The Pros and Cons of Increasing the Proportion of Performance Pay: An Evidence from South Korean Public Enterprise

Abstract

Insufficient incentive has been cited as one of the reasons that public sector performance pay policy failed. In the public sector, this can be resolved by increasing the proportion of performance pay without increasing the total budget for compensation. However, this adjustment in pay scale has both pros and cons. This study analyzes the data obtained from a South Korean public enterprise in which the proportion of performance pay has substantially increased. The result indicates that the increased proportion of performance pay policy may result in motivational gains: Work efforts are increased when they perceive that the proportion of performance pay is substantial. Although it increased emotional exhaustion, it did not significantly decrease helping behavior. This result implies that performance pay may be an effective resolution if managers are prepared to address some negative side effects.

Keywords:

• burnout
• helping behavior
• performance pay
• public enterprise
• work effort

Additional information

Funding

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2017S1A5A2A01023515).

Notes on contributors

Hyung-Woo Lee

Hyung-Woo Lee is an associate professor, at the Department of Public Administration, Hannam University, South Korea. He received a Ph.D. in Public Management from Sol Price School of Public Policy, University of Southern California. His major area of academic interest is performance management, organizational behavior, leadership, and human resource management in the public sector. His works have appeared in Nonprofit and Voluntary Sector Quarterly, Review of Public Personnel Administration, Public Personnel Management, Public Performance and Management Review and International Journal of Manpower.