Motivating Employees - Does Performance-Related Pay Work?

The rationale behind performance-related pay (PRP) is that it gives employees an incentive to work harder in return for a financial reward and in doing so generates higher levels of productivity. Yet despite the common use of PRP, research indicates that it generally not effective in terms of promoting high motivation and performance levels. This is because linking money to performance does not always work as people are motivated by different things. For those that are motivated by money this can change over time or peak at certain times of the year, for example in the lead up to pay award time or the prospect of a new car or holiday.

In organisations where financial awards are in place, conversations around performance can very often become focused on how much the employee will be paid as opposed to more meaningful discussions around actual performance, career aspirations and job objectives. Employees are also less likely to be open and honest with their line manager in case this impacts the size of their bonus. The notion of equity can become a contentious issue within PRP schemes where assessments on performance by line managers are not based on robust, objective criteria. Lack of transparency around bonus award decisions or where high levels of discretion are applied during the decision-making process can quickly lead to staff becoming disillusioned, negating any intended benefits of the bonus scheme.

Employers considering implementing a performance bonus or PRP scheme for the first time should do so with caution. It is important to remember that not everyone is motivated by money, so a blanket approach is unlikely to work. That said, where bonus schemes are paid across the workforce, regardless of position, this can send a very clear message to staff that everyone is valued and reduces the risk of resentment and divisions among employees.

For performance bonus schemes to be effective any such scheme should be carefully defined in consultation with staff with the focus being on encouraging high performance first with the payment of the financial element only being to reward that performance. This shifts the process away from money. It is also essential that line managers are fully trained to be able to objectively and consistently assess performance, as they are key to the effective implementation of your scheme.

For those employers who are considering removing their existing bonus scheme they need to consider the impact that this will have on employee relations. Such a measure, if done wrong, can lead to considerable discontent and unrest among staff. It is essential therefore to fully consult with staff and seek their views on what would be a better alternative to the existing bonus scheme as it will need to be replaced with something of equal or better value.

Employers should always remember that the most powerful motivators are intrinsic, driven by internal desires to succeed which in turn generate discretionary effort and high-performance working. When people love the work they do motivation levels are high, yet in some cases pay may be low. This is particularly prevalent in the volunteering sector, for example where people volunteer for a range of reasons such as making a difference to the community they live in. These intrinsic motivators are the things that make us want to jump out of bed in the morning and the focus of employers should be about creating a culture that promotes such an environment.

Useful reading:

CIPD Bonuses and Incentives