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ENHANCING EMPLOYEE PERFORMANCE:

CONTINGENT REWARD LEADERSHIP, EMPLOYEE IN-ROLE

JOB PERFORMANCE, AND THE MEDIATING ROLE OF

PREVENTION FOCUS

Master thesis, Msc Human Resource Management University of Groningen, Faculty of Economics and Business

June 14, 2015

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2 ENHANCING EMPLOYEE PERFORMANCE: CONTINGENT REWARD

LEADERSHIP, EMPLOYEE IN-ROLE JOB PERFORMANCE, AND THE MEDIATING ROLE OF PREVENTION FOCUS

ABSTRACT

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INTRODUCTION

Every company in the world relies on the performance of its staff. Without adequate job performance of employees, no corporation would be able to survive. Indeed, having poorly performing employees can be detrimental for organizational functioning. When a company manages to lift the performance of their employees to higher levels, a clear

sustainable competitive advantage can be obtained (Luthans & Youssef, 2004). Therefore, it is important to know which factors can positively stimulate the performance of employees. Employee in-role job performance is defined as observable behaviors of an employee that are relevant for the goals of the company (Campbell, McHenry & Wise, 1990).

Previous research has outlined that leadership can be an important predictor of job performance (Li & Hung, 2009). One of the leadership factors that can have a positive influence on job performance is contingent reward leadership, a dimension of transactional leadership. Contingent reward leadership is defined as the degree to which the leader of a team clarifies expectations towards the followers, and the degree to which the rewards that followers get in exchange for meeting those expectations are clarified (Judge & Piccolo, 2004). While we know from previous research that contingent reward leadership in general is positively related to employee job performance (Podsakoff, Todor & Skov, 1982; Bass, 1990), far less is known about the underlying mechanisms of this relationship. Thus, why or how contingent reward leadership makes employees perform better is still largely unknown. This is an issue we address in the current research.

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4 according to a certain situation or task that needs to be fulfilled (Higgins, 2000), and hence is state-dependent. Contingent reward leadership is about who is responsible for achieving certain performance targets (Judge & Piccolo, 2004). Given that employees experiencing contingent reward leadership are more likely to focus on the responsibilities of their job because they are rewarded for the „basics‟ of their job, we expect followers to become focused on making sure they will perform the task correctly without failing, and so they will become more prevention focused. Employees‟ prevention focus at work is then expected to positively relate to in-role job performance, as employees will make sure that they at least fulfill the minimal goals of their job (also see Johnson, Shull, & Wallace, 2001; Neubert, Kacmar, Carlson, Chonko, & Roberts, 2008).

This research adds to the existing literature as it gives an explanation of how contingent reward leadership is related to job performance. To date, these underlying processes are still largely unclear and understudied. Specifically, this research examines employees‟ prevention focus at work as a crucial mediator. Managers can use the outcomes of this research to make improvements to the performance of their staff, as it shows a process by which contingent reward leadership relates to employee performance. Therefore, the

outcomes of this research are important to all companies, because every company relies on the performance of their employees and every company wants to thrive and become more

competitive.

The outline of this paper is as follows. First, in the theory section, relevant theory is discussed and the hypotheses are presented. After the theory, the research methods and sample used to test the hypotheses are explained and elaborated in the methods section. To collect empirical data, a large-scale field study among employees and supervisors was

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5 conclusion section. In this final section, the theoretical and practical implications are

presented, limitations of this research are addressed, and suggestions for future research are given. This paper then ends with the take-home message.

THEORY

The relationship between contingent reward leadership and employee job performance

It has long been known that rewards can influence people‟s behavior in positive ways, for example by increasing individuals‟ intrinsic motivation (Pierce, Cameron, Banko & So, 2003). As a result, the effect of contingent reward leadership on the conduct of employees (e.g., performance) has extensively been researched in the past (Bass, 1990; Podsakoff et al., 1982). Leaders who apply contingent reward leadership engage in clarification of work roles and the rewards that followers can expect in return for their enactment (Yammarino, Spangler & Dubinsky, 1998). These rewards can be tangible (e.g., an increase in pay) as well as

intangible (e.g., an opportunity for personal development). Because the rewards offered to the followers are contingent on their performance, performance-outcome expectancies and

employee efficiency are enhanced (Yammarino et al., 1998). There is a substantial amount of evidence present in current literature that in situations where leaders engage in contingent reward leadership, the performance of their subordinates is increased (Podsakoff, Bommer, Podsakoff & MacKenzie, 2006; Yammarino et al., 1998; Judge & Piccolo, 2004). For example, Podsakoff and colleagues (2006) showed in their meta-analysis that contingent reward leadership was found to have a noticeable, positive impact on task performance and extra effort of employees.

