Very often, managers are in a dilemma on how to attract talent.

By Robert II Smith

Paying for performance is a prominent issue in modern Human Resources Management (HRM). Organizations have long conceived that production and productivity improve when pay is linked to performance and have evolved payment-by-results (PBR) systems and incentive schemes to endorse this belief (Milkovich & Newman 2004). Expectancy theory informs that if people want more pay and believes that working harder will get it for them; they will work harder and perform better (Bassett 1993). But how to make the theory work in practice has seldom caught people's attention as it does today. In 1951 the International Labour Office (ILO) defined PBR as wage systems that relate a worker's earnings directly to some measurement of the work of the individual, the group or the work unit. Among benefits the ILO claimed for PBR which at that time relied heavily on quantitative techniques like work study and industrial engineering were increased output from improved efficiency, lower production costs, better control of labour costs, less need for direct supervision and more even production flows (Milkovich & Newman 2004). Half a century later, performance pay is interpreted in less mechanistic terms and may be defined more simply as the explicit link of financial rewards to individual, group or organizational performance.