the predominant theory used in reputation research is signaling theory. Much of the reputation research in the field over time has been conducted in economics, focusing on game theory or other decision

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theories. The reputations of individuals, units/teams, or organizations tend to reduce stakeholder uncertainty (Rindova et al., 2005), and Posner (1997) argued that reputation utilizes an important “signaling” function to reduce uncertainty. Originally developed in the field of economics, signaling theory refers to behaviors that transmit information to the marketplace about individuals’ abilities and intentions (Spence, 1974, 1973). Additionally, signaling represents an intentional attempt to persuade observers when uncertainty or ambiguity (i.e., incomplete information) exists. As such, signaling serves to increase salience of work environment stimuli (e.g., reputational signals) by promoting attentional focus (Taylor & Fiske, 1978), which distinguishes reputation in observers’ eyes. Appeals have been made for research examining how signaling relates to such nonobservable qualities as reputation (Ferris & Judge, 1991). Hannon and Milkovich (1996) used signaling and efficient market theories to explain how the reputation of HR departments might influence share price, arguing that HR announcements (e.g., through press releases) by organizations had the effect of signaling investors in the marketplace. This all reinforces the point that reputations can be characterized as socially constructed realities, perhaps even more so than objective realities (Ferris et al., 2003; Rao, 1994; Tsui, 1984). At the organization level, researchers found that legitimacy is a precondition of reputation (e.g., Deephouse & Carter, 2005), and others have discussed the similarities and differences between legitimacy and reputation (Bitektine, 2011; Whetten & Mackey, 2002). Signaling theory suggests that, in the absence of information about a new venture’s legitimacy, a venture capitalist firm may send a “reputational signal” to the field about the worth/value of the firm by making an investment. In some ways, this is similar to the effect of social networks on reputations (Mehra, Dixon, Brass, & Robertson, 2006), where there are key individuals who occupy critical positions, and they can promote or stall reputation building by others. Building on this perspective is the notion of influential “intermediaries” or “brokers” involved in the formation of corporate reputations (e.g., highend retailers for new manufacturers, prestigious investment banking firms for IPOs). This idea of “renting” reputation from high-status intermediaries is a concrete reputation-building possibility worthy of further investigation. A resource-based view of organization reputation characterizes it as an intangible asset that significantly contributes to organizational performance as a source of sustained competitive advantage due to its inimitable nature (Barney, 1991; Fombrun & Shanley, 1990; Galang et al., 1999; Gioia et al., 2000). Similarly, researchers in this area have tended to regard reputation

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as a resource to be leveraged in order to gain or maintain competitive advantage (Fombrun, 1996). Boyd et al. (2010, p. 588) proposed an alternative approach to the reputation-performance relationship “that draws on the resource-based view (RBV) wherein reputation is an intangible asset that is composed of complementary and reinforcing relationships whose synergies create causal ambiguities that have positive performance implications. The findings suggest that reputation cannot be bought by additive and independent investments. Instead, enhancing a reputation requires managers to carefully nurture interdependencies and complex relationships.” Also, reputation has been characterized as an outcome of legitimization processes (Galang et al., 1999; Suchman, 1995), suggesting that legitimacy theory can inform research on reputation. Staw and Epstein (2000) used institutional theory to suggest that reputation can be regarded as an indication of social approval, which tends to influence stakeholders positively. Institutional theory also emphasizes comparisons among individuals or organizations to determine relative standing and reputation development. Reputation emphasizes comparisons among organizations in order to determine relative standing (Deephouse & Carter, 2005), which implies that reputation includes more than legitimacy. For example, a group of organizations identified as legitimate all might reflect very different reputations, thus serving to help stakeholders decide which specific organizations to develop relationships with, among the entire group of legitimate firms. Other scholarship in the field has demonstrated the influence of reputation on the behavior and attitudes of relevant audience constituencies. More precisely, as individuals are seen as developing more favorable reputations, they are progressively more inclined to be afforded the “benefit of the doubt” (Greenberg, 1990), and this work relies on Hollander’s (1958) notion of how individuals accumulate “idiosyncrasy credits.” This rationale suggests that those with more favorable reputations are permitted more behavioral discretion, which allows them to deviate from contextual norms and expectations without being penalized, including demonstrating behavior seen as uncharacteristic of others or the organization (Ashforth & Gibbs, 1990). Finally, social identity theory also has been used in reputation research. For example, Cable and Graham (2000) suggested that job applicants evaluate reputations of organizations relative to their own personal identities, thus suggesting that social identity theory explains some of this job search variation. There has never been proposed (i.e., at any level of analysis) a theory of reputation. Instead, other theories (e.g., signaling theory, resource-based

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view, social exchange) have been used individually and sometimes integratively in combination as conceptual foundations driving the hypothesis development process. Admittedly, developing a grand theory of reputation will be no easy task, and in fact, the reason that it has not happened yet is that it may be impossible to incorporate all that needs to be included in a grand theory, suggesting that we focus more on middle-range theory development in this area (Pinder & Moore, 1980).

Absence of Reputation Research at Group/Unit/Team Level Perhaps the least researched area of reputation in the organizational sciences is at the group/unit level of analysis. Some scholars have noted this gap in the literature, calling for investigation about the effects of group membership on personal reputation development (Laird et al., 2012). Although some classic research on power and influence (e.g., Salancik & Pfeffer, 1974) has employed measures of collective perception similar to reputation to examine groups and units, reputation-specific research at this level is severely lacking. Some recent exceptions are Ertug and Castellucci (in press), which examined how the reputations of teams in the NBA affect hiring, team performance, and salaries. Similarly, another study looked at the impact of a team’s aggressive reputation on the how referee’s assessed penalties against individual players (Jones et al., 2002). In another study, Ferris, Perrewe´ et al. (2007a) examined the reputations of HR departments/units in organizations. Given the prevalence of the use of work groups and teams to accomplish goals in today’s organizations (Morgeson et al., 2010), and changes in the design and structure of organizations in the past several years regarding the nature of work and jobs (e.g., Cascio, 1995), it seems that team reputation could be an important next area of inquiry in this area.

