The Effect of Performance Allowances on Organizational Culture: The Moderating Role of Leadership Style

Abstract

This study delves into the interactive relationship between performance allowances and organizational culture, with specific reference to the moderating effect of leadership style amongst a sample of 180 PNS and PPPK officers working in city-level offices of the Ministry of Religious Affairs. Using a cross-sectional survey design and Partial Least Squares Structural Equation Modeling (PLS-SEM), this research assesses hypotheses informed by social exchange theory and contingency theory. Performance allowances are found to impact organisational culture substantially (β = 0.169, p < 0.05); however, such an impact is mainly moderated by leadership style, which shows no direct effects. Performance allowances significantly impact leadership style (β = 0.785, p < 0.001), and the latter has a strong impact in turn on organisational culture (β = 0.752, p < 0.001). Leadership style's moderating effect on the relationshipbetween performance allowances and organisational culture is statistically significant (β = 0.050, p < 0.05), and implies synergistic effects when these two constructs are interactive. The model predicts 67.1% and 61.6% of variance for organisational culture and leadership style, respectively. These findings enrich the literature on compensation by presenting leadership behaviour as the overriding mechanism by which performance-based compensation impacts organisational culture and so implying that integrated interventions combining compensation systems and leadership development initiatives may result in superior cultural transformation outcomes.