Professional Documents
Culture Documents
**corresponding author
Purpose. The purpose of this research is to examine pay satisfaction, intrinsic and
extrinsic job satisfaction and performance for employees at a large software
company.
Design. This paper draws on a case study using a survey, open-ended comments,
in a large IT company in Australasia.
Practical implications. Our findings have implications for designers of pay for
performance plans used to align highly skilled and motivated IT professionals
who are at the coal face in creating value for the business and customers.
Novelty. Intrinsic motivation is not crowded out by pay. Pay does not directly
drive performance for the knowledge worker. Rather, pay is a hygiene factor,
increasing intrinsic motivation which in turns drives performance.
Keywords: case study, incentive system, extrinsic job satisfaction, intrinsic job
satisfaction, pay satisfaction, performance.
Introduction
Managing human resources is likely to be one of the most challenging tasks in
organisations (Davila, 2005), especially in knowledge intensive industries such as the IT
industry. Intrinsically motivated IT workers are more likely to perceive their jobs as
meaningful, and valuable to others, thus judge their jobs more positively (Thatcher et al.
2006 p136). Innovation is a crucial aspect of the IT industry and requires employees with
knowledge and creativity to construct new projects Employees are a resource that
produce superior performance (Holton et al., 2008), and who can yield long term
sustainable advantage (Spender, 1996).
(Colbert 2004; Lado and Wilson 1994; Prahalad and Hamel, 1990; Wernerfelt, 1995;
Wright & McMahan, 1992), strategic human resource management accounting must
recognize the value of people to guide decision making by management (Flamholtz,
1973). In understanding the need to meet the growing expectations on management
accounting, Kominis and Emmanuel (2005) direct future research to draw upon
organisational psychology and human resource literatures to enable future theoretical
development in management accounting.
Compensation issues are currently being scrutinized worldwide, following the sizeable
compensation received by middle and senior managers at failing finance companies and
banks.
In the IT industry,
understanding the social and psychological processes is important (Bhal and Gulati,
2007). Pay satisfaction and job satisfaction are critical elements in performance outcomes
of knowledge workers. However, we know little about the relationship between pay
IT
professionals are highly skilled and valuable resources that need to be understood,
motivated and remunerated in a manner to retain and attract them.
salary importance and attainment do not have a significant relationship with job
satisfaction for IT professionals.
conclusions, the balance of the literature shapes a positive relationship between overall
pay satisfaction and job satisfaction (Perry 1993; Ellickson and Logsdon 2001).
Relationship between Job Satisfaction and Job Performance
The association between job satisfaction and job performance has been controversial. On
one hand, there is no positive relationship between job satisfaction and job performance,
generally because some academics see them as separate constructs (Greenberger, Strasser,
Cummings and Dunham 1989; Judge et al. 2001). On the other hand, and on the balance
of the literature, there is a positive relationship between job satisfaction and job
performance (Slocum 1971; Ferris 1977; Petty, McGee, and Cavender 1984; Lawler and
Porter 2000; Currall, Towler, Judge and Kohn 2005; Gagne and Deci 2005).
However, the direction of the relationship delivers the most varying views. Riketta
(2008) supports job satisfaction leading to job performance and not the opposite,
whereas, Petty, McGee, and Cavender (1984) argue for both directions. There is an
extensive meta-analysis which supports the positive association between job satisfaction
and job performance and suggests attitudes toward the job should be related to
behaviours on the job, the most central of which is performance on the job (Judge et al.
2001 p378). Therefore, this study breaks down job satisfaction into the two components;
intrinsic satisfaction (the enjoyment of doing the job) and extrinsic satisfaction (doing the
job for the pay or rewards).
This discussion leads to the following hypotheses:
Hypothesis 1:
The relationship between Pay Satisfaction and Job Performance will be
explained by an indirect effect whereby Pay Satisfaction increases Intrinsic
Job Satisfaction and this in turn enhances Performance.
Hypothesis 2:
The relationship between Pay Satisfaction and Job Performance will be
explained by an indirect effect whereby Pay Satisfaction increases Extrinsic
Job Satisfaction and this in turn enhances Performance.
Hypothesis 3:
When job satisfaction is higher, the positive relationship between pay
satisfaction and job performance is stronger.
interests: In software, it is staff who make the instructions that bring the hardware to life
enabling it to do valuable things for our communities (Comptal 2008).
