Purpose: The purpose of this study was to examine the relationships among TQM activities, compensation equity, and performance in hospitals. This study was designed to construct a structural equation model of TQM activities, compensation equity, and performance. Method: The subjects were 239 personnels working in four hospitals in Daegu and Gyeongpook. Data were collected using structured questionnaire from October 4, 2007 to February 4, 2008. The collected data were analyzed using the SPSS 12.0 and AMOS 5.0 program. Result: The overall fitness of the structural equation model was evaluated. These results showed that the model was adequate. TQM activities directly influenced organizational performance and indirectly influenced organizational performance through compensation equity. Conclusion: In testing the structural equation model, the findings showed that TQM activities and compensation equity were important factors for improving organizational performance. Therefore, to improve performance, the hospital leaders must establish the strategies to facilitate TQM activities. It is also necessary to establish effective reward and performance appraisal systems to induce positive participation of personnels in hospitals.