Reputation at Higher Levels of Analysis Further investigation into reputation at higher levels of analysis is a potential avenue for future research. Authors from many disciplines have investigated reputation at a fourth and even fifth level of analysis involving the reputation of specific industries and countries, respectively. Research into reputation at these higher levels use definitions of the construct very similar to the definition introduced above. Winn, MacDonald, and Zietsma (2008,

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p. 37) defined industry reputation as “the collective judgments of an industry by stakeholders and the general public, where that judgment is based on assessments of the economic, social, and environmental impacts attributed to that industry over time.” Barnett (2006b) introduced a dynamic model demonstrating how firms utilize collective action to combat legitimacy threats to a shared industry. He proposed that once legitimacy is regained, firms once again focus on individual activities with the purpose of creating a unique and enhanced reputation. Firms seek to attain as different a reputation as possible while maintaining the industry legitimacy that has benefited all. Further, Barnett (2006b) proposed that, throughout the life of an industry, the level of collective action by firms to maintain industry reputation will vary. Early in an industry’s life, collective action is high in order to gain legitimacy and build reputation for the industry. Upon legitimacy being gained, firms will turn to individual actions until a threat to the industry legitimacy arises. In reaction to the threat, firms will rapidly increase collective action to combat the threat until legitimacy is regained, and then once again return to individual reputation-building activities. As an industry matures and may be approaching death, firms will see fewer rewards for collective action, and will be less likely to respond to legitimacy threats. Barnett (2006a) proposed that the level to which a firm dedicates resources to collective activity is moderated by a firm’s market share, similarity to other firms, and strength of ties to the industry. Winn and colleagues (2008) found that firms will overcome rivalry to collectively protect industry reputation, often by supporting trade associations. However, if faced with a large crisis, some firms would break away to try new reputation protection strategies that alter the norms of the industry. This was particularly common among large and influential firms that possessed the resources to alter industry norms in an effort to improve industry reputation. In sum, the research that does exist suggests that industry reputation has an influence on a firm’s reputation, and often demands the resources of a firm when legitimacy of an industry is threatened. Firms will dedicate resources to collective action to regain legitimacy before rededicating resources to improve individual firm reputation. For quite some time, the marketing literature has examined what is called the “country of origin” effect. Bannister and Saunders (1978) described it as “generalized images, created by variables such as representative products, economic and political maturity, historical events and relationships, traditions, industrialization and the degree of technological virtuosity will have effects upon consumer attitudes additional to those

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emanating from the significative element of products.” Reuber and Fischer (2011) found the country of origin effect to impact the purchase of software downloads over and above quality signals. The findings showed that negatively viewed countries’ products were less likely to be downloaded if the product was perceived as risky. The expansion of international trade makes national reputation more significant. Consumers typically view countries that are in close proximity to be of higher quality and to have higher reputations (Jaffe & Nebenzahl, 2001), and distant countries will likely seek to overcome this reputational disadvantage. The way countries market themselves and progress their reputations may impact their industries, firms, and citizens. Future research should delve further into the study of reputation at these higher levels of analysis. The ways they interact and spillover to influence the lower levels of analysis may explain phenomena that are not fully understood at present.

Valuation of Reputation A number of sources have discussed the idea that reputations have value (e.g., Ferris et al., 2003; Rindova & Fombrun, 1999; Rindova et al., 2005, 2010). However, there needs to be more precision in the thinking developed in this area if the next logical step is taken in future research, which is to attempt the measurement of reputation’s value in some systematic, generalizable, standardized unit of measurement. Ferris et al. (2003, p. 92) stated, “In one of the few attempts to define reputational capital, Fombrun (1996) suggested that it is ‘the amount by which the company’s market value exceeds the liquidation value of its assets’.” This is a useful definition from an organizational perspective, but it is also helpful when considering personal reputation. First, his definition suggests that reputation is something greater than the sum of its disaggregated parts, and second, it implies a market of exchange.” Also, it has been suggested that reputations may be viewed as intangible assets that can create value (e.g., Roberts & Dowling, 2002). In fact, it is the complexity and intangibility of reputations that render them potential sources of sustained competitive advantage. The early evidence from the legal profession might indirectly address how much reputations are worth. That is, when people sued in a court of law to preserve their reputation (or remedy the damage done to it), the punitive and compensatory damages sought and awarded might provide an approximation of just how much one’s reputation is worth. Assigning

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economic value to a reputation would not be easy to do in a precise fashion. However, one might look to the “human resource accounting” literature of the 1970s 1980s for some information on procedures involved in determining the value of a human asset or in this case, the reputation reflected by that human asset (e.g., Geffin, 1980). If we can come up with a way to measure the economic value of a reputation, we can make better sense (or even be prescriptive) about how highly people with certain reputations are compensated (see Bok, 1993). Taking a purely economic position, one would probably argue that, in an efficient market, a reputation is worth what someone is willing to pay for it (e.g., however, self-limiting behaviors and other factors might affect the precision of such a measure). Furthermore, how reputation is conceptualized, defined, and measured, along with this valuation process, should address the key issue of whether reputations increase in value, decrease in value, or remain constant over time.

Reputation Effects on Self versus Others The research on reputation effects typically has investigated effects on others, at any level of analysis (i.e., some other group, individual, or constituency). However, we also might suggest that reputation can exercise effects on self as well, and perhaps these relationships are different than effects on others. For example, reputation could exercise influence on one’s job attitudes, such as job satisfaction, organizational commitment, and so forth. Also, one’s reputation could have stress-related consequences, or even moderate the stressor strain relationship in ways that could exacerbate or diminish the dysfunctional consequences of strain reactions to stressors. Furthermore, and recognizing the “nested” nature of reputation at different levels, the reputation of one’s team or organization can influence the manner in which one is treated by others (Jones et al., 2002).

