How can performance related pay ultimately decrease job satisfaction?
A lot of research focuses on how performance-related pay can ultimately decrease job satisfaction. In particular, Baker (1992) found that performance-related does not increase job satisfaction when performance measures are overly subjective or when evaluations are poorly tied to actual performance, meaning that achievements are not being recognised. Also, performance related pay decreases job satisfaction if it is only used to intensify low skilled or unskilled workers’ effort. This is especially true when increased productivity is not rewarded with higher earnings due to ratcheting or when the performance-related pay scheme does not permit greater ﬂexibility to optimize. In situations like these, workers will be less satisﬁed under the performance-related pay scheme, since they put in more effort without gaining the proportionate rewards.
Another advantage of performance-related pay is that it is an effective way of dealing with poor performance in a team or the business as a whole as it provides a direct incentive for employees to achieve defined work targets, Claudio Lucifora (2015). For example, surveys of management consistently found that most managers are in support of rewarding high performing employees and those that consistently meet their targets and feel that performance-related pay does contribute to the company’s effectiveness, most likely because it fits in with their own organizational values and culture and successful experience of performance related pay.