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

• Published date: 01 February 2022
• Date: 01 February 2022
• DOI: http://doi.org/10.1177/00953997211025983
• Subject Matter: Articles

https://doi.org/10.1177/00953997211025983

Administration & Society

2022, Vol. 54(2) 277 –310

© The Author(s) 2021

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DOI: 10.1177/00953997211025983

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Article

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

Namhoon Ki1

Abstract

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.

Keywords

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.

Email: nki@miami.edu

1025983AAS0010.1177/00953997211025983Administration & SocietyKi

research-article2021

278 Administration & Society 54(2)

Introduction

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

Hypotheses

Do Extrinsic Rewards Elicit the Intended Effort of Government

Officials?

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