Does pay for performance diminish intrinsic interest?

Abstract

One concern with pay for individual performance (PFIP) is that it may undermine intrinsic interest, thus having little or no positive net influence on performance. A major basis for this concern is cognitive evaluation theory [CET; Deci and Ryan (1985), Intrinsic Motivation and Self-Determination in Human Behavior, New York: Plenum Press]. Most evidence on CET, however, comes from non-work settings and, even in that arena, there is debate regarding the undermining effect of PFIP. There is little workplace-based evidence on the validity of the undermining hypothesis and none that makes use of data on between-employer differences in PFIP. Also, a close reading of CET, reinforced by recent developments, suggests that PFIP plans could, under common workplace conditions, have a positive, rather than negative, influence on intrinsic interest. To our knowledge, there is no research that examines between-organization differences in PFIP and how they relate to employee intrinsic interest. There is also no research on whether employees having a preference for PFIP plans are likely to gravitate to organizations using such plans. To the extent such attraction–selection–attrition or sorting processes take place, the likelihood of detrimental consequences (e.g. diminished intrinsic interest) of PFIP plans due to mismatches between how the organization pays and how the employees are motivated should be less likely. We find no evidence of a detrimental effect of PFIP plans on intrinsic interest. Instead, intrinsic interest is actually higher under PFIP. We also find that organizations placing greater emphasis on PFIP plans tend to have employees with motivation orientations matching their PFIP plans, which may reduce the probability of a detrimental effect of PFIP.

Keywords:

• compensation
• intrinsic interest
• intrinsic motivation
• pay for performance
• sorting

Notes

1. Another conceptual basis for a detrimental effect of PFIP on intrinsic interest, the over-justification effect, was developed by Lepper, Greene and Nisbett (1973) using attribution theory. They suggested that people who receive extrinsic rewards for performing an interesting activity attribute the cause of their behavior to the extrinsic reward, thus discounting their interest in the activity as the cause of their behavior.

2. His study focused on an organizational development initiative designed to increase self-determination of workers by improving communication and training and by creating problem-solving groups. No financial compensation or any other form of pay for performance variables were examined in the study.

3. The corrected (or dis-attenuated) correlation is obtained by dividing the observed correlation by the product of the square roots of the reliabilities of the two variables being correlated. For example, see Nunnally and Bernstein (1994, p. 241).