Relationships between Organizational Performance and Personnel Decisions
Posted: 20 Aug 2012 Last revised: 26 Mar 2015
Date Written: April 24, 2014
Despite the theoretical prescription of a non-zero weight on an organizational performance indicator in bonus contracts, we know little about the effect of organizational performance on the personnel decisions of workers whose contribution to the organizational performance is limited. This paper empirically examines whether performance of an organization, measured in return on assets (ROA), affects decisions to promote or dismiss executives in the organization and explores potential moderators of the relationship. In a sample of 4,657 executive-years in a Korean conglomerate, I find that (1) the likelihoods of promotions (dismissals) are positively (negatively) associated with corporate and segment ROAs; (2) the association exists only when promotions involve hierarchical advancement; (3) it is significant only for executives at lower ranks or with lower managerial responsibility; and (4) it is stronger when there are greater inter-organizational interdependencies. The findings suggest probable mechanisms that help large organizations to mitigate promotion-related constraints and to retain the intensity of promotion-based incentives even for organizational performance.
Keywords: organizational performance, promotions, dismissals, transfers, intrafirm job mobility, types of promotions, job responsibility, interdependencies
JEL Classification: M41, M50, M51, M12, J30
Suggested Citation: Suggested Citation