Recent literature has uncovered that paying for performance is a dated concept. Several studies have investigated how employee performance is influenced by different aspects of compensation (Frey & Jegen, 2001). Adding to this research, the current study tested how compensation promotes or thwarts intrinsic motivation, which in-turn is promoted by fulfilling psychological needs of autonomy, relatedness and competence (Gagne & Forest, 2008). Theorizing through agency studies, using oligopolistic competition, and motivational crowding theory led to the following hypotheses: Ownership based compensation promotes motivation, and in-turn increases employee effort; monetary based compensation thwarts motivation, and in-turn decreases employee effort; motivation increases effort; motivation mediates compensation’s effect on effort. A questionnaire was distributed through Amazon Mturk, to 125 US based employees. Data on the composition of their compensation schemes (profit sharing, stock options, wages, salaries, bonuses), psychological needs scores (Basic Psychological Needs Work Scale) and certain controls (yearly income, additional benefits) was collected. As a result of logistical regression analysis, the first two hypotheses had one significant finding: having a salary, instead of stock options, marginally reduced motivation (without controls). Control variables, monetary income significantly predicted lesser effort and total benefits, or the in-kind payments, crowded- in autonomy and relatedness. The third and fourth hypotheses were partially supported as competence predicted greater effort, and alongside relatedness, mediated the effect of compensation on effort. Future studies should investigate the motivational crowding effect of monetary and gift schemes, their effect on workers through autonomy, relatedness and competence, to incentivize effort more efficiently.


Mellizo, Philip

Second Advisor

Thompson, Claudia


Business Economics; Psychology


Benefits and Compensation | Industrial and Organizational Psychology | Organizational Behavior and Theory | Performance Management | Social Psychology


motivation, compensation, self-determination theory, decision making

Publication Date


Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

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