From Input Emphasis to Output Efficiency: Performance-Based Human Resource Allocation and Organizational Performance in Small and Medium-Sized Enterprises in Zhejiang Province, China.

Abstract

Small and medium-sized enterprises (SMEs) increasingly face the challenge of transforming human resource inputs into measurable performance outputs; however, prior research has disproportionately emphasized investment intensity rather than the allocation logic through which resources are distributed. This has resulted in an unresolved gap concerning how output-oriented human resource systems translate into organizational performance, particularly through fairness-based mechanisms. Grounded in Equity Theory, this study investigates the effects of performance-based resource allocation (PBRA), human capital investment effectiveness (HCIE), and strategic HR alignment (SHRA) on organizational performance, with perceived distributive justice positioned as a central mediating construct. A quantitative, cross-sectional design was employed, drawing on survey data from approximately 400 senior managers and HR decision-makers in SMEs operating in Zhejiang Province, China. The proposed model was analyzed using partial least squares structural equation modeling (PLS-SEM) via Smart-PLS. The results indicate that PBRA and SHRA exert significant direct effects on perceived distributive justice (H1: t = 2.72, p < .01; H3: t = 3.41, p < .001) and organizational performance (H5: t = 4.98, p < .001; H7: t = 3.86, p < .001), whereas HCIE shows no significant direct effect. Mediation analysis reveals that perceived distributive justice fully mediates the relationship between PBRA and organizational performance (H8: t = 5.21, p < .001), while partially and competitively mediating the effects of HCIE (H9: t = 2.04, p < .05) and SHRA (H10: t = 2.89, p < .01). These findings demonstrate that fairness perceptions are pivotal in converting performance-based HR allocation into superior organizational outcomes. The study contributes theoretically by extending Equity Theory to firm-level HR allocation research and offers practical guidance for SMEs seeking to balance efficiency and fairness in human resource decision-making.