COMPENSATION STRATEGY AND ORGANIZATIONAL PERFORMANCE: EVIDENCE FROM THE BANKING INDUSTRY IN AN EMERGING ECONOMY

To survive in the turbulent, global business environment, companies must apply strategies to increase their competitiveness. Expectancy theory indicates that salary rewards can motivate employees to achieve company objectives (Vroom, 1964). First, we develop an analytical model to predict that companies using a high-reward strategy could outperform those using a low-reward strategy. Then, we obtain archival data from banking firms in Taiwan to test the proposed model empirically. We control the effects of operating scale (firm size) and assets utilization efficiency (assets utilization ratio). Empirical results show that salary levels and assets utilization efficiency significantly affect banks’ profitability.