The role of compensation or extrinsic rewards, including pay for performance (PFP), has received relatively little attention in the organizational behavior/psychology literature on work motivation. What attention it has received has often taken the form of raising cautions about the potential harmful effects of PFP on (intrinsic) work motivation, as well as on creativity. We critically assess the theory and evidence that have provided the basis for such arguments and conclude that support for such claims (in workplace settings) is lacking. We seek to provide a more accurate view of how extrinsic rewards such as PFP operate in the workplace and how they influence workplace motivation, creativity, and performance. We document how social determination theory and creativity theory have recently undergone major changes that better recognize the potential positive influence of extrinsic rewards such as PFP. Finally, we identify areas in need of further research.

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One concern with pay for individual performance (PFIP) is that it may undermine intrinsic interest, thus having little or no positive net influence on performance. A major basis for this concern is cognitive evaluation theory [CET; Deci and Ryan (1985), Intrinsic Motivation and Self-Determination in Human Behavior, New York: Plenum Press]. Most evidence on CET, however, comes from non-work settings and, even in that arena, there is debate regarding the undermining effect of PFIP. There is little workplacebased evidence on the validity of the undermining hypothesis and none that makes use of data on between-employer differences in PFIP. Also, a close reading of CET, reinforced by recent developments, suggests that PFIP plans could, under common workplace conditions, have a positive, rather than negative, influence on intrinsic interest. To our knowledge, there is no research that examines between-organization differences in PFIP and how they relate to employee intrinsic interest. There is also no research on whether employees having a preference for PFIP plans are likely to gravitate to organizations using such plans. To the extent such attraction -selection-attrition or sorting processes take place, the likelihood of detrimental consequences (e.g. diminished intrinsic interest) of PFIP plans due to mismatches between how the organization pays and how the employees are motivated should be less likely. We find no evidence of a detrimental effect of PFIP plans on intrinsic interest. Instead, intrinsic interest is actually higher under PFIP. We also find that organizations placing greater emphasis on PFIP plans tend to have employees with motivation orientations matching their PFIP plans, which may reduce the probability of a detrimental effect of PFIP.

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