Pay-for-Performance Pay System and Job Attitudes in Government Agencies

It is well documented that public organizations are different from private ones in many respects –the goals of the organization, institutional rules, personnel systems, and employee motivation and behaviors. Over the past three decades, much research has revealed differences in behaviors and perceptions between the private and public sectors–known as sector difference–in the public administration field. Since the New Public Management (NPM) movement, public-sector organizations have adopted many managerial principles from the private sector. Pay-for-performance (PFP) is one of the common managerial practices that has been widely employed in public organizations. At present, many federal government agencies utilize alternative pay systems based on the PFP mechanism, replacing the General Schedule (GS) system in which pay increase is based on seniority. With the growing popularity of PFP systems in the public sector, many public administration scholars are raising concerns that the use of PFP in the public sector could have negative consequences for employees and organizations. They claim that PFP undermines the intrinsic and public service motivations of public employees, and causes the public sector to attract extrinsically–motivated individuals who place a high value on monetary rewards. This research investigates differences in employees’ job attitudes may be different between the PFP and the GS systems within the public sector and examines whether public managers working in agencies with PFP have higher rewards preferences, i.e. that their positive job attitudes are largely determined by monetary rewards. It is hypothesized that monetary rewards have a larger impact on employee job attitudes such as job satisfaction and turnover in the PFP system than in the GS system. This dissertation research will test the proposition by comparing employees' perceptions and attitudes in the two pay systems. Additionally, this research examines how pay systems differ among federal agencies adopting PFP, through the case study. Using hierarchical linear modeling (HLM), I examine cross-level interaction effects in how pay systems moderate the relationships between monetary rewards and employee job attitudes. As hypothesized, employees in the PFP are found to be different from those in the GS regarding job attitudes, with the former group’s positive job attitudes more influenced by monetary rewards than the latter’s. Based on empirical findings, this research will discuss the theoretical and practical implications of these findings for human resource management in government agencies.