Participation in budget setting, evaluation, incentive compensation and employee motivation to perform: a broader perspective on expectancy theory

Previous studies on expectancy theory of motivation have ignored the importance of employees’ commitment to the goals established at the target setting stage. This study addresses limitations to previous research by integrating expectancy and goal setting theories. It extends expectancy theory by incorporating employee participation in budget setting and evaluation and then examines the relationship between employee motivation to perform and performance. The results indicate that the relationship between effort and performance (expectancy) is significantly positive under such circumstances, with, employee motivation to perform positively associated with performance. Incentive compensation could effectively motivate employees if 1) they participate in budgeting processes; 2) organizations use budgeting systems to set achievable targets; 3) workers perceive that the compensation system is a means by which their accomplishments will be linked to the rewards; and 4) and the rewards are attractive and valuable. Overall, the results of this study suggest that budgeting process, performance evaluation and incentive compensation have the potential to be used as predictors of the motivation to perform and, in turn, performance.