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

AuthorBengt Larsson,Ylva Ulfsdotter Eriksson,Petra Adolfsson
Published date01 September 2022
Date01 September 2022
Subject MatterArticles
Review of Public Personnel Administration
2022, Vol. 42(3) 444 –463
© The Author(s) 2021
Article reuse guidelines:
DOI: 10.1177/0734371X21990836
Motivating and
Demotivating Effects
of Performance-Related
Pay in Swedish Public
Sector Organizations
Bengt Larsson1,2 , Ylva Ulfsdotter Eriksson1,2,
and Petra Adolfsson1
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.
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.
990836ROPXXX10.1177/0734371X21990836Review of Public Personnel AdministrationLarsson et al.
Larsson et al. 445
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.

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