Advances in Economics, Business and Management Research, volume 178

Proceedings of the 2021 International Conference on Enterprise

Management and Economic Development (ICEMED 2021)

Research on the Relationship Between Remuneration

Incentive System and Employee Performance
——Taking Haidilao Enterprise as an Example
Yingshan Hu1
1
Strategy、Innovation and Management, the university of Sydney, Sydney, NSW2006, Australia
Email: [email protected]

ABSTRACT
With development and reform of enterprises, the remuneration system has become the core issue of human resource
management and development, and is also an important means to scramble for talents among enterprises. This article
takes the Haidilao enterprise as an example, through official website information, the staff handbook and the related
news report as the data collection source, uses the equity theory as a tool, explores the pay incentive system and staff
performance intrinsic relations. This paper divides equity theory into subjective equity and objective equity, and
suggests that enterprises should shape subjective equity and objective inequity when constructing remuneration
structure, and give consideration to equity and efficiency.

Keywords: remuneration structure, employee incentive, equity theory

1. INTRODUCTION compensation be effectively exerted and enthusiasm and

cohesion of employees be enhanced. Based on this
With the human society entering the era of knowledge objective phenomenon, this paper combs the previous
economy, human capital gradually becomes the core of related research and theories.
enterprise management and operation, and the key for The study of remuneration structure has a deepening
enterprises to gain competitive advantages lies in human history. Robbins originally classified remuneration
resource management level. Among them, the structure into external compensation structures, that is,
remuneration structure of different companies has a great direct compensation structure, indirect compensation
impact on employee performance, which reveals what structure and non-financial compensation structure [1].
kind of remuneration structure can effectively motivate An Intrinsic reward refers to the sense of accomplishment
employee performance. or satisfaction that employees get from work itself.
In terms of motivating employees, remuneration is Lawler proposed a new compensation system,
often a very important incentive resource. Remuneration emphasizing the correlation between employee
is the compensation an employee receives for work or performance and firm performance, and ensuring that
services provided by an organization. The broad sense of every element of compensation can improve firm
reward includes economic reward and non-economic performance to achieve strategic objectives [2]. In 2001,
reward, which refers to monetary rewards such as salary. Topman proposed combining tangible wages, allowances
The non-economic reward mainly refers to the and benefits with intangible promotion, development and
employee's psychological feelings in the organization. employees' personal psychology, life and personal factors
Within the organization, the employee pays attention to to build an overall compensation system [3]. The basic
the vertical change of the increase or decrease of idea is that compensation must be performance-based and
economic reward but also compares the psychological take into account a proper rebalancing of investment and
feeling of such non-economic reward horizontally. incentives.
Therefore, as an organization manager, only by There are many classical theories about employee
scientifically designing the compensation distribution motivation, such as hierarchy of needs theory, two-factor
system and realizing the income balance and connection theory and expectation theory.
among different groups can the incentive effect of

Copyright © 2021 The Authors. Published by Atlantis Press B.V.

This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 329
 Advances in Economics, Business and Management Research, volume 178

