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Abstract
This paper studies employee–pay interactions in jobs characterized by heterogeneous work motivations and compensation methods. We posit that individual-level differences in the balance between self-oriented and institution-oriented motivational traits reflect differences in employees’ value-appropriation strategies, with self-oriented employees being more likely than institution-oriented employees to link their remuneration to merit-pay schemes. Data on 5,253 employees in industrial research confirm our prediction and show that merit-pay compensation leads self-oriented employees to earn a lower average income, but with a larger dispersion, than institution-oriented employees. We investigate the reasons for this evidence and discuss the implications for the design of incentive schemes in jobs that are critical for firms’ competitive advantages, but in which effort and output are subjectively evaluated and uncertain.
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