Abstract

Financial rewards and merit pay plans are repeatedly used by organisations as a mean to reward employees for good performance and positive results. Linking performance reviews to compensation and rewards has become a common practice within organisations, aimed at improving the effectiveness of the system as well as providing an incentive to increase employees’ motivation. On the other hand, this approach was also faced with much criticism from proponents who are calling for performance reviews to be decoupled from rewards. This paper seeks to investigate the impact of financial reward system on the overall academic results of the cadet pilot students within X-Air Airline (name kept anonymous). Consequently, the impact of P4P on students’ performance and motivation is critically investigated. A combined qualitative and quantitative research approach was adopted to gather evidence through an online questionnaire, supplemented by face-to-face interviews with students and senior managers. This was accompanied by a thorough review of relevant literatures around the subject. Results from this research, revealed that students and managers alike, have positively associated the relationship between clear goal-setting with performance management system effectiveness, as well as the correlation between Pay-for-Performance and improved results. On the other hand, a modest correlation was identified between the impact of effective feedback on Performance and financial rewards on motivation. Finally, practical recommendations and limitations are presented in this paper to equip managers to address the findings revealed by this empirical research study.

Introduction

Rewarding employees for a job well done and for meeting the objectives of the role and ultimately the organisation, can come in various shapes and forms. Luthans (2000) describes two types of rewards, namely financial and non-financial, which could be used effectively by organisations to encourage positive behaviours and improve performance. Much controversy has surrounded the different types of motivation theories and the role of rewards in influencing the individuals’ behaviours to improve job-related performance. However, the argument remains unclear in determining whether performance-related pay does actually imply an increase in motivation at work. If this is assumed to be correct, what needs to be determined is whether it remains the only decisive factor as the link between motivation and performance.