In addition, equity theory as an analytical tool was Through sorting out the above research theories, it can
developed by American behaviorist J.Stacy Adams, 1963 be found that with the advance of research, research on
[4]. This is a theory of the process of social comparison. compensation structure has developed from simple
When a man gives effort and is paid for it, it is not only tangible and intangible, internal and external to more
the absolute amount of his reward that matters to him, but concrete, showing more diversified forms of diversity,
the relative amount he receives. Engagement refers to any customization and dynamics. Based on several classical
valuable contribution an employee makes to the job, theories, employee motivation is carried out in the ways
while reward refers to whatever the employee feels he or of demand hierarchy, equity and reinforcement. In
she gets out of the job. The method of comparison is research of compensation structure and the combination
divided into two parts: longitudinal comparison between of the two, the past has realized the importance of linking
individual's input return ratio and others' input return compensation with performance, and incentive is the
ratio, and longitudinal comparison between one's own binding of corporate benefits and managers' benefits. But
input income ratio and one's own historical input-output few studies have looked at employees' psychological
ratio. The conclusion drawn by the comparison is evaluations of these remuneration structures, which tend
whether equity will affect enthusiasm for work. A to be viewed from the perspective of the company's
person's judgment on equity is mainly related to his managers rather than the employees. This paper will try
subjective judgment, personal equity standard, to start from the psychological level of employees,
performance evaluation, and evaluation object. This remuneration attention to employees' evaluation of the
theory mainly studies the equity and rationality of remuneration structure, so as to judge whether the
remuneration, and what kind of influence this equity will remuneration structure can play a role in motivating
have on employees' working attitude. Equity theory has employees. This paper will explore the impact of different
been widely applied in human resource management, compensation incentive systems on employee
affecting internal structure, decision-making and performance.
corporate culture [5].
Among the representative research on the relationship 2. COMPREHENSIVE REMUNERATION
between remuneration system and employee motivation, STRUCTURE OF HAIDILAO COMPOSED
Zingheim and Schuster put forward four important talent OF REMUNERATION, BENEFITS AND
incentive factors that should be paid attention to win the ASSESSMENT
talent competition in the future: attractive company
development prospects, personal growth opportunity, Haidilao hotpot, which started in 1994 in Jianyang,
good working environment, and overall remuneration Sichuan province, is little more than a four-table shop.
strategy [6]. As mentioned above, Milkovich & Newman Fifteen years later, it has 36 branches in Beijing,
found through research that in order to better motivate Shanghai, Xi 'an, Zhengzhou and other places, and has
employees, a large number of enterprises also adopted the become one of the country's well-known hotpot brands.
performance-based income sharing compensation system Thoughtful service to customers and care for employees'
[7]. In addition to performance, McKenna and Beech families have always been the secret of Haidilao's success
found in a study that many British enterprises are offering that has been widely spread in various news reports.
bonuses and stock options to senior executives to Behind this secret lies the profound influence of its
strengthen employees' sense of belonging and team distinctive remuneration structure. Along the way,
consciousness [8]. Haidilao has also experienced periodic changes in its
remuneration structure, which has different influences on
In addition, Balkin and Gomez-Mejia pointed out that employee performance at this stage. The following article
human capital pricing results can provide employees with will introduce the remuneration structure of Haidilao in
relevant information about personal performance and different stages.
development, employees' contribution to organizational
goals, etc, and can also provide standards for the 2.1. A three-step compensation system
compensation definition of enterprises [9]. The
traditional design process and method of remuneration In terms of development of remuneration system,
system often lead to rigidity of remuneration system, Haidilao has gone through three stages, from fixed salary
insufficient incentive and low morale of employees [10]. plus performance salary, to profit sharing, and finally to
simple piece rate wage, as shown in the following table 1:

330
 Advances in Economics, Business and Management Research, volume 178

Table 1 Haidilao remuneration system development table

TIME SPAN SYSTEM CONTENT CONCRETE DETAILS

THE FIRST STAGE (1994- fixed pay + performance pay fixed pay accounted for a large
2003)） proportion; merit pay is less and is
determined by the manager's
evaluation.

THE SECOND STAGE (2003- fixed salary + performance 3.5% profit sharing was added on
2015) appraisal + profit sharing the basis of the previous stage; for
employees over one year

THE THIRD PHASE (2015-2021) piecework pay accurate to how much employees
can be paid per dish; more pay for
more work