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6 established rewards, and therefore employees are willing to perform better. This leads us to expect the following:

Hypothesis 1: Contingent reward leadership has a positive relationship with employee

job performance.

The relationship between contingent reward leadership and employee prevention focus

The effects of contingent reward leadership on a variety of outcomes have been examined in a great number of studies (Bass, 1990; Boggiano, Harackiewicz, Bessette & Main, 1985; Podsakoff et al., 1982; Walumbwa, Wu & Orwa, 2008). For example, contingent reward leadership has been related to work attitudes (see Walumbwa et al., 2008) and to intrinsic motivation (see Boggiano et al., 1985).

While research has started to examine different outcomes of contingent reward leadership, we propose that another factor influenced by contingent reward leadership is the prevention focus that followers have at work (Hamstra et al., 2014). As mentioned in the introduction, prevention focus is part of regulatory focus theory (Higgins, 1997; 2000). Prevention focus determines the degree to which an individual is concerned with creating safety, living up to expectations, and avoiding failures and mistakes. People by nature have a preferred regulatory focus (i.e., chronic regulatory focus) (Higgins, Roney, Crowe & Hynes, 1994). Some people are more promotion focused (e.g., they try out new things), where others are more prevention focused (e.g., they like to feel safe). Still, this focus can shift according to situational factors (i.e., state regulatory focus) (Crowe & Higgins, 1997). In the current

research, we specifically examine employees‟ work prevention focus.

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7 use a risk-averse approach when dealing with problems, in order to make sure that minimal standards are met and that the task is done accurately (Scholer, Zou, Fujita, Stroessner & Higgins, 2010). Contingent reward leadership seems to encourage this type of approach when followers engage in fulfilling a task, because individuals know exactly what is expected of them and they know which rewards await them when the task is fulfilled properly. Therefore, we propose that contingent reward leadership makes people focus on fulfilling their

obligations and responsibilities at work, because this is what employees are rewarded for. Moreover, it makes employees worry about meeting leaders‟ expectations and makes them strive for minimal goals. These are typical prevention focus behaviors (Hamstra et al., 2014; Higgins, 1997; 2000). This leads us to expect the following:

Hypothesis 2: Contingent reward leadership is positively related to employee

prevention focus (state).

The relationship between employee prevention focus and employee job performance

Previous research has also examined the effects of prevention focus on the behavior (e.g., performance) of employees (Neubert et al., 2008; Johnson, et al., 2011). Amongst others, research found that employee prevention focus is a viable predictor of in-role task performance (Neubert et al., 2008). Förster, Higgins and Bianco (2003) state that people with a high prevention focus tend to approach problems with worries about accuracy and with diligence, because they want to live up to expectations and responsibilities (Förster et al., 2003). Their most important goal is to avoid failure at all cost (Neubert et al., 2008), and thus in general do their basics of their work (i.e., in-role job performance) at a better level than employees scoring low on prevention focus. Following this reasoning, we propose that employees scoring high (as opposed to low) on prevention focus try harder to meet

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8 behavior of prevention-focused employees may be important to reach the goals of the

company, and thus there is an increase in performance (Campbell, McHenry & Wise, 1990). This leads us to expect the following:

Hypothesis 3: Employee prevention focus (state) is positively related to employee job

performance.

As explained in the previous sections, we propose that contingent reward leadership causes an increase in employees‟ job performance. Previous research provides theoretical argumentation for our expectation that prevention focus may be a viable explanation of this positive relationship between contingent reward leadership and employee job performance. Specifically, contingent reward leadership is expected to increase followers‟ prevention focus (Hamstra et al., 2014), which causes followers to require from themselves that they meet expectations (Förster, Higgins & Bianco, 2003). This implies that the behavior of prevention-focused employees is more concentrated on acquiring the goals of the company, which we expect to represent an increase in job performance (Campbell, McHenry & Wise, 1990). This makes us expect the following:

Hypothesis 4: Employee prevention focus mediates the positive relationship between

contingent reward leadership and employee job performance.

METHODS Sample and procedures

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9 companies, ranging from companies in the agricultural sector, to companies in the banking sector, and to companies working in construction.

Our sample consisted of 48 supervisors and 263 employees. On average, a leader supervised 5 employees. Of the supervisors 29 were male and 19 female. The average age of the supervisors was 44.56 years (SD = 10.69), ranging from 26 to 70 year. Most of the

supervisors (25) held a vocational university degree. On average, supervisors were working at their company for 12.02 years (SD = 7.42), ranging from 2 to 31.

Of the employees 98 were male and 164 female (1 respondent did not report gender). The average age of the employees was 40.91 years (SD = 11.84), ranging from 19 to 64. Most of the employees (150) held a vocational university degree. On average, employees were working at their company for 9.59 years (SD = 9.42), ranging from 0 to 40.

Measures

All variables were measured using a 5-point Likert scale, ranging from strongly disagree (1) to strongly agree (5).

