Agency theory,performance evaluation,and the hypothetical construct of intrinsic motivation |
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| Institution: | 1. University of Applied Sciences Aargau (Northwestern Switzerland), Martinsberg, CH-5401 Baden, Switzerland;2. Institute for Accounting and Control, University of Zurich, Plattenstrasse 14, CH-8032, Zurich, Switzerland;1. Department of Accounting, University of Melbourne, Australia;2. Department of Accounting, University of Amsterdam, The Netherlands;1. Assistant, Faculty of Philosophy, Department for Pedagogy, Cirila and Metodija 2, 18 000 Nis, Serbia;2. Professor, Faculty of Philosophy, Department for Pedagogy, Cirila and Metodija 2, 18 000 Nis, Serbia;1. College of Business, East Carolina University, Greenville, NC 27858, United States;2. Faculty of Management and Economics, Dalian University of Technology, Dalian, China;1. University of Waterloo, School of Accounting and Finance, 200 University Ave W, Waterloo, ON N2L 3G1, Canada;2. University of New South Wales Sydney, School of Accounting, Auditing, & Taxation, Sydney, NSW 2052, Australia;1. ISIG, Department of Management, London School of Economics and Political Science, United Kingdom;2. Development Economics (DEC), The World Bank, 1818 H St. NW, Washington, DC 20433, USA |
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| Abstract: | Cognitive evaluation theory and its hypothetical construct of intrinsic motivation are enjoying increasing popularity in the fields of business administration and economics. Consequently, intensifying skepticism towards performance incentives and agency theory is postulated. According to cognitive evaluation theory, it is argued that performance pay may undermine an agent's intrinsic motivation. In contradiction to agency theory, the principal might be worse off when providing an incentive contract to the agent than without doing so. Since the contention is substantiated by empirical evidence, it seems worrying enough for further investigation. Restricting attention to performance pay in business corporations, the scope of this article is to evaluate whether agency theory faces an urgent need to incorporate the construct of intrinsic motivation and its ‘hidden costs of reward' as postulated by supporters of the concept. The subsequent analysis reveals good and bad news for agency theory. The bad news is that hidden costs of reward do indeed exist. The good news is that the empirical evidence on undermining effects cannot be interpreted as being contradictory to agency theory. In particular, the antecedents for such effects not only seldomly prevail in business corporations, they are also easily avoidable. |
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