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The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study

De Economist, Vol. 153, No. 3, 2005

Tinbergen Institute Discussion Paper No. 03-048/3

36 Pages Posted: 19 Aug 2003 Last revised: 31 Oct 2014

Marco van Herpen

Boston Consulting Group

Mirjam van Praag

University of Amsterdam - Department of Economics; Copenhagen Business School; Tinbergen Institute; IZA Institute of Labor Economics

Kees Cools

Boston Consulting Group

Date Written: June 1, 2003

Abstract

The design and implementation of a performance measurement and compensation system can strongly effect the motivation of employees. Building on economic and psychological theory this study develops a conceptual model that is used to empirically test this effect. We find that the employee's perception of the compensation system influences the motivation of agents. Our survey results demonstrate a significant positive relationship between the perceived characteristics of the compensation system and extrinsic motivation. Intrinsic motivation is not affected by the design of the monetary compensation system, but is affected by promotion opportunities. The compensation system also significantly affects other indicators of motivation, namely work satisfaction and turnover intent. Further research could extend these results by investigating the relationship between extrinsic and intrinsic motivation on the one hand and individual and company performance on the other.

Keywords: Performance measurement, Compensation, Promotions, Intrinsic Motivation, Extrinsic Motivation

JEL Classification: J41, J33

Suggested Citation

van Herpen, Marco and van Praag, Mirjam and Cools, Kees, The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study (June 1, 2003). De Economist, Vol. 153, No. 3, 2005; Tinbergen Institute Discussion Paper No. 03-048/3. Available at SSRN: https://ssrn.com/abstract=417355 or http://dx.doi.org/10.2139/ssrn.417355

Marco Van Herpen

Boston Consulting Group ( email )

J.F. Kennedylaan 100
3741 EH Baarn
Netherlands

Mirjam Van Praag (Contact Author)

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4096 (Phone)
+31 20 525 4182 (Fax)

Copenhagen Business School ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Tinbergen Institute

Gustav Mahlerlaan
Amsterdam
Netherlands

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Kees Cools

Boston Consulting Group ( email )

J.F. Kennedylaan 100
3741 EH Baarn
Netherlands
+ 31 35 54 868 00 (Phone)

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