Crowding Out Theory

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Crowding Out Intrinsic Motivation? The Role of Performance-Related Pay Edmund C. Stazyk Assistant Professor American University, School of Public Affairs Department of Public Administration & Policy 4400 Massachusetts Avenue, NW Washington, DC 20016 Phone: 202-885-6362 Fax: 202-885-2347 E-Mail: stazyk@american.edu * The author would like to acknowledge and thank Christina Chiappetta at the International Public Management Association for Human Resources for her help in making available results from the 2007 Total Compensation Benchmarking Survey. ABSRACT This article attempts to expand upon the current debate involving the relationship between performance-related pay and public service motivation. Two models are used to examine how variable pay influences public service motivation and job satisfaction among a sample of city managers, assistant city managers, and department heads. Findings support the argument that variable pay systems can crowd out public service motivation. However, results also present a much more complicated picture. Variable pay systems appear to primarily crowd out the intrinsic motives of those with high levels of public service motivation. However, employees without high public service motivation appear to value variable pay systems. Moreover, evidence suggests the crowding effect has little influence on overall job satisfaction. Instead, employees—on whole—are most satisfied when variable pay systems are present. 2 As New Public Management ideals have taken root globally, interest in linking pay to performance has witnessed a dramatic resurgence (Perry, Engbers, and Jun 2009; Houston 2009; Moynihan 2008). In the U.S. context, President Obama recently called for the General Schedule to be revamped, and indicated any effort to reform the federal pay system must be linked to pay-for-performance (Losey 2009). Similarly, former
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