Just before leaving corporate life I had implemented a new performance appraisal process and a new pay structure. It was ok – nothing more and I was frustrated by its impact. Not long after, as part of my MBA, I read Herzberg’s work (that he wrote it over 30 years before I was making my mistakes was just a tad frustrating!) on motivation.
I know some readers will be familiar with his findings but they are worth being reminded of anyway. Herzberg found that hygiene factos such as money, work conditions, company policy etc. would make people unhappy if they were wrong but were not motivational. Once you had satisfied someone’s pay demands they would not be motivated by more.
Instead, motivators come from factors intrinsic to the job:achievement, recognition, personal growth, responsibility.
Performance related pay offers an opportunity to create a fairer pay system – with a number of caveats. But, it should not be seen as a motivational tool. Rather if you introduce a fair performance related pay scheme then you are likely to not demotivate.
The flipside of this discussion is that when designing the performance appraisal process and performance review forms you have an opportunity to cover achievement, recognition, personal growth, etc. So a well designed and implemented performance appraisal process can play a part in motivation and support managers in building a motivated team.