Contingent reward leadership. The 4 items used to measure contingent reward leadership were based on the Multifactor Leadership Questionnaire (Avolio, Bass & Jung, 1999). For example, respondents had to score an item as “My supervisor recognizes my achievement”. Cronbach‟s alpha was .86.

Prevention focus. To measure prevention focus, we used 6 items from an instrument developed by Johnson and Chang (2008). A sample item is “In general, I tend to think about negative aspects of my work”. Cronbach‟s alpha was .86.

Employee job performance. Supervisors rated the job performance of their

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10

Analytic approach

To test the hypotheses we performed correlational and regression analyses. To test our mediation model, we used the method of Baron and Kenny (1986). Thus, we first examined the relationship between contingent reward leadership and job performance, then the

relationship between contingent reward leadership and prevention focus, and then the relationship between prevention focus and job performance. To test for (full) mediation, we examined whether the direct effect of contingent reward leadership on job performance became non-significant when controlling for prevention focus. Finally, to test the significance of the mediation model, we performed a Sobel test (Baron & Kenny, 1986). In these analyses we control for the effects of employee age and gender.

RESULTS Correlations

Table 1 shows the correlations between the study variables. Results showed that there was a positive correlation between contingent reward leadership and job performance, r = .13,

p < .05. In contrary to expectations, the results also showed that there was not a significant

correlation between contingent reward leadership and prevention focus of employees, r = -.07, p > 0.10. Moreover, results also showed that the correlation between prevention focus of employees and job performance was insignificant, r = -.06, p > 0.10. In terms of control variables, the results showed a negative correlation between employee age and job performance, r = -.26, p < .01. No other effects of the control variables were present.

--- INSERT TABLE 1 ABOUT HERE ---

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11 Hierarchical linear regression analyses were performed in order to test the proposed hypotheses. During these analyses we controlled for the effects of employee age and gender.

Hypothesis 1. Results showed that the expected positive relationship between contingent reward leadership and employee job performance was present, B = .12, p < .05. Therefore, our first hypothesis is confirmed. Contingent reward leadership has a positive relationship with job performance.

Hypothesis 2. The results did not support the proposed positive relationship between contingent reward leadership and prevention focus of employees, B = -.08, p > 0.10. Thus, the second hypothesis is rejected. Contingent reward leadership does not have a significant positive relationship with employee prevention focus (state).

Hypothesis 3. In its turn, prevention focus of employees did not have a significant effect on job performance, B = -.09, p > 0.10. Therefore, the third hypothesis is also rejected. Prevention focus does not have a positive relationship with job performance.

Hypothesis 4. The results of the analysis were not in support of mediation. Including prevention focus in the final linear regression analysis did not cause a reduction in the direct effect of contingent reward leadership on job performance, B = .12, p < .05. Moreover, given that there was no significant relationship between contingent reward leadership and

prevention focus, mediation was not possible. Indeed, a supplementary Sobel test showed that the mediation effect was not significant (Z = .94, p > .10; Baron & Kenny, 1986).

Consequently, we reject the fourth hypothesis.

--- INSERT TABLE 2 ABOUT HERE ---

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12 The results confirmed our hypothesis that contingent reward leadership is positively related to employee job performance. Since this was already studied several times before, it was not unexpected that the results were in line with previous research (Podsakoff et al., 2006; Yammarino et al., 1998; Judge & Piccolo, 2004). On the other hand, the remaining hypotheses were all rejected. Meaning, we could not find evidence in support of the hypothesis that contingent reward leadership induces employees to be more prevention focused in the workplace, nor did we find evidence to support our proposition that higher employee prevention focus leads to enhanced job performance. Therefore, no evidence was found to support our hypothesis that prevention focus (state) mediates the positive

relationship between contingent reward leadership and employee job performance.

Theoretical and managerial implications

This research adds to existing leadership literature by addressing a model that has not been considered and tested before. We did so in order to provide the literature with new insights, and to get a better understanding of the relationship between contingent reward leadership and employee job performance. Following the results, this research has implications for theory and practice.

Our study confirmed the results of prior research that stated that employee job performance could be enhanced by engaging in contingent reward leadership (Podsakoff et al., 2006; Yammarino et al., 1998; Judge & Piccolo, 2004). What was different in the current research is that we have studied this relationship in The Netherlands, a culturally different country than the United States where most previous research had been conducted (Hofstede, 1980). Hence, we contribute to the literature by showing that this positive relationship between contingent reward leadership and employee job performance seems universal.

