Detrimental Effects of Performance-Related Pay in the Public Sector? On the Need for a Broader Theoretical Perspective

Performance-related pay has been a key ingredient in New Public Management reforms. Nevertheless, the research presented here indicates some adverse effects of such incentives. These incentives may impair an initial motivation to work and change the norms that guide behavior. An issue which in particular has been given insufficient attention is fairness. Findings drawn from experimental economics supported by field studies demonstrate that perceived unfairness may have important negative effects on performance. The implication of a broader perspective in the analysis of performance-related pay in the public sector is that such a pay system, contrary to its aim, may have detrimental effects on performance. Copyright Springer Science+Business Media, LLC 2013