The Effects of Variable Pay on Employee Motivation : A Review of the Research

Abstract

Do variable pay plans motivate employees? This review of the literature studying the effects of rewards on intrinsic motivation presents the main findings and arguments for and against the usage of variable pay as a way to promote employee intrinsic motivation. In light of the research variable pay generally has a positive effect on intrinsic motivation for dull tasks. For interesting tasks a positive relationship generally exists where rewards are contingent on surpassing others or completing a task. Contrarily, variable pay has a generally neutral or negative effect on intrinsic motivation where the rewards are contingent on other criteria, non-contingent, or if the fundamentals of variable pay plan implementation have not been respected. All-in-all, the effects of variable pay on intrinsic motivation are still debated. Other research shows the existence of a positive relationship between intrinsic motivation and employee satisfaction, engagement and performance, highlighting the importance of the topic in organizational settings. Given the contradictory nature of the conclusions drawn by researchers in the field, various theories and aspects are discussed and suggestions for future research on the variable pay-intrinsic motivation relationship are provided.