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13 contingent reward leadership to increase the level of employee prevention focus. This is not what we expected considering the findings from Hamstra and colleagues (2014), who propose that employees experience high regulatory fit when they are prevention focused while their supervisor engages in contingent reward leadership. What we did add to their findings is that the degree to which people are prevention focused is apparently not influenced by contingent reward leadership, despite the fact that people with a chronic prevention focus experience high regulatory fit in such situations (Hamstra et al., 2014). This could be explained by previous research from Podsakoff and colleagues (2006), who propose that contingent reward leadership is a good predictor of extra effort from employees. Effort is oftentimes associated with prevention focus, as prevention focus implies a focus on averting losses. Therefore, we propose that prevention focused employees will do anything within their power to live up to expectations, resulting in effort (Higgins, 2000). Meaning, contingent reward leadership might simply elicit effort from employees, instead of the more diffuse construct of prevention focus. Consequently, effort is found to positively relate to employee job performance

(Christen, Iyer & Soberman, 2006). Future research could investigate if effort indeed plays a mediating role in this process, instead of the far more complex concept of prevention focus.

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14 or she will probably rush in order to reach quotas, resulting in less satisfied customers, thus in lower actual job performance.

Then on a practical level, managers could benefit from the results of this study by acknowledging the positive effect of contingent reward leadership on employee job

performance. Our results show that, in general, it is a good idea to put this type of leadership style into practice to increase employee in-role job performance. This implies that managers are wise to engage in the clarification of work roles and the rewards that followers can expect in return for their commitment and performance. This will help managers to ensure employees are performing on their optimal level and contribute to the goals of the organization. Given that prevention focus was unrelated to both contingent reward leadership and employee job performance; it is hard to give any practical advices about this.

Limitations and future directions

First of all, the contributions of the present study are limited by the fact that only one out of four propositions was found to be confirmed by the results. One of the reasons for this is the fact that this model was innovative, as it was never studied before. Furthermore, there are also theories present in literature that describe a negative relationship between prevention focus state and employee job performance (Wallace & Chen, 2006; Beek, Taris, Schaufeli & Brenninkmeijer, 2014). For example, Van Beek and colleagues (2014) propose that

prevention focus is positively related to workaholism, which sequentially leads to lower employee job performance. Perhaps, if we had incorporated their lines of argumentation into our reasoning, the theory of the present study could have been improved.

Because much is yet to be uncovered and the current study was not able to shed much new light on the relationship between contingent reward leadership and in-role job

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15 variable is employees‟ trust in the supervisor (Bass, Avolio, Jung & Berson, 2003; Burke, Sims, Lazzara & Salas, 2007). Bass and colleagues (2003) state that transactional leadership behaviors like contingent reward leadership are positively related to trust in the supervisor, and Burke and colleagues (2007) propose that this type of trust is positively related with employee job performance. It would be interesting to see whether effort, trust, or other factors play a role in the process.

A final limitation is the fact that the research sample only consisted of Dutch employees and supervisors. Research in multiple countries with dissimilar cultures might have yielded different results. For example, in the Asian culture, people are in general very prevention focused, whereas people living in Western Europe are mostly promotion focused (Uskul, Sherman & Fitzgibbon, 2008). Therefore, we propose that Asian managers frame their expectations to followers in a prevention focused manner, through mentioning the importance of non-losses, which could result in higher prevention focus of employees. This in contrast to West European managers, who we expect to frame their messages in a promotion focused fashion, by concentrating on gains when communicating expectations to followers. Future research could address this direction.

Conclusion

Employee job performance will always stay a crucial component in companies‟ never ending endeavor for reaching success. This research, once more, showed that contingent reward leadership enables companies to enhance their employees‟ job performance. This type of leadership can help companies stay one step ahead of competition.

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18  Neubert, M.J., Kacmar, K.M., Carlson, D.S., Chonko, L.B. & Roberts, J.A. (2008)

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TABLE 1: CORRELATION TABLE

M SD 1 2 3 4 5

1. Gender1 1.63 .49

2. Age 40.91 11.85 .02

3. Contingent reward leadership 3.47 .77 .04 -.06 (.86)

4. Prevention focus (state) 2.10 .79 -.01 -.10 -.07 (.86)

5. Job performance 4.18 .73 -.00 -.26*** .13** -.06 (.89)

1

Dummy coded, 1 = male, 2 = female * p < .10

** p < .05 *** p < .01

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20 TABLE 2: HIERARCHICAL REGRESSION TABLE

Prevention

focus (state) DV: Job performance: Leader rating Predictors

1 Control variables

Gender1 -.01 (.10) .01 (.09) .02 (.09) .01 (.09) Age -.01 (.00)* -.02(.00)*** -.02(.00)*** -.02(.00)***

2 Main effects

Contingent reward leadership -.08 (.06) .12 (.06)** .12 (.06)**

Prevention focus (state) -.09 (.06) -.08 (.06)

R2 .02 .08 .08 .09

1

Dummy coded, 1 = male, 2 = female * p < .10

** p < .05 *** p < .01

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