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The Effects of Performance Measurement and Compensation on Motivation


Author Info

  • Marco van Herpen

    (University of Groningen, and The Boston Consulting Group)

  • C. Mirjam van Praag

    (University of Amsterdam)

  • Kees Cools

    (University of Groningen, and The Boston Consulting Group)


This paper analyzes empirically the relationship between pay and performance. Economic and psychological theories predict that the design and implementation of a performance measurement and compensation system affect the motivation of employees. Our survey results demonstrate a positive relationship between the perceived characteristics of the complete compensation system and extrinsic motivation. Intrinsic motivation is not affected by the design of monetary compensation, but by promotion opportunities. The compensation system also significantly affects work satisfaction and turnover intent. Our results have both managerial as well as policy implications. This discussion paper has resulted in a publication in De Economist , 2005, 153(3), 303-29.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-048/3.

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Date of creation: 13 Jun 2003
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Handle: RePEc:dgr:uvatin:20030048

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Keywords: Performance measurement; Compensation; Promotions; Intrinsic Motivation; Extrinsic Motivation.;

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