THE IMPACT OF PERFORMANCE-RELATED PAY ON EMPLOYEES’ MOTIVATION AND ORGANISATIONAL PERFORMANCE

Abstract

The main aim of this study is to explore how performance-related pay influences organizational performance by examining its effects on employees’ motivation and how that in turn impacts organizational outcomes. Using matched employer-employee level data drawn from the 2011 UK Workplace and Employee Relations Survey, we reveal a complex relationship. Although there wasn't enough evidence to prove a positive link between PRP and employee motivation our findings indicate that motivated employees contribute to improved financial performance and labor productivity. Additionally, we found a significant correlation between PRP and organizational performance. These results emphasize the importance of well-designed PRP schemes that consider individual differences and needs. Also, the findings highlight the critical role that motivation plays in achieving organizational success.