The survey was sent to 257 employees at Comptal and all employees were given the
opportunity to participate. The majority of employees who participated were categorized
as senior manager, manager, system developer, consultant, administrator or systems
engineer.
An online questionnaire was chosen over a traditional mail survey as it was more
convenient and less timely for participants (Sax, Gilmartin, and Bryant 2003). The online
questionnaire was designed so participants were not prompted if they missed a question
1 Called Comptal for confidentiality reasons
5
Measures
We use well established instruments. The Minnesota Satisfaction Questionnaire (MSQ)
was used to measure job satisfaction (Weiss, Dawis, England and Lofquist, 1967), Pay
Satisfaction Questionnaire (PSQ) developed by Heneman and Schwab (1985). Job
performance was measured by a model developed by Baddoo et al. (2006) that listed key
dimensions of software developers. The list was adapted into an instrument by adding
two sub-scales for participants to rate the importance and their own performance.
The descriptive statistics for the variables are shows in Table 2, Table 3 shows the
correlation matrix and Table 4 presents the high Cronbach Alphas for all the measures,
along with the correlation matrix.
Pay Satisfaction
PS - Level
PS - Benefits
PS - Raises
PS S&A
Job satisfaction
Intrinsic job satisfaction
Extrinsic job satisfaction
Performance
No.
Minimum
Mean
Maximum
99
99
99
99
99
90
90
89
82
1.27
1
1.33
1
1.17
2.42
2.5
1.5
3.82
3.4
3.48
3.86
3.15
3.1
3.68
3.78
3.39
5.42
4.79
5
5
4.75
4.4
4.63
4.75
4.50
6.88
Standard
Deviation
.67
.96
.90
.85
.67
.46
.44
.65
.58
Pay
Satisfaction
Job
satisfaction
Intrinsic
job
satisfaction
Extrinsic job
satisfaction
Performance
Note: * p<.05,
Pay
satisfaction
1.0
Job
satisfaction
Intrinsic job
satisfaction
.678***
1.0
.539***
.915***
1.0
.730***
.855***
.612***
Extrinsic job
satisfaction
Performance
1.0
.249*
.433***
.484***
.237*
1.0
** p<.01, ***p<.001 (one tailed). Cronbach Alphas are reported on the
diagonal.
Cronbach
alpha
0.937
0.974
0.833
0.838
0.850
0.874
0.811
0.77
0.907
0.851
0.856
Pay Satisfaction
Confirmatory factor analysis distinguished the degree to which a theoretical structure
matched the observed structure (Meyers, Gamst, and Guarino 2006). Pay satisfaction
theoretically has four sub constructs: pay level, benefits, raises, and structure and
administration. Pay satisfaction principal component factor analysis produced a
favourable KMO of 0.892, which Kaiser (1974) suggested was sufficient as a measure of
sampling adequacy. When four factors were extracted, the variance explained by these
four factors was 76%. The resulting factor analysis confirmed the four sub constructs of
pay satisfaction (Heneman and Schwab, 1985).
Job Satisfaction
Job satisfaction has two sub constructs: intrinsic and extrinsic. Principal component
factor analysis with promax rotation as we did not want to impose orthogonality on the
sub scales. This factor produced a favourable KMO of 0.892. However there was low
variance explained of 42%. The confirmatory factor analysis supported the two sub
constructs of job satisfaction (intrinsic and extrinsic).
In examining the intrinsic elements of job satisfaction, the mean was 3.78 while the mean
for extrinsic elements of the job was 3.39. This would indicate that the intrinsic levels of
satisfaction were higher than the extrinsic elements of job satisfaction.
Performance
Job Performance comprises 17 questions which were rated on Importance as well as How
well did you perform. See Appendix for the instrument on job performance.
The core variables used in the empirical tests of the hypotheses include the following:
Pay Satisfaction The mean of the nineteen questions from the PSQ (see Appendix 2).
The theoretic ranges were 1 to 5.
