Pay-for-Performance and Work Motivation: Comparing Motivation between Two Compensation Policy Systems in U.S. Federal Agencies

Abstract

While private-sector managerial practices are being widely adopted in the public sector, few studies have investigated how market mechanisms influence the motivation or behavior of members of public organizations, or whether there is a systematic difference in employee motivation or behavior between market-centered settings and traditional civil service environments within the public sector. Analyzing large-scale survey data, this study investigates the difference in employee motivation between two compensation systems in the US federal government: pay-for-performance and general schedule. The empirical findings show that employees working in pay-for-performance systems tend to place a higher value on extrinsic values such as pay, performance ratings, and promotion than those in general-schedule systems. This indicates that market-centered managerial practices may undermine the public service motivation of public servants while attracting extrinsically motivated employees to the public sector.