Pay for performance in China's non‐public sector enterprises

Purpose – Pay for performance has been studied in Western nations, but much less so in China and its non‐public enterprises. The purpose of this paper is to investigate the current situation of pay for performance in China's non‐public firms, specifically the importance of pay for performance in the current pay system and reasons for adopting pay for performance plans by the management. Design/methodology/approach – A multi‐case study of non‐public sector, knowledge intensive firms based in Shanghai, China is presented. In total, 12 private‐owned, joint ventures and multinational companies from pharmaceutical, information technology and investment industries are included. Findings – This paper explores that pay for performance has been widely used in non‐public sector as an important component of the employee pay mix. Performance also plays a role as a key norm in employee pay determinant plans. Three major factors are identified as reasons for management to apply pay for performance plans. The first concerns external factors – market practices/best practices; while the other two factors are internal reasons – the need to attract and retain good performers as well as the need to improve employee performance. Originality/value – This paper discusses the content and context changes of pay for performance practices in China after the economic reforms in 1978 to present. It is now evident that Chinese firms are becoming much more receptive to performance‐oriented rewards.