Job Satisfaction
Intrinsic Job
Satisfaction 2
p21 0.539***
Pay
Satisfaction 1
p32 0.635***
p31 0.132
Performance 3
r = 0.539
p < 0.0001
r = 0.249
r = 0.484
p < 0.05
p < 0.0001
Value
Standard Error
p31
0.132
0.114
1.158
< 0.3
p32
0.635
0.152
4.186
< 0.0001
Adj. R2 = 0.248
F = 5.236
p < 0.0001
Total Effect
(rij)
Direct
Effect (pij)
0.539
0.539
0.249
0.132
0.484
0.635
10
Indirect
Effect
Spurious
Effect
0.117
-0.151
Extrinsic Job
Satisfaction 2
p21 0.730***
Pay
Satisfaction 1
p32 0.137
p31 0.265
Performance 3
We find that the lack of significant results for extrinsic motivation (as a mediating
variable) suggests that a larger degree of performance can be achieved through pay
satisfaction alone (24.9% correlation, Table 9), rather than through pay satisfaction and
extrinsic motivation path. These findings are consistent with such researchers as Cable
and Judge (1994) and Patchen (1961) who argue that compensation (as measured by pay
satisfaction) is in fact a determinant of job satisfaction, as pay satisfaction in our study
has the ability to affect the overall level of satisfaction with ones job.
With regard to Hypothesis 2, the null could not be rejected which indicated that extrinsic
motivation was not an intervening variable. The significance of the pay satisfaction and
the intrinsic job satisfaction warrants closer examination as they are in contrast with
Cognitive Evaluation Theory CET which proposes that performance-contingent
financial incentives erode intrinsic motivation and thereby diminish task performance
(Deci, 1971 cited in Jenkins et al., 1998).
11
r = 0.730
p < 0.0001
r = 0.249
p < 0.05
r = 0.237
p < 0.05
Value
Standard Error
p31
0.265
0.148
1.786
< 0.1
p32
0.137
0.149
0.917
< 0.5
Adj. R2 = 0.074
F = 2.020
p < 0.1
Total Effect
(rij)
0.730
Direct
Effect (pij)
0.730
0.249
0.265
0.237
0.137
12
Indirect
Effect
Spurious
Effect
-0.016
0.100
Job
Satisfaction 2
p21 0.678***
p32 0.629***
Pay
Satisfaction 1
p31 0.078
Performance 3
r = 0.678
p < 0.0001
Pay Sat/Performance
r = 0.249
p < 0.05
r = 0.433
p < 0.0001
Value
Standard Error
p31
0.078
0.129
0.605
< 0.5
p32
0.629
0.174
3.617
< 0.001
Adj. R2 = 0.208
F = 4.380
p < 0.001
Total Effect
Direct
13
Indirect
Spurious
(rij)
Effect (pij)
0.678
0.678
Pay
0.249
0.078
0.433
0.629
Effect
Effect
0.171
Sat/Performance
Job
Sat/Performance
-0.104
This research investigated the role of pay satisfaction and job satisfaction on job
performance (Hypothesis 3). The overall findings suggest that job satisfaction is a
significant explanatory of performance which was consistent with prior literature (Judge
et al 2001; Judge et al 2008). What is curious is that pay satisfaction is not the largest
driver of performance which challenges another set of extant literature (Williams et al,
2007; Tekleab et al, 2005; Sweins et al 2008). We undertake a robustness test to see if
job satisfaction is a moderator as well as break job performance into each of the theoretic
components. To undertake this robustness test, we use the importance of each dimension
of performance as a dependent variable in Table 10 below and the actual performance
along the dimensions as the dependent variable on the extreme right.
Further analysis
Moderated regression analysis is appropriate because it allows the implied interaction
terms to be directly examined (Schoonhoven, 1981; Darrow & Kahl, 1982; Covin &
Slevin, 1989). One of the limitations of using moderated regressions is that the product
cross moment terms are likely to suffer from multicollinearity as the product cross
moment is likely to be strongly correlated with the terms that compose it (Dewar &
Werbel, 1979; Drazin & Van de Ven, 1985; Fry & Slocum, 1984). There are two issues
that counter this criticism. First, multicollinearity is a "question of degree rather than
kind" (Kimenta, 1986, p.431), indicating that there is some kind of multicollinearity
between most regressors. If, however, the multicollinearity is strong with the correlation
between regressors exceeding 0.8 (Lewis & Beck, 1980), or the Variance Inflation
Factors (VIF) scores exceeding 10 (Myers, 1990), there is cause for concern. Second,
this multicollinearity can be reduced if not eliminated by manipulating the origin points
for each of the independent variables (Smith & Sasaki, 1979; Southwood, 1978). Such a
shift in the axes does not affect the significance of the interaction coefficient
(Govindarajan & Fisher, 1990). Furthermore, shifting the axes does not affect the R2 and
F ratio for the whole equation (Govindarajan & Gupta, 1985). An alternate way of
reducing multicollinearity would be to centre each variable of the product cross moment
14
(Cronbach, 1987; Jaccard, Turrisi & Wan, 1990). For example if A.E is the cross product
term of the main effects A and E, then centring would derive the term as (A-)(E-).