Cross-Level Effects The proposed similarity of the reputation construct across levels of analysis also could allow for more accessible investigation into cross-level reputational effects. Research into group leader or CEO reputations and the relationships between those individuals and their groups or organizations provides a sort of base for continued research into cross-level effects of

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reputation (e.g., Petrick et al., 1999). Further investigation could, for example, examine how the reputation of an individual is influenced by the reputation of the organization with which that individual is associated. Alternatively, the opposite causal directionality could be investigated whereby the hiring of a highly reputable individual (e.g., scientist, researcher) substantially affected the reputation of the organization or research team he/she joined. Finally, it might be there case that there are reciprocal effects regarding the reputations of individuals, units/teams, and organizations. It is unclear if the influence, effects, and potential transfer of reputation operate in a bottom-up fashion (i.e., reputation at lower levels of analysis impact reputation at higher levels) top-down fashion (i.e., reputation at higher levels of analysis impact reputation at lower levels), or both. Further research into the cross-level effects of reputation and the influence that the reputation of one level (e.g., organization) has on the reputation at another, associated level (e.g., individuals in the organization) will allow for better understanding of this. According to a recent Fortune list, seven of the top ten most admired companies in the world (i.e., Apple, Google, Amazon, Starbucks, Southwest Airlines, Berkshire Hathaway, FedEx) are considered “one-man phenomena” or “the reflection of a single individual” (Colvin, 2013). This raises an interesting question in terms of the research into cross-level reputations in organizations: How does the reputation of the individual affect their organization? Or is it the organization that influences the reputation of the individual? Or both? Additionally, this is a large increase over the single “one-man phenomenon” found on the list when Fortune originally published it in 1983. Perhaps there is some reputational aspect of the individuals, the organizations, and their entwined reputations that could help to explain this increase. Understanding reputation as essentially the same at all levels of analysis should allow for continued research and understanding into how these levels of reputation interact and influence one another.

Nonlinear Effects of Reputation Virtually all of the research on reputation to date has examined only linear relationships with outcomes of interest, with the assumption that more is always better. However, we might question this logic in all cases. Indeed, it might be worth pursuing the notion that, in some cases, increases in reputation produce positive outcomes only up to a certain point, beyond which

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there are diminishing returns, or that the continued increases in reputation even can begin to produce negative outcomes. So, the issue of whether there is an optimal level of reputation, versus the idea that more is always better, might be worth pursuing in future research.

Reputation as a Mechanism of Influence When reputation information is actively publicized, presented, and leveraged, it is being used as a form or mechanism of influence, and as such, we can examine it in similar ways that we do other forms of influence. More specifically, we need to separate the actual behavior (i.e., the reputation itself) from the effectiveness in skillfully presenting it in ways that allow for it to have influential effects. So, much as we have seen that political skill is needed to make influence tactics effective, reputation information might need politically skilled individuals to effectively execute or leverage the reputation information in ways (i.e., give it the proper degree of “spin”) that allow it to have the desired impactful effects. For example, Berkson, Ferris, and Harris (2002) proposed a conceptualization of recruitment process and effectiveness, which suggested that skilled recruiters can make a competitive difference in the quantity and quality of recruits obtained by the organization through their successful efforts at promoting and “selling” attractive features (i.e., viewed as resources) of the organization context (i.e., with specific reference to the organization’s reputation). How well such resources are effectively leveraged and “sold” will influence subsequent recruitment effectiveness. Some of these notions were investigated recently in a study on Division 1 NCAA football recruits. Treadway et al. (in press) argued that politically skilled coach/recruiters tend to achieve their goals and objectives (i.e., quantity and quality of talented recruits who accept scholarship offers) through their flexible/adaptive approach and the sincere and engaging style of execution they convey, which emphasizes precision in the development of desired images that piques the interest of recruits (e.g., Ferris et al., 2007a, 2007b). Thus, such politically skilled coach/recruiters should be able to leverage contextual resources (i.e., performance/reputation information) in influential and effective ways that increase recruitment effectiveness. They found strong evidence to support the hypothesis that head coach performance interacted with coach/recruiter political skill to affect recruitment effectiveness (i.e., a composite of the quantity and quality of recruits signed). For recruiters low in political skill, head coach performance

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demonstrated no relationship with recruitment effectiveness. However, for politically skilled recruiters, head coach performance was positively and significantly related to recruitment effectiveness.

Special Case of “Celebrity” In recent years, the concept of celebrity has shifted from a purely entertainment-based focus to the business context, but much remains to be learned about this construct in organizations. Celebrity is defined as the degree to which a social actor is documented by the media, and viewed as being well-known, powerful, prestigious, and admired by media audiences (Gamson, 1994; Hayward, Rindova, & Pollock, 2004; Rindova et al., 2006). Management research on celebrities essentially has focused on two premises: (1) journalists make attributions about CEO and firm actions that correspond to firm success, and (2) the mass media is the driving force behind celebrity (Hayward et al., 2004; Ketchen, Adams, & Shook, 2008; Rindova et al., 2006). As a result, initial work on CEO celebrity sought to examine the benefits and risks of attaining celebrity status. Indeed, celebrity CEOs have received notable attention by becoming commercial assets, in ways similar to performers in the entertainment industry. From the late 1980s to the present, CEOs increasingly have been featured in commercials, on magazine covers, and in popular press books, promoting not only their company’s products, but also themselves (Khurana, 2002). More specifically, celebrity CEOs have been linked to increases in control over the organization (Hayward et al., 2004), to salary increases (Wade et al., 2006), and to the potential for celebrity CEOs, and their boards, to be overconfident in their abilities (Malmendier & Tate, 2005). In turn, celebrity at the firm level is beginning to attract similar degrees of attention (Rindova et al., 2006; Strike, Gao, & Bansal, 2006). Firm celebrity can help differentiate a firm from its rivals, even if performance differences are negligible (Rindova et al., 2006). This suggests that celebrity can be an aid in the competitive positioning of firms. Although the media is the driver, and an inextricable part of celebrity, it is only half the equation the audience is the other half. Recent work by Kjaergaard, Morsing, and Ravasi (2011) focused on how one audience (i.e., organization members) responded to media effects in a longitudinal field study of the Danish firm, Oticon, and its CEO, Lars Kolind. Using a sensemaking approach, increases in media coverage were found to influence organizational identity in terms of both how members understand their

