Performance‐Related Pay and the Crowding Out of Motivation in the Public Sector: A Randomized Field Experiment

This article advances our understanding of the effects of monetary rewards on public employee performance and of the contingencies that may moderate these effects. In a randomized control‐group experiment with nurses working at a local health authority in Italy, performance‐related pay (PRP) had a larger effect on task performance when the rewards were kept secret than when they were disclosed. The negative interaction between PRP and visibility was stronger among participants who were exposed to direct contact with a beneficiary of their efforts, which heightened their perception of making a positive difference in other people's lives. These results are consistent with theoretical predictions that monetary incentives for activities with a prosocial impact may crowd out employee image motivation. There were no crowding‐out effects when a symbolic reward was substituted for the monetary incentive.