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Performing for Pay? The Effects of ‘Merit Pay’ on Motivation in a Public Service

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  • David Marsden
  • Ray Richardson

Abstract

Despite the growing use made of performance-related pay schemes, their true impact remains sadly under-researched. This article, a case study of the scheme introduced into the Inland Revenue in 1988, and typical of recent UK public-sector schemes, is an attempt to reduce the area of mystery. We assess the scheme by its likely impact on employee motivation, which we gauge through a variety of employee and management opinions and attitudes, as expressed in more than 2000 responses to a questionnaire. Our conclusion is that, although the scheme was thought by staff to have a number of virtues, it was very unlikely to have raised employee motivation appreciably; it may indeed have been demotivating on balance. We also consider the likely reasons for this result. If the scheme did not improve employee motivation, it is hard to see how it could have enhanced employee performance. The study has potentially important implications for the government policy of seeking to improve the functioning of the public sector through performance-related pay.
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Suggested Citation

  • David Marsden & Ray Richardson, 1994. "Performing for Pay? The Effects of ‘Merit Pay’ on Motivation in a Public Service," British Journal of Industrial Relations, London School of Economics, vol. 32(2), pages 243-261, June.
    • Handle: RePEc:bla:brjirl:v:32:y:1994:i:2:p:243-261
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    File URL: http://hdl.handle.net/10.1111/j.1467-8543.1994.tb01043.x
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    Cited by:

    1. Engellandt, Axel & Riphahn, Regina T., 2004. "Incentive Effects of Bonus Payments: Evidence from an International Company," IZA Discussion Papers 1229, Institute of Labor Economics (IZA).
    2. Fabra, M. Eugenia & Camisón, Cesar, 2009. "Direct and indirect effects of education on job satisfaction: A structural equation model for the Spanish case," Economics of Education Review, Elsevier, vol. 28(5), pages 600-610, October.
    3. Antti Kauhanen & Hannu Piekkola, 2006. "What Makes Performance-Related Pay Schemes Work? Finnish Evidence," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 10(2), pages 149-177, May.
    4. Sarah Ashwin, 2021. "In memoriam David Marsden 1950–2021," British Journal of Industrial Relations, London School of Economics, vol. 59(4), pages 979-981, December.
    5. David Marsden, 2006. "Individual Employee Voice: Renegotiation and Performance Management in Public Services," CEP Discussion Papers dp0752, Centre for Economic Performance, LSE.
    6. Urieşi Sebastian, 2016. "Motivational effects of pay dispersion in pay for performance programs implemented in Romanian companies," Management & Marketing, Sciendo, vol. 11(2), pages 431-448, July.
    7. David Marsden, 2004. "Unions and Procedural Justice: An Alternative to the ‘Common Rule’," Palgrave Macmillan Books, in: Anil Verma & Thomas A. Kochan (ed.), Unions in the 21st Century, chapter 10, pages 130-145, Palgrave Macmillan.
    8. David Marsden, 2009. "The Paradox of Performance Related Pay Systems: 'Why Do We Keep Adopting Them in the Face of Evidence that they Fail to Motivate?'," CEP Discussion Papers dp0946, Centre for Economic Performance, LSE.
    9. Marsden, David & French, Stephen, 1998. "What a performance: performance related pay in the public services," LSE Research Online Documents on Economics 4421, London School of Economics and Political Science, LSE Library.
    10. David Marsden, 1997. "Public service pay reforms in European countries," Transfer: European Review of Labour and Research, , vol. 3(1), pages 62-85, May.
    11. Yuen Yuen Ang, 2017. "Beyond Weber: Conceptualizing an alternative ideal type of bureaucracy in developing contexts," Regulation & Governance, John Wiley & Sons, vol. 11(3), pages 282-298, September.
    12. Marsden, David, 2004. "The role of performance-related pay in renegotiating the "effort bargain": the case of the British public service," LSE Research Online Documents on Economics 4036, London School of Economics and Political Science, LSE Library.
    13. Yu-Lin Chen, 2014. "Determinants of biased subjective performance evaluations: evidence from a Taiwanese public sector organization," Accounting and Business Research, Taylor & Francis Journals, vol. 44(6), pages 656-675, December.
    14. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2012. "Rewarding carrots and crippling sticks: Eliciting employee preferences for the optimal incentive design," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1247-1265.

    More about this item

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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