The role of the reward system for a total quality management based strategy

This study examines the impact of reward practices on the relationship between an organizational strategy based on the principles of total quality management (TQM) and perceptions of firm performance. Major findings include: higher levels of firm performance were significantly correlated with greater use of TQM practices, but not with greater use of quality rhetoric in either formal strategic documents or informal strategic discussions; the use of extrinsic reward practices – including profit sharing, gainsharing, employment security, and comp time – exhibited a significantly positive moderating effect on the relationship between TQM and perceived firm performance. Regarding implications for practitioners, it is insufficient to include quality rhetoric in the formal and informal strategy. As the anecdotal literature has often advocated, the current research provides empirical support that management must “walk the talk” with regard to TQM efforts. Further, in order to realize even higher levels of firm performance, an organization should utilize reward practices which specifically complement its TQM‐based strategy.