Employee discretion is recognized as a core competitiveness factor for companies to secure and cope with rapid decision-making and environmental changes in a rapidly changing business environment. Employee discretion can increase the core competencies and job commitment of the organization members and contribute to the company''s management performance and competitiveness, but it also poses the risk of agency problems and moral hazard problems caused by improper use. As a means to manage, the performance compensation management system which integrates incentive policies is used in many companies.

The purpose of this study is to analyze the determinants of employee discretion and to analyze the relationship between employee discretion rights, business performance and performance compensation. For this, empirical analysis was conducted using a SEM(structural equation modeling) in a single research model frame.

As a result of analyzing the determinants of employee discretion, it was proven that firms with higher complexity and uncertainty in business environment, more organizational decentralization and advanced in organic structure tend to be more discretionary.

As a result of analyzing the relationship between employee discretion and business performance, the discretion delegation is confirmed as an effective means which strengthened the employee’s commitment to work to improve the financial performance such as labor productivity and financial productivity. In particular, it has been confirmed that employee discretion is effective in enhancing competitiveness such as quality competitiveness and innovation competitiveness.

Finally, the relationship between employee discretion and performance compensation was analyzed. As a result, it was found that performance compensation is enhanced when financial performance improvement is linked to employee discretion. On the other hand, although employee discretion can contribute to improvement of nonfinancial performance, it is confirmed that improvement of nonfinancial performance is not linked to performance compensation. This is because the performance compensation system of domestic companies does not sufficiently reflect the strategic performance indicators of the company. In order to efficiently and effectively use the discretion granted through the empowerment, the necessity of proper incentive and compensation policy is raised.