Exchange Ideology, Performance Pay, and Pay Satisfaction: Evidence From South Korean Central Government
| Author | Tobin Im,Jesse W. Campbell |
| Date | 01 December 2019 |
| Published date | 01 December 2019 |
| DOI | 10.1177/0091026019832632 |
| Subject Matter | Articles |
research-article2019
Article
Public Personnel Management
2019, Vol. 48(4) 584 –607
Exchange Ideology,
© The Author(s) 2019
Article reuse guidelines:
Performance Pay, and Pay
sagepub.com/journals-permissions
https://doi.org/10.1177/0091026019832632
DOI: 10.1177/0091026019832632
journals.sagepub.com/home/ppm
Satisfaction: Evidence From
South Korean Central
Government
Jesse W. Campbell1 and Tobin Im2
Abstract
The use of performance pay in public organizations is contentious partly because it
can crowd out the intrinsic motivation associated with public service. However, not
all public employees are service oriented and sensitivity to extrinsic rewards varies
between them. Exchange ideology measures the strength of an individual’s belief that
work effort should be proportional to treatment by the organization. We argue that
this psychological trait conditions the relationship between performance pay and pay
satisfaction. An analysis of survey data collected from Korean government employees
shows that performance pay is positively related to pay satisfaction in the average
case, and second that this relationship is stronger for employees with higher levels of
exchange ideology. Monte Carlo simulations suggest that the size of the moderating
effect is nontrivial. We discuss the relevance of our findings to performance-oriented
human resource reform in the public sector.
Keywords
exchange ideology, incentives, satisfaction, compensation, motivation
Introduction
Despite the notoriously poor reputation of performance pay in much public admin-
istration literature (Kellough & Nigro, 2002; Park & Berry, 2014; Perry, Engbers,
1Incheon National University, Incheon, Korea
2Seoul National University, Seoul, Korea
Corresponding Author:
Tobin Im, Graduate School of Public Administration, Seoul National University, Building 57-1, 599
Gwanak-ro, Gwanak-gu, Seoul 151-742, Korea.
Email: tobin@snu.ac.kr
Campbell and Im
585
& Jun, 2009), performance pay schemes remain popular in public sector organiza-
tions throughout the world (Dahlström & Lapuente, 2010; Organisation for
Economic Co-operation and Development [OECD], 2017a). Motivated by expec-
tancy, equity, and principal-agent theory, performance pay aims to enhance organi-
zational effectiveness by linking the performance of employees to their rewards,
thereby aligning individual incentives with the objectives of the organization
(Atkinson, Fulton, & Kim, 2014; Burgess & Ratto, 2003; Cho & Lee, 2012;
Eisenhardt, 1985; Miller & Whitford, 2006). While contextual factors such as a
lack of trust in management, difficulties in formulating clear performance goals,
and bias in performance appraisals can undermine the success of performance pay
in the public sector (Bowman, 2010; Perry et al., 2009), others trace the failures of
performance pay to a faulty assumption underlying arguments for its adoption,
namely, that self-interest is the dominant motivational factor for public servants
(Houston, 2009; Moynihan, 2008; Perry & Vandenabeele, 2008; Perry & Wise,
1990). Instead of self-interest, public servants can be driven by the intrinsic incen-
tives embedded in the public sector work context, seeking opportunities to satisfy
public service motives rather than selfish desires. Consequently, the theoretical
benefits of performance pay may fail to materialize in the public sector because
such service motives are both strong and widespread among public servants.
Some studies do provide evidence that individuals with strong service motives
seek employment in organizations where the needs associated with them can be
satisfied (Christensen & Wright, 2011; Perry, Hondeghem, & Wise, 2010;
Vandenabeele, 2008). However, public servants are a heterogeneous group with
diverse values as well as different attitudes about rewards (Tang & Liu, 2011). As
such, while the strong self-interest-based motivational assumptions underlying the
use of performance pay cannot be expected to hold universally, expectations about
and sensitivity to how individual effort is rewarded will vary between public
employees (Belle & Cantarelli, 2015). Exploring how attitudinal variation among
public servants can affect the perception and acceptance of performance pay can,
therefore, help provide additional knowledge about the effects of performance pay
and other results-oriented reforms in public organizations.
