The private sector in Sweden is rapidly moving towards more performance-oriented pay systems in order to increase employees’ work motivation. In the research literature there has been a long lasting debate on whether pay for performance increases or decreases motivation, especially in relation to intrinsic motivation (the crowding-out effect), and scholars are still debating the effects of pay-for-performance systems on employee motivation and performance. The overall aim of this study is to contribute to an increased understanding of how pay relates to employee motivation and performance within the context of a pay-for-performance system. More specifically, drawing on self determination theory (SDT) and goal setting theory this study investigates how psychological needs (autonomy and feedback), goal setting (goal clarity), pay level and performance-based pay raise (assessed at Time 1) relate to subsequent motivation (intrinsic and extrinsic) as well as self-rated and supervisor-rated performance (assessed at Time 2), after controlling for demographic factors (age and sex). Questionnaire data was collected in 2015 and 2016 among all employees in a private Swedish industrial company (N=512, response rate approximately 40 percent). This was supplemented with register data on monthly pay level and individual pay raise along with performance ratings from their pay-setting managers. The findings indicate that pay for performance may have a positive impact on employee motivation and performance but that psychological need satisfaction and goal-setting also seems to be crucial for motivation and job performance. The study gives an input to the pay-motivation-performance puzzle with implications for managers and organizations.

The private sector in Sweden as well as other industrial countries is rapidly moving towards more performance-oriented pay systems in order to increase employees’ work motivation. In the research literature there has been a long lasting debate on whether pay for performance increases or decreases motivation, especially in relation to intrinsic motivation (the crowding-out effect), and scholars are still debating the effects of pay-for-performance systems on employee motivation and performance. The overall aim of this study is to contribute to an increased understanding of how pay relates to employee motivation and performance within the context of a pay-for-performance system. More specifically, drawing on self-determination theory (SDT) and goal setting theory this study investigates how psychological needs (autonomy and feedback), goal setting (goal clarity), pay level and performance-based pay raise (assessed at Time 1) relate to subsequent motivation (intrinsic and extrinsic) as well as self-rated and supervisor-rated performance (assessed at Time 2), after controlling for demographic factors (age and sex). Questionnaire data was collected in 2015 and 2016 among all employees in a private Swedish industrial company (N=512, response rate approximately 40 percent). This was supplemented with register data on monthly pay level and individual pay raise along with performance ratings from their pay-setting managers. The findings indicate that pay for performance may have a positive impact on employee motivation and performance but that psychological need satisfaction and goal-setting seem to be crucial for both motivation and job performance. The study gives an input to the pay-motivation-performance puzzle with implications for managers and organisations.

Företags- och medarbetarnära lönebildning blir allt vanligare. Den utvecklingen baseras på antaganden om att lön och löneutveckling bidrar till ökad motivation och goda arbetsprestationer, och att den gör det lättare för arbetsgivare att rekrytera och behålla attraktiva medarbetare. En tydligare uttalad koppling mellan anställdas arbetsutförande och lön antas alltså  bidra till att verksamheten utvecklas. Samtidigt är lön en av flera olika faktorer som kan bidra till ökad motivation hos medarbetare och det finns andra faktorer än lön som kan ha större betydelse för motivationen. En förutsättning för att lön ska fungera som en motivationsfaktor är att lönesättningen upplevs som legitim och rättvis. Men för att nå dit behövs det kunskap om de psykologiska mekanismerna som ligger bakom upplevelser av legitimitet, liksom om hur lön och lönesättning hänger samman med motivation och prestation i arbetet.

Individuell lönesättning, med en tydligare uttalad koppling mellan anställdas arbetsutförande och lön, har blivit ett allt vanligare inslag i verksamheter. Ett grundläggande antagande som ligger bakom denna utveckling är att lön och löneutveckling är motiverande för individen och därmed bidrar till bra arbetsprestationer och god verksamhetsutveckling. Ett annat grundantagande är att lön och lönesystem kan dra till sig individer som är attraktiva för organisationen samt att lönesystemet ger organisationen möjligheter att premiera och därmed behålla de individer som bidrar till verksamheten.