- Performance-related pay (PRP) is a tool utilised by organisations attempting to increase employee motivation, by rewarding individuals or teams for good performance. PRP schemes can include ‘commission only’ roles in which an employee earns nothing unless they meet a minimum level of performance, but more typically these rewards added on to an employee’s baseline salary.
- Intuitively, it would seem to make sense that rewarding employees with a financial bonus would increase performance. However, this link is far more complicated than many organisations realise. In this article, I would like to briefly discuss some of the issues that organisations should consider before implementing such a scheme.
A major issue with PRP is that it attempts to quantify ‘good performance’. This isn’t so much of a problem if an employee completes piece work and their output can be measured fairly reliably by the quantity of items they produce. Unless you work in a factory however, good performance is usually conceived as something more abstract, like the quality of customer service.
To highlight why this may be problematic, imagine working in a call centre worker and discovering that the shorter your average call is, the more you stand to gain from a PRP scheme. To reach this target you may be inclined to reduce the time you spend listening to customers, which would shorten your calls and make you eligible for PRP, but in all likelihood would also increase customer dissatisfaction.
Although frustrating for the customer, the effects of reducing levels of customer service in a call centre are usually fairly innocuous. But what if – in order to make a target - corners were cut in the health sector, or in safety-critical occupations? The results could be catastrophic.
2. PRP can diminish employees’ intrinsic motivation
When an individual is rewarded for participating in an activity that they are already intrinsically motivated to perform, evidence has found this actually decreases the individual’s level of motivation to continue partaking in that task (Deci, Koestner & Ryan, 1999). There are two potential explanations for this. Firstly, motivation may decline because the introduction of rewards could make an individual feel that someone is trying to control their behaviour. Secondly, this reduction may also be explained by the tendency for people to feel that if they are being rewarded or ‘bribed’ for their participation, the task they are doing must be unpleasant – the bigger the bribe, the worse the perception of the task. This point is supported by the work of Freedman et al. (1992) who found that larger incentives were associated with poorer participant evaluation of tasks.
3. Using rewards to boost productivity can mask real problems
This is an important point that I think many people forget about. If an organisation needs to use PRP schemes to motivate their employees to reach targets, some serious questions need to be asked. Why are these rewards so necessary? Are the working conditions of the organisation detrimentally affecting employee motivation? Are the right employees being hired? Or is it the PRP scheme that is limiting the motivation and performance of employees? As long as employees are paid fairly, they should have satisfactory motivation to complete their job without additional rewards. If this is not the case, organisations should ask themselves why this is.
I am not suggesting that PRP arrangements never work in any given situation, or that other forms of reward (e.g. verbal praise) are also ineffective. However, I do think it is wise to rigorously pilot such schemes before any decisions regarding their implementation are made, as evidence suggests the usual ‘carrot and stick’ thinking is far too simplistic for such a complex issue. PRP provides a short term boost to motivation, but cannot magically make employees enjoy their job or make them more committed to their organisation - as Kohn (1993) stated, ‘Do rewards motivate people? Absolutely. They motivate people to get rewards’.