JOURNAL OF ORGANIZATIONAL BEHAVIOR MANAGEMENT
2022, VOL. 42, NO. 4, 309–335
https://doi.org/10.1080/01608061.2022.2047868

Pay-for-performance: Behavior-based recommendations
from research and practice
Barbara R. Bucklina, Anita Lib, Manuel Manny Rodriguezc, Douglas A. Johnson
and Lauren M. Eagleb

b

,

a

The Bucklin Group Inc, Laguna Niguel, California, USA; bWestern Michigan University, Department of
Psychology, Portage, Michigan, USA; cBueno Ventures, Doral, Florida, USA
ABSTRACTKEYWORDS

The use of pay-for-performance has the potential to greatly
increase the productivity of the workforce by incentivizing theact or result of performance itself rather than time spent per­forming. In this paper, monetary incentive approaches are
examined through the lens of behavioral research and practice.
Important criteria to protect both the financial health of theorganization and the physical and emotional health of the work­ers are outlined, along with considerations for an organization
to prepare for the transition to a different form of financial
compensation. This paper offers best practices, as well as sug­gestions for future research and considerations to help over­come potential concerns from organizational and individual
perspectives.

Pay-for-performance;monetary incentives; piece
rate; variable pay; incentivepay

Dating back to some of their earliest works (Skinner, 1938), behavior
analysts have long focused on the role of consequences in the develop­
ment and maintenance of behavior. Within the context of workplace
behavior, the role of financial consequences may be one of the mostobvious candidates to start with if one wanted to extrapolate from labora­
tory findings to applied settings. Indeed, the earliest behavioral thoughtpieces about the workplace were quick to suggest the use of economic
influence to improve productivity (Aldis, 1961; Skinner, 1953), though it
was noted that financial rewards would not function as a simple instanceof direct reinforcement. As Skinner (1969) explained, typical economic
contingencies depend less on the delivery of the standard wage and more
on a supervisor’s potential threat to terminate employment and thus
eliminate a needed source of income. As such, hourly wages are highly
dependent on rule governance and aversive control to motivate any
performance. However, by investigating alternative uses of financial com­pensation, such aversive control may be minimized in favor of an
improved condition, one in which an employee feels as though their
CONTACT Douglas A. Johnson
behavioranalyst@gmail.com
University, P.O. Box 1295 Portage, Michigan 49081, USA© 2022 Taylor & Francis

Department of Psychology, Western Michigan

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efforts matter because they are paid for their performance rather than just
paid for their time. Thus, an early interest in pay-for-performance wasborn for behavioral theorists and practitioners, especially those interested
in the workplace.
Although these early writings pointed toward revamping compensation sys­
tems in alignment with experimental research, the business community had long
beaten the behaviorists to the punch. Probably the most renowned implementa­tion of non-hourly wage systems comes from Lincoln Electric, frequently pro­
filed for their unusual and highly successful compensation approach and one of
the most famous business case studies (Koller, 2010; Rothe, 1947; Suri, 1970).
Lincoln Electric is a manufacturer known for its welding equipment and hasoffered pay-for-performance to its factory workers for over 125 years. Just as
a laboratory animal on a ratio schedule will receive more food or water only if itmakes the target response more often, employees receive more pay if they
produce more units (likewise, there is no hourly pay and poor products do
not result in compensation). Although no income is guaranteed, Lincoln Electric
still claims to have the highest-paid factory workers worldwide (Hartman, 1992;
Henderson, 1985; Klein, 2012). Their piecework compensation system has
resulted in highly productive employees and enabled Lincoln Electric to keep
the largest market share within the global welding market (Klein, 2012; Perry,1988). Lincoln Electric also guarantees lifetime employment and has one of thelowest turnover rates within U.S. manufacturing.
Another early business example of pay-for-performance could be seen
through the work of Frederick Winslow Taylor, a notable contributor to thedevelopment of such systems (Dickinson, 2000). Taylor’s contribution to
pay-for-performance systems stems from his use of time studies to identify
output standards and individualized incentive plans (Taylor, 1911). Taylor
implemented differential piece-rate incentives, where those who did notmeet standards were paid a lower rate than those who met or exceeded
standards. The latter were rewarded beyond the base pay, which is the fixedbase rate of pay for a job such as hourly or salary compensation (Peach &Wren, 1992). As a result of Taylor’s contribution, many incentive plan
derivatives emerged during this era. These are primarily two basic types:(1) time-wages, in which a monetary payout corresponded to a standard unitof working time, and (2) wages saved, in which incentives were based on
reduced organizational costs.
Since behavioral applications in alignment with behavioral theory suggestthat pay-for-performance systems can enhance employee performance, itwould be instructive to provide an overview of the work done withinorganizational behavior management (OBM) on the topic of pay-forperformance and the use of monetary incentives. This paper will begin bysurveying different compensation options (and outlined in Table 1) and therelevant research.

