The relationship between human resource investments and organizational performance: a firm-level examination of equilibrium theory

It is commonly believed that human resource investments can yield positive performance-related outcomes for organizations. Utilizing the theory of organizational equilibrium (H. A. Simon, D. W. Smithburg, & V. A. Thompson, 1950; J. G. March & H. A. Simon, 1958), the authors proposed that organizational inducements in the form of competitive pay will lead to 2 firm-level performance outcomes--labor productivity and customer satisfaction--and that financially successful organizations would be more likely to provide these inducements to their employees. To test their hypotheses, the authors gathered employee-survey and objective performance data from a sample of 126 large publicly traded U.S. organizations over a period of 3 years. Results indicated that (a) firm-level financial performance (net income) predicted employees' shared perceptions of competitive pay, (b) shared pay perceptions predicted future labor productivity, and (c) the relationship between shared pay perceptions and customer satisfaction was fully mediated by employee morale.