Well It’s Only Fair: How Perceptions of Manager Discretion in Bonus Allocation Affect Intrinsic Motivation

Abstract

Perceptions of manager discretion in incentive allocation are theoretically and practically important to help explain the much-debated relationship between performance-related bonuses and intrinsic motivation. We argue, and demonstrate, that perceived managerial discretion is a key moderator to this relationship because of its relevance to procedural fairness. In a first study, we developed a measure for perceived manager discretion and distinguished it from related concepts. In a second experiment, we found that higher bonuses associated with higher levels of perceived manager discretion enhanced procedural fairness but those based on lower discretion did not. In a third field study, we found that actual bonuses implemented by a service organization enhanced intrinsic motivation indirectly through procedural fairness, but only when employees perceived their bonus to be based on higher levels of perceived manager discretion. Conversely, when bonus level was associated with lower perceived manager discretion, it negatively predicted of intrinsic motivation.