Performance-based pay ‘isn’t very pretty’, according to two London Business School economists. Contingent, or performance, pay only works for routine tasks and is less effective if the job, including most CEO jobs, involves learning and creativity. Fixating on performance can weaken the very thing you are focusing on, according to research cited in the LBS piece.
Motivating factors external to the love of the job, for example, financial rewards, tend to crowd out an individual’s intrinsic motivation, weakening that drive, the authors suggest. Most crucially, performance pay ‘leads to cooking the books’, or cheating.
The authors of the report, Dan Cable and Freek Vermeulen, write:
‘Performance incentives aren’t effective for complex work requiring novel solutions. High bonuses can lead to unethical behaviour, even cheating, and high pay rewards strip out the desire to do the job for the love of it, replacing passions with remuneration.’