Contingent Rewards and Their Impact on Performance
Contingent rewards are a type of reward system where workers receive rewards based on their performance. This reward system is designed to show employees that specific rewards are directly tied to specific performance targets (Laihonen et al., 2014). Contingent rewards can take various forms, including performance bonuses, commissions, and pay-for-performance scales.
The studies regarding contingent rewards are still contrasting. Some scholars argue that contingent rewards encourage motivation by tying achievements to a specific reward. Armstrong and Brown (2019) state that extrinsic incentives increase the motivational force because of the clear connection between work and consequences, such as increasing the clarity and intensity of concentration. However, other scholars have opposed these sentiments with arguments that contingent rewards can be demotivating as intrinsic motivation is diluted, and there are often unpleasant side effects. It’s crucial to consider, as Morris (2025) does, that contingent rewards can undermine intrinsic motivation, particularly in knowledge work, where the job is already intrinsically motivating because the employees are principally motivated by extrinsic rewards over and above the self-satisfactions inherent in the work.
Performance-Related Pay (PRP)
Impact on Individual Performance
PRPs, which base employee awards on their individual performance, have a significant impact. According to the expectancy theory, this compensation system serves as a powerful motivator, particularly when employees realize that their efforts lead to recognition. PRPs have a proven track record of boosting individual performance, as employees often strive to align their efforts with desired outcomes or set targets (Gabriel et al., 2021). However, it’s important to be mindful of the potential drawbacks of PRP, such as when targets become unreasonably challenging, leading to unethical behavior or unnecessary stress.
Impact on Team Performance
Performance-Related Pay (PRP) also plays a crucial role in team settings, where it rewards group achievements and fosters team collaboration. Unlike systems based on individual results, which can breed unhealthy competition and hinder knowledge exchange, team-based PRP systems promote a synergistic work environment. At GreenFriendlyEco, these systems support employees in their collective efforts towards project achievement.
Impact on Organisational Performance
Performance-related pay (PRP) enhances organisational performance by fostering workplaces that promote accountability and motivate staff to work toward common performance targets in industries focused on measurable outcomes. Through Performance-Related Pay (PRP), GreenFriendlyEco empowers its industrial construction staff to pursue energy efficiency targets and drive innovative developments. PRP achieves its full effectiveness by partnering with clear performance metrics, which become transparent to employees, leading to improvements in workplace morale and productivity increases. If performance-related payment systems lack detailed standards, they might develop short-term tendencies or create unfair perceptions among employees (George & van der Wal, 2023). For PRP to be effective at GreenFriendlyEco, it must drive immediate positive performance results and advance the company’s long-term environmental targets.
Skill-Based Pay (SBP)
Impact on Individual Performance
SBP, a reward system that values employee skills over job positions, fosters a culture of continuous learning and career development. By applying SBP, GreenFriendlyEco can cultivate a workforce with diverse competencies, thereby enhancing workforce engagement and employee retention rates (George & van der Wal, 2023). This approach also mitigates the risk of employees losing motivation when their acquired skills do not immediately translate into financial rewards.
Impact on Team Performance
SBP is a catalyst for team adaptability, empowering workers with diverse skills to handle a variety of tasks. This not only enhances operational resilience but also reduces the dependency on individual employees. GreenFriendlyEco’s reliance on SBP for its adaptiveness is evident through its commitment to regular competency development. However, it’s important to note that a successful implementation of SBP requires carefully designed training solutions, which may involve significant expenses.
Impact on Organisational Performance
SBP is a strategic tool that helps companies like GreenFriendlyEco develop their workforce over the long term. By imparting vital skills to their personnel, SBP ensures that employees are equipped to meet the evolving demands of the industry (Al Rashdi, 2020). This aligns the skill development of employees with the organizational requirements, thereby preventing unnecessary expenses on outdated abilities.
