Supplier goal commitment in performance-based contracts: the lens of goal-setting theory

Purpose This study aims to empirically test the effects of key characteristics of performance-based contracting (PBC) (i.e. reward/payment scheme, increased supplier autonomy and transfer of responsibilities) on supplier goal commitment. Design/methodology/approach This study developed a conceptual model applying goal-setting theory (GST), expectancy theory (ET) and job characteristics theory (JCT). Survey data were collected and analyzed using structural equation modeling (SEM) to establish a validated measurement instrument for testing the hypotheses. Findings The findings revealed that PBC positively affects supplier goal commitment due to its unique characteristics, which translates into improved supplier performance. Furthermore, this study validated the mediating role of goal alignment and felt accountability operating between PBC characteristics and supplier goal commitment. Research limitations/implications This study explored the buyer–supplier relationship from the supplier's standpoint. Using a more inclusive data set, future research may involve a dyadic analysis and focus on the effects of the following factors on the supplier goal commitment: relational aspects (e.g. trust and collaboration), the risk transfer from the buyer to the supplier, different incentive schemes and successful PBC implementation factors. Practical implications This study presents new, validated insights for contract selection, design and management. It underlines the importance of choosing the proper contract, having the appropriate contract design based on the desired outcomes and effective contract management by exhibiting the psychological/behavioral effect of fundamental PBC characteristics. Originality/value PBC represents an active research stream, but its psychological/behavioral implications are understudied. Therefore, this research puts forth a conceptual framework with multiple testable hypotheses illustrating the relationship between PBC and supplier goal commitment.