Exchange ideology denotes the extent to which an individual believes that their
obligations to their organization should be proportional to their treatment by it
(Eisenberger, Huntington, Hutchison, & Sowa, 1986). Because the immediate goal of
performance pay is to strengthen the formal exchange dimension of the relationship
between the individual and the organization, we focus on the relevance of exchange
ideology for public employees working in organizations with varying degrees of cou-
pling between individual performance and pay. We discuss how high levels of exchange
ideology may make employees more open to performance pay and argue that the
extent to which an employee views exchange as central to their organizational life will
be relevant to how the use of performance pay affects satisfaction with pay.
In the next section, the link between performance pay and pay satisfaction is dis-
cussed, and we outline the relevance of exchange ideology for this nexus. We argue
that employees with a strong sense of exchange will be more satisfied with their pay
586
Public Personnel Management 48(4)
in organizations with a higher reliance on performance pay, a hypothesis that is tested
using data gathered from a large survey of South Korean central government workers.
Performance pay has been introduced throughout Korean central government (P. S.
Kim & Hong, 2013; Lee & Moon, 2012; OECD, 2017a), making Korea a relevant
context in which to explore this issue. We present our findings and then discuss the
contributions this study makes to the ongoing debate about the use of performance pay
and results-oriented reform in the public sector.
Literature Review
Performance Pay and Pay Satisfaction
Political, economic, and managerial concerns have led to a great deal of experimen-
tation with performance pay in the public sector (Burgess & Ratto, 2003; Dahlström
& Lapuente, 2010). Incentive-based reforms aim to transform the relationship
between work and compensation by strengthening links between performance and
pay, and therefore the question of whether such reforms are linked with employee
attitudes about pay is both intuitive and relevant for practitioners. While few public
administration studies have looked at pay satisfaction specifically (Choi & Whitford,
2017; S. Kim, 2012), a good deal of private sector research suggests that the con-
struct is relevant to public organizations. For example, satisfaction with extrinsic
rewards is linked to turnover intention (Currall, Towler, Judge, & Kohn, 2005;
Homburg, van der Heijden, & Valkenburg, 2013; Lum, Kervin, Clark, Reid, &
Sirola, 1998; Panaccio, Vandenberghe, & Ayed, 2014; Vandenberghe & Tremblay,
2008; Wang, Chen, Hyde, & Hsieh, 2010), job involvement (O’Driscoll & Randall,
1999), commitment (Jayasingam & Yong, 2013; O’Driscoll & Randall, 1999;
Panaccio et al., 2014; Vandenberghe & Tremblay, 2008; Wang et al., 2010), and
organizational performance (Currall et al., 2005), all of which have been studied
extensively in the public administration literature.
Pay satisfaction can be defined as the strength of the positive feeling associated
with the evaluation of the level of monetary rewards that an employee receives as
compensation for the work they perform for their organization (Miceli & Lane,
1991). The use of performance pay may influence pay satisfaction in a number of
ways. In addition to the absolute level of pay (Heneman, Greenberger, & Strasser,
1988), the mechanisms that determine pay levels have an impact on how satisfied
employees are with it (Green & Heywood, 2008; McFarlin & Sweeny, 1992; Zheng,
Wang, & Song, 2014). If performance pay is implemented in a fair way, employee
perceptions of both procedural and distributive justice may heighten by linking
rewards to effort (Chang & Hahn, 2006; Cho & Lewis, 2012; Gabris & Ihrke, 2000,
but see Choi & Whitford, 2017). From the worker’s perspective, performance
appraisal provides a framework against which the appropriateness of different types
of behavior can be evaluated (Campbell , 2018; Campbell, Lee, & Im, 2016), which
can lead to higher levels of effort optimization, autonomy, and overall satisfaction
with work (Green & Heywood, 2008; Heneman et al., 1988). Through aligning the
Campbell and Im
587
interests of employees with those of their organization, performance incentives can
facilitate identification (Campbell, 2015), which in turn may heighten satisfaction
(Van Dick et al., 2004). Stazyk (2013) finds that job satisfaction among U.S. munici-
pal workers is highest in cities that have implemented performance-related pay.
Such studies suggest that the use of performance pay in the public sector may result
in higher levels of employee satisfaction with their pay.
This theoretical and empirical evidence implying a link between performance
pay and pay satisfaction can be contrasted with well-known implementation, insti-
tutional, and cultural challenges that undermine the efficacy of performance pay in
public organizations (Belle &...
To continue reading
Request your trial