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organization and satisfaction derived from that association (Kjaergaard et al., 2011). The celebrity and reputation constructs appear to share considerable construct domain space, and so we briefly review and discuss research on celebrity here as a special case of reputation. However, we acknowledge that the two constructs are sufficiently distinct and separate (Note: New research on “popularity” in work organizations would also seem to suggest some overlap with both reputation and celebrity, yet scholars who introduced this construct have argued for its separation and distinctiveness from reputation, which remains to be empirically determined; Scott, 2013). Indeed, in the public relations literature, the concept of reputation management is of increased concern, and scholars who have considered whether reputation drives celebrity or vice versa (Hutton, Goodman, Alexander, & Genest, 2001). Also, because relatively little work has been published on celebrity CEOs or firms, we primarily call for more research in the future in this area, and work that might be able to address the issue of how celebrity and reputation constructs relate to one another. Rindova et al. (2006) suggested three areas in which reputation and celebrity differed. First, whereas celebrity is based on theories of mass communication, reputation tends to be largely grounded in signaling theory, thus positioning reputation as acknowledging a strategic orientation to the actor. Second, because they conceptualize it as an intangible asset, reputation is seen as the perception of a capacity to create value for organizations. Alternatively, celebrity is grounded on the view that individuals can build an attractive social identity. Finally, whereas celebrity is perceived to be a product of media creation, reputation is developed through strategic action. Celebrity CEOs and Reputation Strategic leadership focuses on how leaders obtain and manage resources (Hitt & Ireland, 2002), and make strategic decisions to direct organizational actions (Hambrick, 2007). Managerial discretion refers to latitude of action of strategic leaders (Hambrick & Finkelstein, 1987). Discretion is most important when organizations can exercise the option of choosing from multiple courses of actions, which result from internal or external factors (Hambrick, 2007). The more discretion managers possess in making strategic decisions, the greater the importance of how the situation is interpreted. Increased CEO discretion has been suggested to increase opportunities for resource attainment and allocation, product market selection, and competitive initiative pursuit (Hambrick & Finkelstein, 1987; Ranft, Ferris, & Perryman, 2007).

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Additionally, increases in discretion have been argued to increase CEOs’ potential marginal product and, in turn, CEOs’ ability to directly influence firm performance (Finkelstein & Boyd, 1998). One basis for CEO compensation is the value or contribution CEOs can make to their organizations (Finkelstein & Hambrick, 1996). CEOs with increased discretion possess greater potential to make significant, valuable contributions to organizational performance, particularly when working in environments where numerous, complex decisions are needed for organizational success (Finkelstein & Boyd, 1998). Celebrity has the potential to increase discretion and/or perceptions of discretion (Hayward et al., 2004; Rindova et al., 2006). Through media efforts to frame organizational situations and outcomes, celebrity is suggested to bring about attributions by which external parties believe, accept, and attribute positive firm performance to the focal actor in question (Hayward et al., 2004; Rindova et al., 2006). Such beliefs are likely to increase stakeholders’ perceptions of the CEOs’ abilities to obtain resources, formulate and implement effective strategies, undertake strategic partnerships, and recognize opportunities. Furthermore, these perceptions are likely to increase the probability that stakeholders will provide CEOs the resources and opportunities necessary to increase discretion (Hayward et al., 2004; Ranft et al., 2007). This suggests that the resources and opportunities available to CEOs are likely to increase, and if used correctly, will enhance the potential of improving firm performance. Research has suggested that organizations, particularly in periods of uncertainty, can send signals of their worthiness, legitimacy, and prominence by affiliations with prestigious and/or famous parties (D’Aveni, 1990; Fombrun & Shanley, 1990). These linkages to recognized names have the potential to reassure and impress external parties, and as a result, encourage future business interactions (D’Aveni, 1990). Thus, CEO celebrity should positively influence firm performance. However, the actual and full impact of the celebrity of CEOs on firm performance remains somewhat unclear. On one hand, there appears to be sound rationale that celebrity CEOs tend to raise firm performance through favorable signals sent to the financial, consumer, and labor marketplaces (e.g., Fombrun, 1996; Wade et al., 2006). On the other hand, there is some evidence to suggest that CEO celebrity is associated with decreased firm performance, through increased hubris, and investments in personal projects of questionable value to the firm (e.g., Malmendier & Tate, 2005). Hayward et al. (2004) argued that as CEOs and shareholders internalize the CEO as a celebrity, CEOs’ perception and actual control of their

