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The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study

De Economist volume 153, pages 303–329 (2005)Cite this article

Summary

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.

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Authors and Affiliations

  1. University of Groningen & The Boston Consulting Group, J.F. Kennedylaan 100, 3741, EH Baarn, The Netherlands

    Marco Van Herpen & Kees Cools

  2. Faculty of Economics and Econometrics, University of Amsterdam, Roetersstraat 11, 1018, WB Amsterdam, The Netherlands

    Mirjam Van Praag

Authors
  1. Marco Van Herpen
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  2. Mirjam Van Praag
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  3. Kees Cools
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Corresponding author

Correspondence to Kees Cools.

Additional information

We would like to thank the organization and the participants of the 2002 conference of the Performance Measurement Association in Boston for helpful discussions and also seminar participants of the Dutch Labor Market Conference. We are grateful for the comments provided by Bruno S. Frey. The paper has also significantly benefited from the suggestions and comments of two anonymous referees.

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Van Herpen, M., Van Praag, M. & Cools, K. The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study. De Economist 153, 303–329 (2005). https://doi.org/10.1007/s10645-005-1990-z

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  • DOI: https://doi.org/10.1007/s10645-005-1990-z

Keywords

  • compensation
  • extrinsic motivation
  • intrinsic motivation
  • promotions
  • performance measurement

Jel classifications

  • J41
  • J33