While centring each of the components of the cross product terms can reduce
multicollinearity, the interpretation of the cross product moment term is undertaken with
caution. Cohen & Cohen (1983) advise the use of hierarchical regression to test the
significance of the product cross moment term, rather than placing emphasis on the sign
and significance of the regression weight of the product cross moment term. However,
Blanton and Jaccard (2006) do suggest a test of the multiplicative model should therefore
focus on the significance of the regression coefficient for the product term in a model that
includes both the component parts of the product term as well as the product term.
Accordingly, we do a hierarchical model development by developing the first model
where the main effects of pay satisfaction (into the four sub components) and job
satisfaction (into the two subcomponents) are examined. Then a further model with the
multiplicative interaction term is used. Following Cronbach's (1987) opinion, we centered
the independent variables on their means before creating the interaction terms. While
Ehmabadi & Hess (2007) caution that mean centering does not always eliminate
multicollinearity between the main effect variable and the interaction term. We find that
the Variance Inflation Factor is below 4 and therefore multicollinearity is not severe
(Jaccard, Turrisi & Wan, 1990).
15
Performance
Performance
overall
Importance
ratings
2.492(.538)***
0.129 (.091)
0.154 (0.076)*
-0.138 (0.117)
-0.027 (0.127)
-0.013 (.158)
+0.635 (0.169)***
0.088(0.162)
0.101 (0.111)
-0.012 (0.012)
-0.005 (0.011)
Adj. R2 = .0.258
2.82192(.609)***
0.178 (.105)
0.085 (0.090)
-0.289 (0.140)*
-0.007 (0.143)
0.193 (.185)
+0.471 (0.199)*
-0.060 (0.181)
0.177 (0.123)
-0.004 (0.014)
-0.011 (0.012)
Adj. R2 = 0.172
2.420(.596)***
0.061 (.101)
0.205 (0.084)*
0.021 (0.129)
-0.100 (0.141)
-0.191 (.176)
+0.743 (0.187)***
0.244 (0.180)
0.056 (0.123)
-0.015 (0.013)
0.001 (0.012)
Adj. R2 = 0.245
F = 3.681***
F = 2.684**
F = 3.503***
Hiearchical
Regression 1
Intercept
Pay Satisfaction Level
Pay Satisfaction Benefit
Pay Satisfaction Raises
Pay Satisfaction S&A
Extrinsic Satisfaction
Intrinsic Satisfaction
Genderd
Agee
Service for company
Year of Service industry
.062 (.219)
-0.274 (0.221)
0.309 (0.240)
Adj. R2 = .0.248
Adj. R2 = 0.178
Adj. R2 = 0.253
F = 3.308***
F = 2.598**
F = 3.365***
Satisfaction
* p<0.05
**p<0.01
***p<0.001
Conclusion
Job satisfaction was the most influential variable on key elements of job performance.
For IT professionals in large Australasian companies, job satisfaction could be a powerful
explanatory of performance, supported by prior literature (Thatcher et al. 2006). Our
findings show that intrinsic job satisfaction has a stronger influence on performance than
pay satisfaction alone (hypothesis 1 is supported). There is no support for hypothesis 2
that extrinsic job satisfaction mediates the relationship between pay satisfaction and
performance. Hypothesis 3 is also not supported. Further testing shows that it is intrinsic
job satisfaction that is driving the results, not overall job satisfaction.