The Haidilao remuneration system from the first stage

to the second stage of the transformation began in July 2.2. Improve and innovate the welfare system in
2003. Haidilao implemented the "employee reward the forefront of industry
plan", to the excellent staff allotment, Xi 'an East Fifth
Haidilao recruits employees from the bottom of
Road as the first pilot branch, the provisions of more than
society, mostly for family is not too rich, the education
one year employees to enjoy a profit of 3.5% of the
level is not high migrant workers, many of them have to
bonus. It is intended to reward excellent employees and
rely on a single person to raise their children and support
promote their positive work. But since fixed wages are
the elderly. Therefore, Haidilao has a set of perfect and
similar and fat, such changes will hardly widen the gap.
innovative welfare systems, so that these people at the
So Zhang Yong, the founder, borrowed from the
bottom of society can take care of both home and work.
American tipping system and introduced piecework
wages. The introduction of piece-rate pay not only Haidilao's dormitories and stores are within a 20-
effectively stimulated the enthusiasm staff reduced the minute walk from each other, and they are all two or three
number of shop assistants from 240 to 180 after two bedrooms in formal communities or apartments with full
months. The company's store expenses have not changed, living facilities. And arrange special cleaning rooms,
but the average employee income has increased by 30%. work clothes, quilt washing outsourcing to dry cleaners.
In the aspect of assessment, it avoids the subjective If the couple works together in Haidilao, the store will
factors such as manager level management's provide a separate room. Provide complete
manipulation and favoritism of remuneration. accommodation conditions for employees, so that
employees can devote themselves to work, without living
The remuneration system of Haidilao has gone
conditions.
through three stages, from fixed salary plus performance
salary, to profit sharing, and finally to simple piece rate In addition, in order to take care of the family situation
wage directly. Profit sharing was initially added from the of the employees, Haidilao also pays the salary to the
first stage to the second stage to further reward old and parents of each store manager. The better the children do,
active employees on the basis of the existing reward the more salary their parents will get, which will be
system of performance pay. However, due to the large directly sent to the parents by the company. If the
fixed salary which is common in these two stages and employee is awarded as an advanced individual three
accounts for a large proportion of the total salary, the times in a year or three times in a row, he will be entitled
initial purpose of widening the final salary gap between to a 3-day accompanying leave to welcome his/her
employees has not been realized. When it comes to the parents to visit and enjoy a meal in the restaurant. In this
third stage, it is completely transformed into a piecework way, Haidilao shares family burden of its employees,
wage, and pay and rewards are given solely on the basis reliving their family pressure to a certain extent, so that
of labor achievements. The pay gap between active they can work more seriously and improve work
employees and inactive employees can be reflected, and efficiency, which also reflects the humanistic care of
the purpose of "more work, more gain" is fully followed. Haidilao Company.
Thus, it promotes enthusiasm of staff and realizes the
In terms of holidays, all employees are entitled to 12
efficiency of the enterprise.
days' paid annual leave each year, and the company
provides round-trip train tickets home. Employees who
have worked for more than one year can enjoy marriage
leave and benefits, employees who have worked for more
than three months can enjoy parental bereavement leave

