Abstract:
The paper aims to investigate empirically how employer incentives and peer effects,
namely productivity spillovers and inequity aversion, affect the relationship between
employee intrinsic and extrinsic motivation. Bounded rationality in employees means that
employers struggle to predict the influence of incentives and peer effects on employee
motivation and they need to be cognisant of the potential to crowd out intrinsic motivation.
Data was collected from an online survey sent to knowledge workers in South Africa.
Scenarios were based on the gift exchange game and tested incentives such as base
pay, bonuses, and sanctions as well as peer effects. This research found a positive
correlation between intrinsic and extrinsic motivation and therefore contributes
empirically to research where incentives and motivation act as complements. Monetary
incentives that are perceived as fair will increase employee motivation and effort.
Employees are inequity averse and pay discrepancies will significantly reduce
motivation. Productivity spillovers from peers will increase employee motivation even at
lower compensation levels. This study contributes empirically to Self-determination
theory and Behavioural agency theory by investigating the relationship between intrinsic
and extrinsic motivation.
