Motivating and Demotivating Effects of Performance-Related Pay in Swedish Public Sector Organizations

Abstract

This study contributes to the evidence on motivational effects from performance-related pay (PRP) in the public sector. The theoretical point of departure is that the practical organization and administration locally affect the motivational effects of PRP. The analysis is based on surveys administered to employees (including managers) in Swedish public sector organizations at municipal, regional, and state levels. One of the main conclusions is that PRP is not motivating or demotivating per se, but can be both motivating and demotivating within in the same organization. The (de/)motivational effect depends on the local level organization and practices of PRP, particularly the quality of the performance appraisal dialogue. While confirming the importance of justice perceptions, it also shows the effects of managers’ and employees’ preparations, knowledge of criteria, the quality of the performance appraisal dialogue, and the manager’s evaluation style, while controlling for justice perceptions and background variables.