ABSTRACT This study investigates how collective pay for performance (CPFP) systems, which link employee rewards to team‐level outcomes, can unintentionally reduce individual effort. Drawing on relative deprivation theory, we propose that CPFP can foster perceptions of unfair disadvantage when employees feel that their individual contributions are insufficiently recognized. These perceptions, in turn, prompt social loafing as a form of self‐regulation. Furthermore, we argue that employees' cultural orientation moderates these dynamics: vertical collectivism strengthens the association between CPFP and relative deprivation, whereas horizontal collectivism weakens it. A three‐wave field study involving 312 Chinese employees across 82 teams provided empirical support for these hypotheses. These findings have important implications for management practices in China and other collectivist societies where traditional values coexist with modern organizational practices. This study contributes to the theory on motivation and compensation by identifying the psychological and cultural mechanisms through which collective incentives influence behavior and underscores the importance of designing reward systems that align with employees' perceptions of fairness and cultural values.
Zhang et al. (Thu,) studied this question.