Performance related pay

Many organisations operate some form of performance related pay system. However, there is a question as to the extent to which such schemes improve organisational performance. There is a large body of research that demonstrates that monetary reward alone is of limited motivational value. Monetary reward is at best a short-term motivator. Employees will often rank belief in the organisation and its objectives, and interesting work as being higher in their list of priorities than high earnings. However, key factors that may assist in developing a successful performance related pay scheme are:

  • Employee involvement in the development of the scheme;
  • Perceived fairness and equity within the scheme;
  • A balanced emphasis on both short and long-term goals (many schemes focus purely on the achievement of short-term objectives);
  • Ensuring that the achievement of targets is firmly within the control of the individual;
  • Performance measures that are objective and genuinely relevant to actual job performance;
  • Financial rewards for achieving targets and goals that are significant enough to be worth working hard for;
  • Targets that do not encourage the individual to sacrifice team goals for his or her own personal glory.