Performance Related Pay – Is It For Your Organisation?

Every employer wants a motivated employee that is proactive, driven, focused and will go above and beyond for the organisation. These are the type of employees that add real value and can help transform businesses. So how do organisations find such employees and how do they keep them motivated?

Organisations use different ways to motivate employees, depending on the type of business, industry and desired outputs.  One of these is performance related pay.

Employee performance essentially involves quality and quantity of output, their presence at work, timeliness of output and helpful nature. There is an increasing trend with large companies utilizing performance related pay policies, such as IKEA, PepsiCo and AXA Insurance.

Axa has recently implemented a new pay agreement, this is in line with staff performance ratings which has been negotiated with their unions. This pay agreement will drive pay increases and there was a very high united ballot by the employees to introduce this scheme – where an employee can potentially drive an additional 0 – 3.25% additional payment depending on their performance ratings.

For performance related pay to be truly effective the organisation must follow correct procedure. This includes having effective arrangements in place to define, measure, appraise and manage the performance of each employee.  Truly effective performance management programmes work because the senior management team are committed to fairness, transparency and good application.

Key advantages of a performance related pay policy include:

  • Managers can use a defined framework for setting goals.
  • Improved individual productivity and performance.
  • Effective way of dealing with poor performance, easier to measure if an employee hasn’t reached targets
  • Can assist in retaining staff
  • Provides a direct incentive for employees to achieve defined work targets and goals
  • Clearly defines what the company wants to achieve
  • Gives a platform for a performance based company culture

However, to create a sustainable high-performing workplace, there must be a healthy balance of both financial and non-financial rewards. This must be carefully designed to ensure that the employees feel they are truly supported. Utilizing solely a performance related pay incentive can have a negative impact on your workforce and even impact the organisation’s culture.

Having a culture where the only reward for hard work is money can breed a very individualistic work environment. The phrase “one shoe fits all” really doesn’t apply here, especially when administered throughout all departments. Some employees are motivated through extrinsic rewards like money whilst others are motivated intrinsically through the performance of certain tasks.

To really achieve a motivated workforce it is essential you understand your employees and what they really value. This stems from which values the CEO feels are most important. Understanding these will really help build and influence the real culture they desire.

There is no right or wrong way to approach this system of motivation and each organisation is uniquely different. Performance related pay may be an effective policy in motivating the staff in one organisation, but well motivated employees can be motivated by other non-financial motivators such as flexible working, training and development, career progresssion etc.

For further advice or information on different and effective ways of motivating your employees and driving best behaviours, please contact our Operations Manager Ingrid on 01 5252914 or email

Voltedge Management