331
 Advances in Economics, Business and Management Research, volume 178

and subsidies, and employees who have worked for more sense of competition. The piecework system avoided the
than three years can enjoy maternity leave and subsidies. unfair subjective evaluation of management and simply
Haidilao's vacation system has a certain number of followed the principle of "more work, more gain" to
working years. On the one hand, it gives more freedom improve employees' work efficiency. However, the
and rewards to the old employees, and on the other hand, pursuit of the number of pieces also makes employees
it ensures that the company has enough employees to want customers to leave as soon as possible, so that they
work at all times and ensures the efficiency of work. can sell more plates by increasing the sales/revenue rate,
which is the negative impact of the piecework system.
Haidilao has a complete, innovative and
The second reform aims to stimulate personalized
differentiated welfare system, which is relatively rare in
development of each store, not to restrict staff with
the catering industry, and it is worth mentioning that this
unified tasks but also to avoid the phenomenon of "top
welfare system has been in use since the establishment of
only" the staff, so the staff can focus their experience on
the company.
the work itself rather than on the performance appraisal.
Haidilao has a deep understanding of the The two reforms highlight Haidilao's innovative spirit of
psychological needs of employees from the bottom of constantly finding its own problems, and strive to
society, and accurately meets the needs of employees improve the assessment system to be more and more fair,
from aspects of personal life and family conditions, which can more and more promote enthusiasm of
which reduces the pressure of employees from life and employees.
improves their work efficiency.
Haidilao has a widening of the final salary gap of
employees, a remuneration system that reflects more
2.3. The assessment system has been reformed work and more gain, a perfect and layered welfare system
twice that has been in use since the establishment of the store,
and an assessment system that is constantly changing and
Haidilao has undergone two major changes in its
pursuing equity and efficiency. Although compared with
overall assessment and development. Before the first
the remuneration system and the assessment system, the
transformation, Haidilao had different evaluation
welfare system lacks innovation in reform and seems to
standards for employees in different stores. The
be different from the other two in terms of emphasis,
performance of each employee was mainly considered by
Haidilao's welfare system is already relatively complete
managers such as foreman or store manager, which was
and at the forefront of its peers, so there is no need for
subjective and arbitrary to a large extent. After the
reform in the short term.
transformation in 2015, the company introduced the
piece-rate wage and the last-place elimination system, Haidilao's remuneration system, welfare system and
which were implemented simultaneously in all stores. assessment system combine together to form an overall
Piece rate increases the work efficiency of employees, remuneration structure that fully respects human nature,
but it also undeniably brings about a decrease in customer not only meets employees' needs for survival and safety
satisfaction. The last-place elimination system is at the bottom but also fully enables employees to develop,
conducive to the improvement in the performance of the respect employees, and enable employees to obtain strong
stores where the employees are, and also increases the self-driving force. Through far more than the same
internal competition among the stores. industry staff salary, welfare benefits and a good bonus
plan, greatly meet the material needs of employees,
The employee promotion system is one of Haidilao's
stimulate enthusiasm of employees. At same time, it also
most efficient management systems, and "equity" is the
greatly guarantees the stability of Haidilao staff team,
most important reason that can motivate employees,
reduces the turnover rate of employees, and ensures
according to founder Zhang Yong. However, in the
loyalty of employees to the enterprise.
system that has been in operation for many years -- the
headquarters appraises the community, the community
appraises the store, and the store appraises staff, it is easy 3. THE RELATIONSHIP AND INFLUENCE
to produce the phenomenon of "only on top" among the BETWEEN REMUNERATION
employees. In view of such problems, Haidilao has set a STRUCTURE AND EMPLOYEE
business target for each store manager in December 2016. PERFORMANCE -- BASED ON THE
If the target is not reached, the store manager shall bear EQUITY THEORY ANALYSIS
the corresponding responsibility. Instead of a unified
standard assessment, each store sets goals according to The Equity theory was put forward by the American
its own situation, so that store managers can be clearer behaviorist J.Stacey Adams in 1963. It is a theory about
about the goals. the process of social comparison. When a man is paid for
his effort, he cares not only about the absolute amount of
In the two evaluation system reforms of Haidilao, the his reward but also about the relative amount of his
elimination of the last place and the introduction of reward. This theory has been widely applied in human
piecework system in the first one improved employees'

