The Effectiveness of Monetary and Promotion Rewards in the Public Sector and the Moderating Effect of PSM (PSM-Reward Fit or PSM Crowding Out): A Survey Experiment

AuthorNamhoon Ki
Published date01 February 2022
Date01 February 2022
Subject MatterArticles
Administration & Society
2022, Vol. 54(2) 277 –310
© The Author(s) 2021
Article reuse guidelines:
DOI: 10.1177/00953997211025983
The Effectiveness
of Monetary and
Promotion Rewards in
the Public Sector and the
Moderating Effect of PSM
(PSM-Reward Fit or PSM
Crowding Out): A Survey
Namhoon Ki1
To what extent does public service motivation (PSM) affect how monetary
rewards and promotion opportunities motivate government officials?
This study offers an answer to this question through a survey experiment
conducted with a sample of city government officials in Florida. The
experimental results demonstrate that both monetary and promotion
reward treatments positively motivate officials with low PSM. However, as
the level of PSM increases, the positive treatment effect of the monetary
reward decreases and converges on 0. Conversely, the positive effect of the
promotion opportunity treatment not only decreases but becomes negative,
indicating that PSM crowding out is taking place.
PSM, moderating effect, PSM crowding out, extrinsic rewards, survey
experiment, PSM-reward fit
1University of Miami, Coral Gables, FL, USA
Corresponding Author:
Namhoon Ki, Department of Political Science, University of Miami, 1300 Campo Sano Ave,
Suite 220A, Coral Gables, FL 33146, USA.
1025983AAS0010.1177/00953997211025983Administration & SocietyKi
278 Administration & Society 54(2)
The use of monetary incentives remains widespread and popular in the public
sector (Bellé, 2015). This might be a reflection of classical economic theory’s
belief that self-interested individuals will be motivated to perform certain
tasks if they are closely linked to rewards. Research on organizational behav-
ior and public administration (PA), however, challenges this view (Frey et al.,
2013; Jacobsen & Andersen, 2014; Lazear, 2000), arguing that offering
extrinsic rewards to government officials is not a practical prescription for
the public sector (Perry et al., 2010).
This suggests that the effects of extrinsic rewards are conditional on the
characteristics of individuals, especially their motivational bases. Among the
latter, public service motivation (PSM) in particular has attracted substantial
scholarly attention over the last three decades and is theorized to be an impor-
tant moderator of the effects of extrinsic rewards. PSM is defined as “an
individual’s predisposition to respond to motives grounded primarily or
uniquely in public institutions and organizations” (Perry & Wise, 1990, p.
368). A normative notion of PSM holds that government officials with high
PSM are less likely to be motivated by additional monetary rewards (Perry
et al., 2009, 2010), implying that low PSM officials may be more influenced
by such rewards. However, whether extrinsic rewards are ineffective for offi-
cials with high PSM remains unclear with mixed empirical findings in the
literature (e.g., Kellough & Lu, 1993; Lah & Perry, 2008; Perry et al., 2009;
Stazyk, 2012).
Another important issue given limited attention in the extant research is the
different effects of monetary and nonmonetary rewards in the public sector.
Bellé (2015, p. 231) notes that “the tendency to lump all [extrinsic] incentives
into a common category” is widespread in PA studies and argues that we can
significantly advance our understanding of the effects of extrinsic rewards in
the public sector by differentiating them. If different types of rewards have
different tendencies with respect to motivating government officials, the
inconsistent effects of extrinsic rewards observed in the public sector would
not be surprising. Furthermore, when taking the moderating role of PSM into
account, the story becomes increasingly complicated.
This study revisits the effects of extrinsic rewards in conjunction with the
moderating role of PSM across different reward types (i.e., monetary incen-
tive vs. promotion opportunity). To date, studies on the role of PSM in moder-
ating the relationship between extrinsic rewards and the behavior of public
officials have relied on correlational designs, albeit with a few notable excep-
tions (e.g., Bellé, 2015; Bellé & Cantrarelli, 2015). This research offers stron-
ger causal evidence for the effects of extrinsic rewards and the moderating role
Ki 279
of PSM through a survey experiment conducted with a sample of Florida city
government officials. This experiment examined the different effects of extrin-
sic rewards by comparing three different treatment groups (i.e., control, mon-
etary treatment, and promotion treatment) through a vignette question. This
article reports the significant variation in responses across different treatment
groups as well as the role of PSM in moderating these responses.
The following section first introduces the key debates regarding the use of
extrinsic rewards in the public sector. Second, it describes how extrinsic
rewards are not only ineffective but also detrimental in the public sector due to
the moderating role of PSM, which is possibly attributed to a hypothetical
PSM crowding out effect. Third, theoretical speculation is made as to whether
substituting nonmonetary rewards for monetary rewards in the public sector
might be an optimal solution regarding the moderating role of PSM. The
experimental approach adopted to test the hypotheses and the results are then
described. Next, the implications for reconciling discrepancies between the
findings and previous theoretical predictions are then discussed. Finally, the
limitations of this manuscript are discussed, and the suggestions for future
studies are proposed.
Theoretical Background, Research Questions, and
Do Extrinsic Rewards Elicit the Intended Effort of Government
PA has faced repeated demands to run government like a business (Frey et al.,
2013). Responding to this call, the new public management (NPM) movement
has produced more flexible government reward schemes, although even these
remain subject to criticisms of rigidity, insufficiency, and low reward expec-
tancy (Ellickson, 2002). In particular, implementations of financial incentives
such as pay-for-performance (PFP) in the public sector have generated sub-
stantial scholarly attention over the last few decades. Based on the model of
self-interested people in standard economic theory, it was once assumed that
monetary incentives would effectively motivate employees to engage better in
their assigned tasks.
Empirical studies, however, have a long history of inconclusive results
regarding whether monetary incentives are an effective managerial tool in
the government sector (Kellough & Lu, 1993; Lah & Perry, 2008; Perry
et al., 2009). For example, several studies document failures of PFP in the
public sector. After reviewing the extant research on the effect of monetary
rewards, Bellé and Cantrarelli (2015) argued that motivation crowding out

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