Public Service Motivation and Monetary Incentives: Substitutes or Motivation Crowding?

Motivation is probably one of the most important determinants for organizational performance, because it stimulates effort and effective behaviors among people in the organization. But what type of motivation should public managers rely on? The PSM literature has argued that public service motivation is the most important type of motivation in the delivery of public service, because it substitutes for egoistic motivation. Organizations whose members have high levels of PSM are therefore expected to be less dependent on utilitarian motivators such as monetary incentives. Motivation crowding theory, on the other hand, argues that the relationship is opposite, so it is the degree of incentives that affects motivation. Both arguments lead to expectations of an association between public service motivation and monetary incentives, but so far this complex relationship has not been entangled. Using panel data from two surveys (2009 and 2011) of Danish physiotherapists (N=1.433), this study sheds more light on this chicken and egg debate. The results find no support for the PSM argument, but good support for the motivation crowding expectations. The results indicate that managers should be careful how they implement monetary incentives, but that there are potential gains for both managers and employees, if this is done properly.