In this thesis I want to explore why there is a very limited use of performance pay in the public sector in Denmark. To describe the motivational effects of performance pay I present and discuss four motivational theories that each brings a perspective: extrinsic motivation, intrinsic motivation, motivation through identity formation and public service motivation. Agency theory advocates the use of performance pay to align the interests of the employer and the employee. The theory does, however, recognize that the use of performance pay comes at a cost, because in complex jobs like those in the public sector it can be difficult to formulate goals in advance and measure the performance afterwards. Self-Determination Theory, on the other hand, describes an internalization process from controlled to autonomous motivation upon which a regulation like performance pay can be placed. The degree of self-determined behaviour resulting from the use of performance pay will depend on the employer’s degree of support of the employee’s three basic needs for competence, relatedness, and autonomy. Identity Economics highlights the importance of the employee’s identification with the organization and predicts a lesser need to use incentives like performance pay if the employees identify with the organization. This conclusion is supported by Public Service Motivation which describes an altruistic motivation to help others. Based on these motivation theories I list several problems concerning the use of performance pay in the public sector in Denmark. Headlines for these are: Difficulties with defining and measuring performance; performance pay crowding out intrinsic motivation; control creating distrust; a lack of fairness in distribution of the pay; a spill-over effect creating expectations and demands; a limited amount of pay meaning limited motivational effects. Based on these problems performance pay as motivation seems like a mirage, but with regard for the problems as well as the setting there is still a possibility for performance pay to turn into a megahit.
|Educations||MSc in Human Resource Management, (Graduate Programme) Final Thesis|
|Number of pages||79|