Linking Pay to Performance: Conflicting Views and Conficting Evidence

Abstract

The past few decades have seen significant economic and business changes. These changes have bad a direct impact on the structure of organizations, the design of work and the performance levels expected of all employees. This environment has encouraged experimentation in the design and management of employee pay, particularly the adoption of performance-based reward systems. Kohn (1993) raises significant criticisms of incentive-style pay systems. Specifically, he argues that performance-based pay does not gain enduring change in behaviour; it treats symptoms rather than causes; it reduces risk-taking; and, there is no empirical evidence for its effectiveness. Kohn's criticisms are reviewed in terms of his conceptual framework and inter pretation of evidence. While the empirical data relating to performance-based pay systems is equivocal, much of Kohn's conceptual framework can be questioned in the light of alternative findings. Incentive reward schemes are a growing reality, despite the lack of clear empirical support linking pay and performance. This paper concludes with suggested guidelines for the design of performance-based pay systems.