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organizations increase. In turn, increases in control may lead to overconfidence and hubris, underestimation of the impact of environmental and situational factors, commitment to failing courses of action, and strategic inertia (Hayward et al., 2004; Staw, 1981). Although this work underscored the potential drawbacks of celebrity, it did not address the potential benefits of celebrity, or how celebrity affects strategic actions, resource allocations, and stakeholder support. Empirically, Wade et al. (2006) examined CEO celebrity with regard to CEO pay and firm performance. In this research, CEO celebrity was assessed via winning Financial World’s annual CEO of the Year competition (1975 1996). The results of this analysis indicated that this operationalization of celebrity led to positive outcomes for CEO compensation, but not firm performance. Wade et al. (2006) found that positive abnormal stock returns occurred after the initial announcement of winning the CEO of the Year contest. However, subsequently, performance effects were found to fade and become negative. Whether performance decline was due to investor misinterpretations of CEO behaviors, unspecified factors beyond the control of CEOs, or CEO hubris was indeterminable. What is suggested is that CEOs who win such contests can demand pay premiums, as well as realize higher expectations for their subsequent performance. Indeed, Wade et al. (2006) hypothesized both positive and negative effects of CEO celebrity on firm performance, and found evidence for both (i.e., they found that after initial favorable effects on firm performance due to CEO celebrity, such positive stock returns leveled off and turned negative in the future). Furthermore, Collins (2001) argued that celebrity CEOs, like Lee Iacocca, initially demonstrated very favorable effects on the performance of Chrysler. However, over time, his focus of attention seemed to shift from the importance of the firm to his own importance, and when that happened, though his own celebrity continued to rise, Chrysler’s performance deteriorated. Therefore, the answer to the question of “Are celebrity CEOs good or bad for firm performance?” appears to be “Yes, both.” As such, there is reason to believe that CEO celebrity will demonstrate a nonlinear relationship with firm performance, assuming an invertedU-shaped form, whereby initial increases in CEO celebrity are associated with increases in firm performance to a point, but further increases in CEO celebrity are associated with decreases in firm performance. Such an inverted-U-shaped relationship between CEO celebrity and firm performance suggests that CEO celebrity is beneficial up to a point, beyond which it can be harmful, thus highlighting both the benefits and risks or burden of celebrity at the CEO level. CEOs who can avoid associated risks

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such as patriarchism, hubris, over-confidence, over-commitment, and strategic inertia are likely to sustain the benefits of celebrity longer. However, those who cannot avoid such risks apparently will pay a price, at least with regard to declining firm performance. Wade et al. (2006) found that even though positive stock returns occurred after the initial announcement of winning the CEO of the Year contest, such positive performance effects were found to fade and become negative, thus, also finding evidence of nonlinearity in the CEO celebrity firm performance relationship. Treadway, Adams, Ranft, and Ferris (2009) argued that the research on celebrity focused too much on how CEO celebrity emerged, and not enough on the key issue of how CEOs translate their celebrity into their own and the organization’s effectiveness. They proposed a meso-level conceptualization that highlights the critical role CEO political skill plays in how celebrity is transformed into reputation and effectiveness at both the firm and the individual levels of analysis. In developing their conceptualization, Treadway et al. addressed the important issue of why some celebrities are successful at increasing their own and their organizations’ effectiveness and others are not, suggesting that it’s the awareness and skill of CEOs that allows them to transform celebrity into reputation and success. They characterized CEO celebrity as an ephemeral, socially constructed phenomenon that functions as a key context used by leaders to construct meaning and create value. Celebrity Firms The media endows selected firms with celebrity by attributing extraordinary qualities to them (Rindova et al., 2006). Firms play their part by taking bold or unusual actions to manage impressions. Celebrity is considered a “relationship” between the firm and its audiences (Rindova et al., 2006). Hence, celebrity is not considered a characteristic of the firm per se. Rindova et al. (2006) defined celebrity firms as “firms that attract a high level of public attention and generate positive emotional responses from stakeholder audiences” (p. 51). This emphasis on emotionality is something that differentiates the celebrity construct from the reputation construct. Although both firm reputation and firm celebrity are “social approval assets” (Pfarrer, Pollock, & Rindova, 2010), they are different constructs. A key difference between reputation and celebrity is that reputation is based on perceived “abilities” to achieve, whereas, celebrity is based more upon perceived “potential” to achieve (Rindova et al., 2006). Another key difference is the process of creation. Reputation is created primarily

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through performance, whereas, celebrity is created primarily through dramatic media portrayals. Celebrity firms also tend to behave differently from high-reputation firms. For example, celebrity firms tend to tout their successes more than high-reputation firms (Pfarrer et al., 2010). Celebrity at the firm level of analysis is suggested to positively influence firm performance. As media attention and agenda-setting focuses on a particular organization, its resulting celebrity likely increases the organization’s ability to garner stakeholder attention. At the firm level of analysis, celebrity arises from the media’s search for examples to ensconce and codify significant changes in industries and society (Rindova et al., 2006). In this way, celebrity is viewed as an intangible asset, and disentangled from other similar intangible assets, such as reputation, status, and legitimacy. Firm-level celebrity potentially can distinguish a firm from its rivals, even when performance differences are negligible, and, this in turn, may affect competitive positioning (Rindova et al., 2006). For firms with greater degrees of celebrity, more options should be available to them than noncelebrity firms, or firms with lesser degrees of celebrity. This increase in options arises from increases in firms’ access to resources and information, which can take the form of increased access to resources, channels of communication, and/or strategic partnerships. This suggests that firm celebrity should positively influence firm performance by granting firms greater external options, which can correspond to greater flexibility to meet environmental demands. Thus, it might be suggested that greater firm celebrity will positively influence firm performance. As a whole, the current literature on celebrity can be viewed in a potentially paradoxical light. At the individual level, and at the extreme, CEO celebrity has been portrayed as a potential detriment to firm performance based on hubris (Hayward et al., 2004). Alternatively, firm celebrity has been portrayed as a potential benefit to firm performance based on increased access to resources and strategic opportunities (Rindova et al., 2006). These potentially conflicting views suggest different outcomes for firm performance based on the focal actor of celebrity. External perceptions at both levels of analysis can influence future interactions with others in either positive or negative ways. Further research into celebrity could attempt to further distinct celebrity from reputation, yet also investigate if and when one can become the other. As media continues to play an increased role in individual and organizational life, celebrity and its strategic use could become an area of study set for much needed further development.