A main contribution of this study is that intrinsic job satisfaction is an important driver of
performance, rather than pay satisfaction. We find that intrinsic job satisfaction has a
significant positive relationship with job performance, and this is supported by prior
literature (Berry 1993; Pool 1997; Lu 1999). Interestingly, this finding challenged the
crowding out effect that arose in CET, which argued there was a trade-off between
intrinsic and extrinsic motivation when intrinsic motivation existed (Osterloh and Frey
16
2000). Therefore, the findings supported the complementary use of intrinsic and extrinsic
motivation (Kunz and Pfaff 2002; Merchant, Van der Stede, and Zheng 2003; Kominis
and Emmanuel 2007).
The practical contributions of this study include that the findings will be useful for
practitioners in terms of designing incentives. The research demonstrated that motivated
employees generally had higher job performance; which was supported by reinforcement
theory, that is, employees who were motivated by incentives, relate prior positive
experiences to good performance (Katzell and Thompson 1990). Intrinsic motivation had
a significant positive relationship with job performance so practitioners could combine
intrinsic variables with monetary reinforcements to increase performance.
The results of this case study were subject to limitations. Reliability and validity are
common limitations to any study; however, a considerable limitation was external
validity. The case study and exploratory nature of this study means that these results
cannot be generalised across other companies.
interesting findings to see if those employees who are motivated creatively, are also
satisfied in their job and exceeding performance expectations on individual projects. This
could also be subject to the type of IT job; speculating, for example, whether software
designers are motivated differently to IT managers.
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23
Appendix 1
Table 11 Factor for Pay Satisfaction
Rotated Component Matrixa
Component
1
Level
.889
.285
.174
.175
Benefits
.551
.068
.277
.500
Raise
.284
.270
.199
.709
Level
.889
.299
.116
.210
Benefits
.058
.097
.921
.165
Raise
.607
-.005
.139
.496
.302
.725
.160
.283
.233
.429
.486
.345
Level
.875
.318
.141
.185
Benefits
.221
.099
.888
.189
Raise
.386
.332
.208
.662
.322
.752
.032
.145
.086
.824
.124
.313
Level
.867
.336
.171
.198
Benefits
.181
.128
.916
.099
.176
.802
.038
.341
.171
.594
.148
-.084
Raise
.140
.225
.142
.748
Pay Level
Pay
Pay
Pay raise
Structure
benefits
& Admin
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 6 iterations.
24
2
.334
.299
JobSatisfaction_Q2
.356
.263
JobSatisfaction_Q3
.609
.308
JobSatisfaction_Q4
.277
JobSatisfaction_Q5
.913
JobSatisfaction_Q6
.908
JobSatisfaction_Q7
JobSatisfaction_Q8
JobSatisfaction_Q9
JobSatisfaction_Q10
JobSatisfaction_Q11
.714
JobSatisfaction_Q12
.503
JobSatisfaction_Q13
.422
JobSatisfaction_Q14
.637
JobSatisfaction_Q15
.692
JobSatisfaction_Q16
.762
JobSatisfaction_Q17
.619
JobSatisfaction_Q18
.387
JobSatisfaction_Q19
.335
.631
Extrinsic
Intrinsic
Satisfaction
Satisfaction
25
performance on innovation
.511
performance
proactive
on
being
.818
performance
itself
work
driven
.592
3
0.467
.906
.824
strong
knowledge
problem domain
of
.642
to
try
.584
new
.573
.653
communicate
stakeholders
sharing
team
well
with
.640
knowledge
with
.456
adhering to process
.780
.843
.717
.706
meeting
expectations
performance
dependence
customer
on
.575
self
.502
.711
Profession
al
orientation
Process
and
outcomes
26
innovation
Unimport
ant
Moderate
ly
important
Extremel
y
importan
t
1 Self-dependence
2 Innovation
3 Being proactive
9 Eagerness
technology
new
1 Communicating
1 stakeholders
with
1 Adhering to process
3
1 Meeting
7 expectations
to
try
well
customer
27
1
8
Well
below
expectati
on
As
expect
ed
Well
above
expectati
on
1 Self-dependence
2 3
5 6
2 Innovation
2 3
5 6
3 Being proactive
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
1 Communicating
1 stakeholders
with
2 3
5 6
the
2 3
5 6
2 3
5 6
1 Sharing
2 team
well
knowledge
with
1 Adhering to process
3
28
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
2 3
5 6
1
8
1
9
Overall,
how
performed
have
you
29