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The Effects of Performance Measurement and Compensation on Motivation

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Marco van Herpen & C. Mirjam van Praag & Kees Cools, 2003. "The Effects of Performance Measurement and Compensation on Motivation," Tinbergen Institute Discussion Papers 03-048/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20030048
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    File URL: https://papers.tinbergen.nl/03048.pdf
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    References listed on IDEAS

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    14. Kunz, Alexis H. & Pfaff, Dieter, 2002. "Agency theory, performance evaluation, and the hypothetical construct of intrinsic motivation," Accounting, Organizations and Society, Elsevier, vol. 27(3), pages 275-295, April.
    15. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation," International Economic Association Series, in: L.-A. Gérard-Varet & S.-C. Kolm & J. Mercier Ythier (ed.), The Economics of Reciprocity, Giving and Altruism, chapter 7, pages 153-173, Palgrave Macmillan.
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    Cited by:

    1. Eric Zimmerling & Patrick J. Höflinger & Philipp G. Sandner & Isabell M. Welpe, 2016. "A system framework for gamified Cost Engineering," Information Systems Frontiers, Springer, vol. 18(6), pages 1063-1084, December.
    2. Imran Ahmed Shahzad & Valliapan Raju & Muhammad Farrukh & Nagina Kanwal & Muhammad Ikram, 2018. "Quality of Work Life: A Significant Dimension of Non-Financial Compensation or Managers’ Tool to Generate Reciprocity," International Journal of Human Resource Studies, Macrothink Institute, vol. 8(3), pages 218240-2182, December.

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    More about this item

    Keywords

    Performance measurement; Compensation; Promotions; Intrinsic Motivation; Extrinsic Motivation.;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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