Performance related pay refers to rewards or remuneration of employees given due to attainment of a certain set standard or being above the rest of the team in performance. At the heart of reward management is the issue of the motivation of employees. At the very basic level people usually work in order to satisfy the basic needs of getting income to pay for food, shelter and clothing. As people attain these, they aspire towards higher needs such as recognition, responsibility and potential of growth in the workplace. In this regard the aspect of recognition which may include financial remuneration becomes of utmost importance. However, as Maslow asserted, the need for recognition responsibility and being valued is more important in the instance of achievement of the lower needs. Performance related pay at this level may not be so much important given that offering promotion, greater responsibility and opportunities to further career may be more effective reward strategies as opposed to financial incentives. Maslow’s theory is evident when setting up minimum wage requirements.
On the other hand, the expectancy theory of motivation asserts that people will perceive their rewards according to the extent to which it fulfils their needs of autonomy, fulfillment, security and self esteem. Since there are differences in the perceptions of the fulfillment of these needs, in practice there is usually a mix in coming up with a reward strategy. A strategy that includes both performance related pay and the fulfillment of the psychological needs such as fulfillment and self esteem will therefore be the most effective reward strategy. This may be seen in the system at Google which not only uses the payment for achievement strategy, but combines it with aspects of promotion and autonomy in working. The goal theory also assets that performance and motivation will be enhanced not because they are linked to performance related pay but due to the setting of mutually agreed goals which are deemed to be fair by both parties. Therefore in practice it is not a must that performance is rewarded by pay as long as goals agreed such as promotion or autonomy are fulfilled. A good example of this is the reduction of pay for performance schemes after the financial crisis in GM. The employees were willing to take lower pay given that they were in mutual agreement regarding the goals that were to be achieved by either party to the employment contract.