Role of financial compensation in industrial motivation.

Summary

The paper "Role of financial compensation in industrial motivation" by Opsahl and Dunnette (1966) offers a critical review and evaluation of existing theories and research concerning the impact of financial compensation on employee motivation within industrial settings. The authors contend that much of the prevailing understanding and application of compensation practices in industry is built upon limited foundations, often stemming from studies on non-human species or impressionistic evidence like anecdotal accounts and self-report questionnaires, rather than rigorous empirical testing in real-world industrial contexts. The methodology primarily involves a comprehensive literature review and theoretical critique. Opsahl and Dunnette systematically examine various theories attempting to explain money's motivational role, including money as a generalized conditioned reinforcer, a conditioned incentive, an anxiety reducer, a "hygiene factor" (as per Herzberg's two-factor theory), and an instrument for achieving other desired outcomes. They find that the evidence supporting money as a generalized conditioned reinforcer or a conditioned incentive is often inconclusive or based on animal studies with questionable applicability to humans. While money's role as an anxiety reducer by fulfilling security needs is considered, direct empirical testing for this specific function is noted as sparse. The authors also critically assess Herzberg's "hygiene factor" concept, suggesting that the data do not consistently support the idea that money solely prevents dissatisfaction without actively motivating. Ultimately, the paper leans towards a symbolic interpretation of money, where its motivational power is derived from its perceived instrumentality in obtaining other valued goals, with its meaning varying significantly across individuals, situations, and job contexts. The paper's key implications revolve around the significant gap in solid research regarding how money interacts with other factors to affect job behavior. It argues that speculation, fads, and fashions often dictate compensation practices due to a scarcity of fundamental research. Opsahl and Dunnette advocate strongly for conducting more controlled empirical studies, ideally in laboratory or tightly controlled field settings, to precisely determine the effects of different monetary rewards and how they can be used to induce high-level performance. They emphasize that the specific manner in which financial compensation is administered—including pay schedules, transparency of pay policies, how salary levels are determined, and an individual's career pay history—can profoundly influence employee responses and overall job behavior. Furthermore, they acknowledge that while incentive payment systems can increase output, their effectiveness is not uniform, often being mitigated by social dynamics such as group standards and pressures leading to "rate restriction." The authors conclude that a deeper understanding requires recognizing money as a multifaceted motivational variable whose impact is mediated by pay policies, job characteristics, and individual preferences and perceptions. This comprehensive research, they argue, is crucial for developing a robust theory of money and employee motivation, which in turn would enable the derivation of more effective and behaviorally relevant compensation strategies.