Motivating and Demotivating Effects of Performance-Related Pay in Swedish Public Sector Organizations

• Author: Bengt Larsson,Ylva Ulfsdotter Eriksson,Petra Adolfsson
• Published date: 01 September 2022
• Date: 01 September 2022
• DOI: http://doi.org/10.1177/0734371X21990836
• Subject Matter: Articles

https://doi.org/10.1177/0734371X21990836

Review of Public Personnel Administration

2022, Vol. 42(3) 444 –463

© The Author(s) 2021

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DOI: 10.1177/0734371X21990836

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Article

Motivating and

Demotivating Effects

of Performance-Related

Pay in Swedish Public

Sector Organizations

Bengt Larsson1,2 , Ylva Ulfsdotter Eriksson1,2,

and Petra Adolfsson1

Abstract

This study contributes to the evidence on motivational effects from performance-

related pay (PRP) in the public sector. The theoretical point of departure is that

the practical organization and administration locally affect the motivational effects

of PRP. The analysis is based on surveys administered to employees (including

managers) in Swedish public sector organizations at municipal, regional, and state

levels. One of the main conclusions is that PRP is not motivating or demotivating

per se, but can be both motivating and demotivating within in the same organization.

The (de/)motivational effect depends on the local level organization and practices of

PRP, particularly the quality of the performance appraisal dialogue. While confirming

the importance of justice perceptions, it also shows the effects of managers’ and

employees’ preparations, knowledge of criteria, the quality of the performance

appraisal dialogue, and the manager’s evaluation style, while controlling for justice

perceptions and background variables.

Keywords

rewards, pay, motivation, performance appraisal, public sector

1University of Gothenburg, Sweden

2Linnaeus University, Växjö, Sweden

Corresponding Author:

Bengt Larsson, Department of Sociology and Work Science, University of Gothenburg, Box 720,

Göteborg 405 30, Sweden.

Email: bengt.larsson@socav.gu.se

990836ROPXXX10.1177/0734371X21990836Review of Public Personnel AdministrationLarsson et al.

research-article2021

Larsson et al. 445

Introduction

One of the main rationales for employers to use individualized performance-related

pay (PRP) is to increase employee motivation. The assumption that linking employ-

ees’ rewards to their performance leads to “an endeavour to increase individual per-

formance” is also common in economics and behavioral approaches (Papenfuß &

Keppeler, 2020, p. 1123; cf. Weibel et al., 2009). However, the use of PRP has been

questioned, and research in public sector organizations shows inconclusive results.

The effects of PRP on motivation, commitment, or quality of services are at best

occasional, generally rather marginal, and sometimes even negative (Bryson et al.,

2017; Chatelain-Ponroy et al., 2018; Chen, 2018; Choi & Whitford, 2017; Lee, 2019;

Perry et al., 2009; Schay & Fisher, 2013; Wenzel et al., 2019; Weske & Schott, 2018).

Despite this, the attractiveness of PRP systems in the wake of the New Public

Management trend show no tendency to abate (cf. Bellé, 2015; Fuller & Cooke, 2018;

Oh & Lewis, 2009; Williams et al., 2019).

At least three strands of research problematize PRP in the public sector (Bellé,

2015). One argues that the reward-oriented self-interest upon which such systems are

based conflicts with and may crowd out “other-regarding” or even altruistic values

among public sector employees—so called public service motivation (PSM) (Papenfuß

& Keppeler, 2020; cf. van Loon, 2017; Weske & Schott, 2018). A second strand points

to institutional characteristics of public organizations, such as budget constraints and

a lack of pay secrecy (cf. Bellé, 2015). Important as these approaches are, the present

study instead relates to a third strand of research focusing on inadequacies in design

and management practices of PRP (cf. Favero et al., 2016; Lee, 2019, Weske & Schott,

2018; van Loon, 2017).

The aim is to study which factors in the local level organization and practice of PRP

increase or decrease motivation among public sector employees. More specifically,

the study aims to analyze the motivational effects on employees from performance

appraisal in three organizational contexts; that is, to what degrees the performance

appraisal motivates or demotivates employees to do a better job or strive to increase

their wage. The local level organization and practice or PRP is of particular relevance

to study, since this is something that the organizations may actually influence, in con-

trast to the effects of intrinsic motivation values or budget constraints in general in the

public sector. In addition, even though the practices and administration of PRP per-

formed by managers seem to play an important role for motivation in some of the

previous research, it is seldom at the center of analysis.

The study is based on surveys in organizations at the municipal, regional, and state

levels in Sweden. The dependent variables were indexes over (self-reported) extrinsic

motivational and demotivational effects from PRP practices. The explanatory vari-

ables were employee preparations, type of performance criteria used, the performance

appraisal dialogue quality, and the manager’s evaluation style. In addition, the regres-

sions controlled for feelings of being treated unfairly, as well as organization, position,

education, gender, age, and tenure.