332
 Advances in Economics, Business and Management Research, volume 178

resource management, affecting the internal structure, 3.2. The importance of creating subjective
decision-making and corporate culture of enterprises [5]. equity in equity theory
Different from previous research perspectives,
remuneration structure is not only objective but also The second part of equity theory is to study the
subjective, and both of them jointly determine the level possible effects and influences of the equity of
of employee performance. In other words, previous remuneration structure on employees' working attitude,
studies have always looked at the compensation structure that is, how employees view the subjective equity of
from the perspective of the company's managers, rather remuneration structure. The interpretation of subjective
than from the perspective of the employees. Among the equity in previous studies is that the salaries of different
existing theories, equity theory combines both subjective positions or employees should be in direct proportion to
and objective perspectives, so it is chosen as the their respective contributions to the enterprise. However,
theoretical tool of this study. Equity theory mainly in fact, employees of the same position also have different
studies the equity and rationality of compensation, and contribution degrees to the enterprise, and from the
what effects and influences such equity may have on perspective of employees, it is only fair to take such
employees' working attitude, namely, the objective contribution differences into consideration in the design
equity of the overall compensation structure and the of the remuneration structure, that is, to shape the
subjective equity of how employees view the subjective equity.
compensation structure. The following will summarize
Due to the large and generous proportion of fixed
and analyze the remuneration structure of Haidilao based
wages in Haidilao, the salary gap between active
on the equity theory.
employees and inactive employees has not been reflected.
Non-active employees can also get more with less work,
3.1. The importance of objective inequity which has caused subjective unfair influence on active
construction in equity theory employees who work too much. The inconsistent
relationship between employees and store managers also
The first function of equity theory is to study the
leads to the unfair subjective evaluation of performance
equity and rationality of compensation, that is, to
pay.
evaluate the objective equity of the overall compensation
structure. The salary of similar positions or employees After the introduction of piecework wage system, the
should be basically the same, which is the interpretation amount of labor achievement directly affects the amount
of objective equity in previous studies. However, this of salary, enlarging the salary gap between active
interpretation ignores the gap between input and output employees and inactive employees, creating employees'
among employees, so that employees with more input subjective sense of equity with the purpose of "working
and output still can only get the prescribed salary for their more and getting more", thus improving overall
positions without corresponding extra rewards. In this enthusiasm of employees.
case, objective equity limits employees' enthusiasm,
In addition, the subjective arbitrariness of deciding
which needs to be broken to create objective injustice.
performance pay by the store manager is banned, and the
Based on fixed salary, Haidilao joined the remuneration
subjective equity of employees is shaped by focusing only
system of profit sharing and performance evaluation in
on achievements rather than human feelings. Haidilao's
the initial purpose to widen the salary gap between active
welfare system has maintained its perfection since its
and inactive employees, so as to stimulate employees'
establishment. It does not discriminate against employees
enthusiasm. But since the fixed salary is large and
because they come from the bottom of society. Instead, it
generous, led to the active employees also can rely on a
treats all employees equally, provides perfect and
fixed salary get higher pay, hit positive employee
considerate welfare returns, and builds a sense of
motivation, the original didn't reach, the purpose of the
confidence and subjective equity for those employees
pay gap between active and positive employee has not
from the bottom of society.
been reflected, this phase of the remuneration system
reflects objectively the fair.
3.3. The importance of combining objective
Later, Zhang Yong, the founder, introduced the inequity with subjective equity in equity theory
piecework wage system by referring to the tipping system
of the United States, which avoided employees' excessive Equity theory mainly studies the equity and rationality
dependence on fixed wages and fully followed the of compensation, and what effects and influences such
principle of "more work, more gain", widening the pay equity may have on employees' working attitude, namely,
gap between active employees and inactive employees the objective equity of the overall compensation structure
and breaking the objective equity. and the subjective equity of how employees view the
compensation structure. The motivation of employees to
work is not only related to how much they are actually
paid, but also more closely related to whether people feel

333
 Advances in Economics, Business and Management Research, volume 178

the distribution of compensation is fair. In order to objective equity phenomenon that employees all have
achieve the combination of objective inequity and high and equal salaries, it realizes subjective equity and
subjective equity, it is necessary to break the rigid takes into account work efficiency.
objective stipulation that the remuneration between
The shortcoming of this study is that due to the
employees at the same level is similar, and increase or
employee confidentiality agreement of Haidilao
decrease the remuneration according to the actual
Company, there is no feasible way to collect appropriate
contribution made by employees to the enterprise, so that
first-hand data and truly judge the equity of the
the contribution of employees is equal to the
remuneration system from the psychological level of
remuneration, so that employees can feel the subjective
employees. Therefore, research can only be carried out
equity.
through secondary data, which is not in-depth enough.
Haidilao's initial remuneration system was based on a
This paper provides a research direction for future
fixed salary. It seemed that every employee could get a
research to separate objective justice and subjective
higher salary, which was objectively fair. However, it did
justice, instead of treating the justice theory as a whole or
not widen the salary gap between active and inactive
using only part of it for research and analysis.
employees, resulting in a subjective sense of injustice.
Performance pay also has the subjective judgment factor Combination of past research summary analysis can
of the store manager, and there is favoritism and operable be found that the traditional remuneration structure more
space, which forms the subjective sense of injustice of emphasis on importance of objective fair but neglected
employees. However, the implementation of piece-rate the subjective equity, namely appears similar to and every
wage system breaks the objective equity of high salary employee has a high pay, but the actual for employees
per capita and the unified judgment of performance more struggling is not fair, and therefore reduce
salary by the store manager. Instead, it simply adopts the enthusiasm of the employees, only do the fair but lost
principle of "more work, more gain" to shape the efficiency. Breaking the objective equity to shape
subjective equity of employees. It realizes the subjective equity, although widening the salary gap
combination of objective inequity and subjective equity, between employees, encourages more work gain, not only
and gives consideration to both subjective equity and achieve equity but also improves efficiency. For
working efficiency. enterprises whose main goal is to make profits, equity is,
of course important, but taking into account efficiency is
4. CONCLUSION the long-term way for enterprises to develop.

