Performance-related pay is a financial reward to staff whose work is considered above average. It is usually used for employees whose work achievements cannot assessed simply through numerical measures. Performance-related pay schemes are usually linked to the appraisal process, on which evaluation on staff performance during the year can be made. Performance-related scheme is a highly attractive system to encourage employees towards the organisation's objectives. According to the Wyatt study (1990), which measured effectiveness of performance management in 598 companies, 93% of personnel management regarded pay for performance as major priority. However, according to the same study, only 20% of managers considered their appraisal systems as effective. Some of the major factors to influence effectiveness of performance-related pay schemes were stated in expectancy theory. Although these theories do provide us with simplified models on which requirements for performance-related pay schemes can be based. There is a high level of uncertainty associated with them.…
