Performance-related pay

Richard Lambert, former head of the CBI, highlights research saying it's basically a waste of time -

One answer comes in the latest Harvard Business Review in an article by two professors at Warwick Business School (full disclosure: I am chancellor of Warwick University). They argue that performance pay is both ineffective and distracting, and can encourage executives to take company-killing risks.

Managers waste energy by trying to manipulate the performance criteria in their favour, and neglect other important tasks by focusing their efforts on those activities that will trigger the pay-off, according to the article.

The research also shows that humans are not only motivated by financial gain, and the authors argue the case for non-material incentives – such as awards and other forms of recognition – as a way of strengthening employee loyalty and getting the business humming. They conclude that although variable pay for performance may seem attractive in theory, it creates more problems than it solves.