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Reputation as Context There has been a growing recognition of the importance of context in organizational research (e.g., Dierdorff, Rubin, & Morgeson, 2009). Rousseau and Fried (2001, p. 1) noted that “contextualization entails linking observations to a set of relevant facts, events, or points of view that make possible research and theory that form the part of the larger whole.” Context is the source of both constraints and opportunities that influence interpretations of behavior in organizations (Johns, 2006), causing scholars to appeal for increased sensitivity to contextual effects in organizational research (Griffin, 2007), largely because of its situational impact on behavioral dynamics at work (Ferris, Munyon, Basik, & Buckley, 2008). We believe that future research should investigate further the possibility that reputation (i.e., across levels of analysis) can serve as a background context that alters the perception, interpretation, and consequences of behaviors on work outcomes. As such, this line of research would examine reputation as a moderator of the behavior outcomes relationships. In an investigation that supported hypotheses generated from a basic research question articulated by prior work (i.e., Ferris et al., 2003; Tedeschi & Melburg, 1984), Hochwarter et al. (2007) investigated the role of reputation as a contextual influence on the relationship between political behavior and work outcomes of uncertainty, emotional exhaustion, and job performance ratings, in a three-study research plan. Study 1 reported that reports of reputation from two different sources (i.e., self-reports and peer reports) were significantly correlated. In Study 2, political behavior was associated with decreased uncertainty and emotional exhaustion, and increased job performance ratings, for individuals with favorable reputations. Conversely, political behavior was associated with increased uncertainty and emotional exhaustion, and decreased job performance ratings for individuals with unfavorable reputations. Study 3 provided constructive replication of the Study 2 results. The Hochwarter et al. (2007) results suggest that favorable reputations permit individuals to influence others more effectively. This follows up and reinforces prior research demonstrating reputable individuals’ behavior tends to be attributed to altruistic motives (Johnson, Erez, Kiker, & Motowildo, 2002), but the behavior of less reputable individuals typically is regarded as egocentric (Barclay, 2004). As such, the tendency is to view reputable actors’ political behavior as benefiting others and perhaps the work unit and organization as a whole as well.

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Laird et al. (2009) observed the inconsistent effects of accountability on outcomes, with some showing positive effects and others demonstrating anxiety-provoking properties. Thus, in a consideration of potential moderators, they examined the moderating effects of personal reputation on the felt accountability strain relationship. In support of the hypotheses, it was found that a positive reputation neutralized the strain reactions caused by felt accountability. Specifically, increases in felt accountability were associated with less job tension and depressed mood at work as well as more job satisfaction for individuals with strong personal reputations. However, individuals with weak reputations experienced the opposite outcomes. Some work has been done on the contextual role of reputation at the organization level of analysis. Organization reputation helps to dictate the nature of interactions between firms and their stakeholders, and it tends to lessen the negative impacts of various negative situations, such as product recalls, thus serving as the kind of buffering mechanism similar to that reported by Hochwarter et al. (2007). Interactions between a firm and its stakeholders are influenced by the firm’s reputation (Mahon, 2002). Reputation reduces stakeholder uncertainty regarding future exchanges (Rindova et al., 2005). These particular authors considered the consequence of stakeholder willingness to pay premiums; however, there are undoubtedly other outcomes (related to reduced uncertainty) that may be considered. The point is that the nature of the relationship between a firm and its stakeholders is altered by the firm’s reputation. Reputation also affects intra-organizational behavior. Individual and collective impressions of organizations interact (Bromley, 2000). If the social identity link exists between employees and their perceptions of firm reputations (see Cable & Graham, 2000), then perhaps reputation is an important moderator of organizational behavior relationships that involve the self-concept. For example, we wonder if the relationship between job attitudes and organizational citizenship behavior is moderated by organizational reputation. Reputations may serve as a buffer, and attenuate potentially negative outcomes of actions. Firms with “thicker” reputations (i.e., with more accumulated past actions) will be less affected by a single negative action (Flanagan & O’Shaughnessy, 2005). Not all researchers agree that reputations act as buffers. In one study, reputable firms were penalized more than less reputable firms for product defects, due to perceived violations of expectancies and relatively more media attention (Rhee & Haunschild, 2006). However, reputation does buffer profit erosion over time (Roberts &

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Dowling, 2002). In other words, firms with higher reputations are more likely to demonstrate greater profit persistence over time than firms with lower reputations. Organizations utilize reputation feedback to adjust their behavior. The interaction of reputation (viewed as an image) and identity may spur changes in identity and/or impression management (Gioia et al., 2000). The driving forces are perceived discrepancies between identity and image. Other authors have also acknowledged that inconsistencies between identity claims and acquired reputations may prompt organizations to adjust their projected images, identity claims, or both (Whetten & Mackey, 2002). Martins (2005) supported this view by arguing that perceived identity reputation discrepancies lead to organizational change efforts. In short, the interaction between reputation and identity may lead to organizational action. Reputation moderates the relationship between isomorphism and reputation, such that the relationship is positive for firms with lower reputations and negative for firms with higher reputations (Deephouse & Carter, 2005). The institutional view of reputation implies that practices that firms adopt may sometimes rely more on social approval than objective merit (Staw & Epstein, 2000). In sum, reputation moderates the kinds of actions entities take, and thus we encourage more research on reputation as a contextual backdrop that affects the perceptions and interpretations of behavior on work outcomes. Clearly, we encourage more research in this area.

CONCLUSION In summary, reputation represents a critical area of organizational behavior in need of deeper understanding at and across levels of analysis. The few previous reviews of the construct have been limited in scope and, as a result, have failed to highlight important areas for integrative theory building and testing. The present chapter addresses this gap by providing a comprehensive review of reputation at all levels of analysis, noting knowledge asymmetries between the micro and macro levels of organization reputation research. Hence, a thorough multilevel review helps to identify and bridge these gaps, and accelerate our collective knowledge of reputation. Most notably, the cross-level review and analysis yielded the conclusion that reputation exists and operates pretty much the same whether it is at the individual, group/unit, or organization level of analysis, thus providing the

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opportunity for integration across the largely separate literatures in the past (i.e., the research streams on reputation at different levels of analysis largely have ignored each other, and might as well have been studying totally different issues and constructs). We hope and believe that the present integrative, cross-level analysis ultimately will prove to be an important contribution, but that conclusion is premature at present, as much work remains to be done. Indeed, we see this as essentially a beginning for theory and research on the reputation construct, albeit an optimistic beginning. This integrative attempt by Shenkar and Yuchtman-Yaar (1997) to help build a more cross-disciplinary assessment of reputation, in addition to a similar but less detailed review provided by Ferris et al. (2003), provided at least first steps toward building a more informed and comprehensive understanding of the reputation construct. Those reviews allowed for the extraction of common themes and issues across fields, which, combined now with the cross-level analysis of reputation provided in the present paper, can lead us even further along in our quest to fully understand the role(s) of reputation in the organizational sciences. We find the topic of reputation to be fascinating, and continue to be amazed at the relatively little theory and research that has been published on the topic (i.e., this criticism rests largely at the prior work at the individual level of analysis, as there has been increased research activity at the organization level in recent years). We hope that this paper can help to stimulate more interest in reputation research in the future.