Through the summary of previous studies and the REFERENCES

exploration of this paper, it can be found that the
incentive effect of scientific and reasonable remuneration [1] S. P. Robbins, Personnel: the management of human
structure on employees does exist. The scientific and resources. Prentice-Hall, 1978.
reasonable remuneration structure should be diversified,
[2] R. Broderick, E. E. Lawler, Strategic Pay: Aligning
systematic, a matching enterprise industry characteristic,
Organizational Strategies and Pay Systems.
operation strategy, enterprise culture, enterprise
Industrial and Labor Relations Review, 45(1)
development stage and characteristics of enterprise
(1991), p.209. DOI:
organization structure and so on remuneration structure
http://dx.doi.org/10.2307/2524720.
to better motivate staff enthusiasm, improve labor
productivity, enhance enterprise competitiveness, [3] J.E. Tropman, The Compensation Solution: How to
achieve comprehensive development of the enterprise. It Develop an Employee-Driven Rewards System.
is necessary to combine salary, performance and welfare, University of Michigan Business School and
and make the best combination and collocation to achieve Management Series. John Wiley and Sons,
the maximum employee incentive. In addition, for Hoboken, 2001.
different enterprises and different development periods
and status quo of enterprises, different remuneration [4] J. S. Adams, Inequity In Social Exchange. Advances
structures will also have different impacts on enterprises in Experimental Social Psychology, 1965, pp.267–
and employees. This paper aims to explore the 299. DOI: http://dx.doi.org/10.1016/s0065-
relationship between objective equity and subjective 2601(08)60108-2.
equity by using the theory of equity. The objective equity [5] D. A. Morand, K.K. Merriman, “Equality Theory” as
often enables employees to have a high and equal salary,
a Counterbalance to Equity Theory in Human
but ignores the difference between employees' efforts and
Resource Management. Journal of Business Ethics,
achievements. Subjective equity, on the other hand, starts
111(1) (2012), pp.133–144. DOI:
from the subjective psychological level of employees and
http://dx.doi.org/10.1007/s10551-012-1435-y.
takes into account the difference of effort and
achievement among employees. Although it breaks the

334
 Advances in Economics, Business and Management Research, volume 178

[6] P. K. Zingheim, J. R. Schuster, Competencies and

Rewards: Substance or Just Style? Compensation &
Benefits Review, 35(5) (2003), pp.40–44. DOI:
http://dx.doi.org/10.1177/0886368703256932.
[7] G.T. Milkovich, J.M. Newman, Compensation.
Industrial and Labor Relations Review, 39(1)
(1985), p.151. DOI:
http://dx.doi.org/10.2307/2523560.
[8] E.F. McKenna, N. Beech, The Essence of Human
Resource Management. Prentice Hall, London,
1995.
[9] D.B. Balkin, L.R. Gomez-Mejia, Matching
compensation and organizational strategies.
Strategic Management Journal, 11(2) (1990),
pp.153–169. DOI:
http://dx.doi.org/10.1002/smj.4250110207.
[10] R.L. Heneman, P.V. LeBlanc, Developing a More
Relevant and Competitive approach for Valuing
Knowledge Work. Compensation & Benefits
Review, 34(4) (2002), pp.43–47. DOI:
http://dx.doi.org/10.1177/0886368702034004007.

335