Exchange Ideology, Performance Pay, and Pay Satisfaction: Evidence From South Korean Central Government

The use of performance pay in public organizations is contentious partly because it can crowd out the intrinsic motivation associated with public service. However, not all public employees are service oriented and sensitivity to extrinsic rewards varies between them. Exchange ideology measures the strength of an individual’s belief that work effort should be proportional to treatment by the organization. We argue that this psychological trait conditions the relationship between performance pay and pay satisfaction. An analysis of survey data collected from Korean government employees shows that performance pay is positively related to pay satisfaction in the average case, and second that this relationship is stronger for employees with higher levels of exchange ideology. Monte Carlo simulations suggest that the size of the moderating effect is nontrivial. We discuss the relevance of our findings to performance-oriented human resource reform in the public sector.