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ABOUT THE AUTHORS John E. Baur is a doctoral candidate in the Price College of Business at the University of Oklahoma, specializing in Organizational Behavior and Human Resources Management. His current research interests include employee expectations, leadership, team dynamics, and organizational power. Tom Bellairs is a doctoral student in the Department of Management of the Culverhouse College of Commerce at the University of Alabama. He received a B.S. from the United States Air Force Academy and an MBA from the University of Southern California. He is interested in organizational citizenships behaviors and counterproductive workplace behaviors, employee identification with various organizations and groups, and how employees derive meaning from work. He is also interested in understanding of how individuals cope with furloughs. F. Randy Blass is Professor of Management and Director of the Jim Moran Institute for Global Entrepreneurship at Florida State University. He received a Ph.D. in Management from Florida State University, and served on the Management faculty at the United States Air Force Academy. Blass has published research in top management journals and authored multiple articles and book chapters, in addition to a book. He has presented his research at both national and regional professional conferences. He has more than 25 years of practical experience in designing and implementing training and development programs. Prior to joining the faculty at FSU, Blass served as an officer in the United States Air Force, where he achieved the rank of Lt. Col. Robyn L. Brouer is an Assistant Professor of Management at Canisius College. She earned her Ph.D. at Florida State University. Her research interests include political skill and social influence, organizational politics, and leadership. Her research has appeared in outlets such as the Human Resource Management Review, the Journal of Applied Social Psychology, Journal of Leadership & Organizational Studies, Journal of Management, Journal of Managerial Psychology, Journal of Organizational Behavior, and the Leadership Quarterly. 305

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M. Ronald Buckley is the JC Penney Company Chair of Business Leadership and a Professor of Management and a Professor of Psychology in the Price College of Business at the University of Oklahoma. He received his Ph.D. in Industrial/Organizational Psychology from Auburn University. He is interested in a variety of topics in human resources management, for example, interview decision-making, fairness and bias in selection, and organizational socialization. Buckley has published over 120 peer-reviewed articles, many of which have appeared in the Journal of Management, Academy of Management Review, Journal of Applied Psychology, Personnel Psychology, Organizational Behavior and Human Decision Processes, and the Journal of Organizational Behavior. Samantha A. Conroy is a Ph.D. Candidate in the Management Department at the Sam M. Walton College of Business at the University of Arkansas. Her research interests include individual and organizational outcomes of compensation policies and work-related identities. Emilija Djurdjevic is an Assistant Professor at the College of Business Administration at the University of Rhode Island. She received her Ph.D. in Business Administration from the Sam. M. Walton College of Business at the University of Arkansas. Her current research interests include performance appraisal, power, politics, and social influence processes, and work stress. Her publications have appeared in journals such as Journal of Applied Psychology and Human Resource Management Review. B. Parker Ellen III is a doctoral student in Organizational Behavior and Human Resources at Florida State University. His research focuses on leadership and social influence, and received the 2013 John C. Flanagan Award for best student contribution at the Society for Industrial and Organizational Psychology Annual Conference. He has published his research in The Leadership Quarterly and Research in the Organizational Sciences. Parker holds a Bachelor of Science degree in Civil Engineering from Auburn University and a Master of Science in Managerial Sciences from Georgia State University, where he received the Carl A. Bramlette, Jr. Scholastic Achievement Award. Prior to going back to school for his Ph. D., Parker enjoyed a career in consulting engineering. He serves on the editorial board for the Journal of Leadership & Organizational Studies. Gerald R. Ferris is the Francis Eppes Professor of Management and Professor of Psychology at Florida State University. Ferris received a Ph.D. in Business Administration from the University of Illinois at UrbanaChampaign. Prior to his current position, he also served on the faculties at

About the Authors

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Texas A&M University, the University of Illinois at Urbana-Champaign, and the University of Mississippi. Ferris is a Fellow of the American Psychological Association, the Society for Industrial and Organizational Psychology, and the American Psychological Society. He has research interests in the areas of social and political influence in organizations, the nature and consequences of personal reputation in organizations, the underlying dimensions and characterization of work relationships, and particularly how politics, reputation, and work relationships play key roles in human resources management practices. Ferris is the author of numerous articles published in such scholarly journals as the Journal of Applied Psychology, Organizational Behavior and Human Decision Processes, Personnel Psychology, Academy of Management Journal, Journal of Management, and Academy of Management Review. He founded, and served as editor of, the annual series, Research in Personnel and Human Resources Management from its origin in 1981 until 2003. Ferris has authored or edited a number of books including Politics in Organizations: Theory and Research Considerations (2012), Political Skill at Work (2005), Handbook of Human Resource Management (1995), Strategy and Human Resources Management (1991), and Method & Analysis in Organizational Research (1984). Ferris has been the recipient of a number of distinctions and honors. In 2001, he was the recipient of the Heneman Career Achievement Award, and in 2010 he received the Thomas A. Mahoney Mentoring Award, both from the Human Resources Division of the Academy of Management. Nina Gupta is Distinguished Professor and John H. Tyson Chair of Management at the Sam M. Walton College of Business at the University of Arkansas. She holds a Ph.D. from the University of Michigan in Organizational Psychology. Her research interests include reward and compensation systems, dysfunctional employee behaviors, and effective implementation of organizational initiatives. Jonathon R. B. Halbesleben is the Health South Chair of Health Care Management and Associate Professor in the Department of Management of the Culverhouse College of Commerce at the University of Alabama. He received his Ph.D. in Industrial/Organizational Psychology from the University of Oklahoma. His research interests include employee well-being and human resource management. His work in those areas has appeared in publications such as the Journal of Applied Psychology, Journal of Management, Journal of Occupational Health Psychology, Journal of Organizational Behavior, among others. He is currently the editor of the Journal of Occupational and Organizational Psychology.

