Good HR practice states that performance related pay (PRP) is the only effective means to reward staff based on some kind of judgement of their contribution to the organisation they work for.
There is an assumption that PRP will motivate employees to perform better, but this simple logic makes big assumptions, not only about whether people will respond in this way, but also about whether the same form of reward is appropriate in all circumstances and for all workers.
For employers, there are situations where the organisation might want collaboration and teamwork, making individual performance related pay seem inappropriate. There are many workers whose jobs simply cannot be incentivised to perform differently because their tasks are too rigidly defined to allow much change. Then there are staff, particularly in the public sector, who have to manage competing demands and where success or failure may be a matter of judgement.
The nature of PRP also tends to assume that all employees are built the same way and will respond to carrot of a reward (or the stick of its denial). Yet this has been contested by theorists who emphasise that motivation is dependent on whether the outcome holds psychological value or ‘valence’ for the individual. And this is where differences start to emerge.
Destination employers allow a variety of reward mechanisms to motivate staff. Reward professionals must claim the undoubted benefits of segmentation, but in such a way that there is a balance struck between managers having flexibility to adjust to local (and individual) circumstances and yet sufficient cohesion to bind staff to the same common good.
Peter Reilly is director, HR research and consultancy at the Institute for Employment Studies
