ABSTRACT
This chapter discusses that performance-contingent pay policies are an indispensable management tool for enhancing organizational performance. However, three important conditions must be met for the success of those policies: a loose relationship between pay and performance, nurturing the belief that performance makes a difference, and the customization of performance-contingent pay systems. Performance-contingent pay can be such a powerful motivator that it may induce individuals to develop a very narrow focus to accomplish whatever will trigger the reward and neglect other important components or dimensions of the job. The multiple-reward policies at different levels of aggregation may be used to enhance individual, group, and firm performance. The relative effectiveness of these policies depends on how people are designed and implemented, their intended objectives, and the extent to which people are appropriate for the nature of the task at hand, organizational structure and culture, firm strategy, and the external environment.