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ABOUT THE AUTHORS

John N. Harris is a doctoral student in Organizational Behavior and Human Resources at Florida State University. His research interests currently include social influence, social effectiveness, reputation, and impression management. John holds a Bachelor of Science degree in Psychology from the University of Alabama. Matthew R. Leon is a doctoral student in the Department of Management of the Culverhouse College of Commerce at the University of Alabama. He received his Master’s degree in Industrial/Organizational Psychology from the University of West Florida. His current research interests focus on employee well-being, adverse impacts of coworkers and workplace policies, and resilience. Alexandra E. MacDougall is a doctoral candidate in Industrial/ Organizational Psychology at the University of Oklahoma, with an emphasis on quantitative methodology. Her research interests primarily lie in employee expectations and attributions, counterproductive work behaviors, and business ethics. Arthur D. Martinez is Assistant Professor of Management and Quantitative Methods in the College of Business at Illinois State University. He earned his B.S. in chemical engineering from New Mexico State University in 1994, his M.S. in industrial engineering from Pennsylvania State University in 1996, and his Ph.D. in Management at Florida State University in 2011. His main area of research interest is power in organizations, with particular reference to power differentials in dyadic interactions in organizations. He also is interested in investigating race and culture in organizations. He has published his research in such journals as Journal of Labor Research, Organizational Dynamics, Human Resource Management Review, and the Journal of Leadership & Organizational Studies. Also, he has presented his research at both national and regional professional conferences. Before pursuing his Ph.D. work, Martinez worked in both industrial engineering and business planning at Intel Corporation and as a management analyst at United Airlines. Timothy P. Munyon is an Assistant Professor of Management at the University of Tennessee at Knoxville. He earned his Ph.D. at Florida State University. His current research interests include political skill and social influence, organizational politics, team composition and rewards, and employee retention strategies. His research has appeared or is forthcoming in outlets such as Business Horizons, Human Resource Management Review,

About the Authors

the Journal of Management, Journal of Organizational Organizational Dynamics, and Personnel Psychology.

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Behavior,

Milorad M. Novicevic is an Associate Professor of Management at the University of Mississippi. He received his Ph.D. from the University of Oklahoma. His research is focused on management history, management education and international management. He has published more than 130 articles in various peer-reviewed journals including the Leadership Quarterly, Organizational Behavior and Human Decision Processes, Academy of Management Learning and Education, Human Resource Management, Journal of World Business, Business Horizons, Organizational Dynamics, Business Ethics: A European Review, Journal of Business Ethics, International Journal of Human Resource Management, Human Resource Management Review, and Journal of Vocational Behavior. Tae-Youn Park is an assistant professor in the Organization Studies area at the Owen Graduate School of Management, Vanderbilt University. He received his Ph.D. from the University of Minnesota. His research interests include turnover, employment systems, and compensation and benefits. Zachary A. Russell is a doctoral student in Organizational Behavior and Human Resources at Florida State University. His research interests currently include work-life balance, reputation, birth cohorts, and attitudes toward labor unions. Zach holds a Bachelor of Arts degree in Business Administration, with a concentration in Finance, from Western Washington University, and a Master of Business Administration, also from Western Washington University. Jason D. Shaw is Chair Professor and Co-director of the Centre for Leadership and Innovation in the Faculty of Business at The Hong Kong Polytechnic University. He received his Ph.D. from the University of Arkansas. His research interests include team effectiveness, employment relationships, financial incentives, and turnover. James K. “Jim” Summers is an Assistant Professor of Management at Iowa State University. He earned his Ph.D. at Florida State University in Organizational Behavior and Human Resources Management. He has taught courses on contemporary leadership, negotiation, organizational behavior, and human resource management. His research interests include team structure and change, social influence processes including political skill, the nature of work relationships, and executive work design. Jim has

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ABOUT THE AUTHORS

published his work in the Academy of Management Journal, Personnel Psychology, Journal of Management, Journal of Organizational Behavior, Journal of Occupational Health Psychology, Journal of Vocational Behavior, European Journal of Work and Organizational Psychology, and the Human Resource Management Review. Darren C. Treadway is an Associate Professor of Management at the University at Buffalo, the State University of New York. He earned his Ph. D. at Florida State University. His research interests include social influence processes in organizations, with particular reference to organizational politics, political skill, leadership, bullying, and stigmatization. His research appears in outlets such as Journal of Applied Psychology, Journal of Management, the Leadership Quarterly, Journal of Organizational Behavior, and Human Relations. Most recently, he coedited the Society for Industrial and Organizational Psychology Frontier Series book, Politics in Organizations: Theory and Research Considerations, with Gerald R. Ferris. Anthony R. Wheeler is the Spachman Professor of Human Resources Management in the College of Business Administration and the Schmidt Labor Research Center at the University of Rhode Island. He completed his undergraduate degree at the University of Maryland, College Park and earned both his masters and doctoral degrees at the University of Oklahoma. His research has been published in peer-reviewed academic journals such as Journal of Applied Psychology, Journal of Organizational Behavior, Journal of Management, Journal of Business Research, Work & Stress, Leadership Quarterly, Journal of Business Ethics, and Journal of Business Logistics. He serves as an associate editor of the Journal of Occupational and Organizational Psychology and also serves on the editorial board of the Journal of Organizational Behavior.