Is performance-related pay schemes positively influence productivity?
Studies in the 1990’s tend to show a positive association between performance-related pay schemes and productivity. Many studies have examined the effect of performance pay on the productivity of their workers. One study involving a US shoe company investigated the change in productivity when they switched from performance related pay to an hourly rate. They found that productivity (measured by the average monthly shoes produced per day) fell by 6%. This further backs up the claim that performance-related pay motivates employees to work more, however, the impact on the businesses profitability cannot be accurately measured due to higher costs associated with monitoring output.
Performance related pay is built on the idea that rewards can encourage the correct behaviour and money acts as a direct incentive to influence the amount of effort the employees will put in on behalf of the company. Some critics argue that money can act as a goal in itself and can be valued by employees as a symbol of internal recognition and status externally by their managers. But other argue that early promoters of performance related pay failed to appreciate how complex the wider employment relationship is and the degree to which financial rewards can act as a long-term satisfier. Theories based on needs such as those developed by Hertzberg and Maslow place a considerable amount of significance on the aspects of the worker’s job, and argue that people can gain the most satisfaction from work when factors such as responsibility, achievement and recognition are present and catered to correctly. Other critics of performance-related pay schemes advise that such pay schemes are domineering and can encourage the wrong type of behaviour, for example, by focusing on individual effort in order to gain monetary rewards at the expense of working in a team with other employees.