The effects of performance measurement and compensation on motivation: An empirical study

The design and implementation of a performance measurement and compensation system can strongly affect the motivation of employees. Building on economic and psychological theory this study develops a conceptual model that is used to empirically test this effect. Our survey results demonstrate a positive relationship between the perceived characteristics of the compensation system and extrinsic motivation. Intrinsic motivation is not affected by design monetary compensation, but is affected by promotion opportunities. The compensation system also significantly affects work satisfaction and turnover intent. This paper attempts to take a preliminary step towards showing the relationship between a compensation system and performance.