● Is not more effective than linear pay● More challenging to design and administer than individual piece-rate pay systems

For the employee, this system . . .
● Can pay significantly more as performance increases● Provides an opportunity to earn above fixed wage, under the employee’s
control● May lead to fatigue or safety issues as employees accelerate their performance

For the employee, this system . . .
● Usually delivers partial fixed wage for financial certainty● Provides an opportunity to earn above fixed wage, under the employee’s control● Can increase motivation and individual satisfaction● Creates individual employees focused only on their own performance anddecreases teamwork● Produces a competitive culture that can lead to employee dissatisfaction(Continued)

Small Group Incentives When Equally Divided
For the organization, this system . . .
For the employee, this system● Results in sustained levels of productivity, often equal to or better than individual ● Results in high productivity and satisfaction when the group members perform
Benefits
incentives in groups with equal performers
at equal levels● Can hurt productivity and morale of high performers● May reduce performance in high performers
Challenges● Can produce stress; some employees report that they do not want to let
down their group
Goal Sharing, Gain Sharing, Profit Sharing
For the organization, these systems . . .
For the employee, these systems . . .

Challenges

Accelerated Incentive Pay
For the organization, this system . . .
● Produces higher performance than fixed wage systems
Benefits

Commissions/Individual Piece-rate Pay
For the organization, this system . . .
● Can produce significant improvements with as little as 3% incentive pay
Benefits● Uses pay plans that are simple to develop and maintain● Can yield higher performance than more complex variable or fixed pay systems● Is not adjusted for overall performance, and is shown to only produce an increase
Challenges
in a single dimension● Can produce a decline in other untargeted aspects of performance● Can result in a competitive culture, leading to higher turnover rates

performers)● Can produce employees who only produce the minimum required to earn their ● Is unfair to good performers● Decreases motivation to go beyond bare minimum expectations
fixed pay
● Does not result in optimal performance results

For the employee, this system . . .

● Provides consistent compensation for financial certainty● Pays poor performers the same as good performers (i.e., benefits poor

Challenges

For the organization, this system . . .

● Makes it easy to calculate payroll expenses● Is simple to design and administer

Benefits

Fixed Compensation

Table 1. Benefits and challenges of different pay-for-performance systems.

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Challenges

Benefits

For the organization, this system . . .

For the employee, this system . . .
success
higher fixed pay)difficult to maintainor part time employees may be excluded)● May not include all employees for eligibility (e.g., certain departments, or hourly

capped at a percentage of each individual’s fixed wage

● Do not focus on an individual’s performance or contribution; they pay everyone ● Are unpredictable in their pay outs; employees cannot control the outcome● Are not under the control of the employee because they are based on organiza­
similarly regardless of their contribution● (Goal sharing) Is not indexed to the company’s profits, may payout large sums
tion-wide results● Payout infrequently, typically annuallyduring unprofitable time periods● (Gain sharing) Requires increasing productivity year over year, which can be ● May be perceived as unfair to those with lower fixed wages when payout is

pay outs that come directly from the profit● (Profit sharing) Can be affordable because it is tied to organizational profit withsuccess because a percentage of their pay depends on that success● Can increase productivity● Can result in significant pay outs for individual employees● May create employee stakeholders who are committed to the organization’s ● Pay out higher percentages to higher paid employees (a benefit to those withtional goals and strategies● If arranged to do so, can align employee and department goals with organiza­ ● May create a sense of ownership in the company because employees share in its

Fixed Compensation

Table 1. (Continued).

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Types of pay-for-performance systems
Commissions/individual piece-rate pay

This pay system is based only on an individual’s specific behaviors or
accomplishments. Typically, this model is only tied to one measure, suchas sales numbers or profit earned by an individual; it is not adjusted foroverall organizational performance. Commission or piece-rate can be based
entirely on performance pay or combined with fixed compensation (i.e.,a percentage of the wage is fixed, and a portion is based on individual
performance). Research suggests that as little as 3% of total wages in variable
piece-rate pay may be enough to produce significant performance improve­ments over fixed compensation such as hourly pay (e.g., Dickinson &Gillette, 1993; Frisch & Dickinson, 1990; LaMere et al., 1996; Matthews &Dickinson, 2000). These simple pay plans can usually yield higher perfor­
mance than either complex variable pay plans or fixed pay plans (Abernathy,
2011; Bucklin & Dickinson, 2001; Slowiak et al., 2011).
Despite these advantages, piece-rate pay systems can create employee animos­
ity, affecting emotional health (Davis, 2016). Piece-rate pay systems often
generate competition between employees who are more likely to focus on
their own performance and monetary gain, and less likely to focus on thedepartment or organizational performance. This pay system can discourage
teamwork, leaving employees feeling unsupported in their work.
Unsupportive work climates can lead to employee dissatisfaction and highturnover rates (Komaki & Minnich, 2016). Unsupportive work cultures thatembrace individualism also affect risk-taking (Deng et al., 2019). As piece-rate
pay incentivizes high production, increased speed and pace of employee
activity can ultimately lead to errors and negative customer outcomes(Binder, 2016). Additionally, occupational health may be compromised withincreased job injury and accident risks (Davis, 2016). These systems can also
be detrimental to organizations when they generate large payouts at times
when the company is not profitable.

Accelerated incentive pay

In an accelerated pay-out system, the per-piece incentive increases as perfor­
mance increases. Dickinson (2005) describes this as, “the more a performer
completes, the more each part is worth” (p. 20). The justification for paying
employees exponentially is to compensate workers at greater productionlevels, which becomes increasingly difficult to achieve. In theory, this would
work to incentivize sustained high levels of productivity. Results from twolaboratory studies (Oah & Dickinson, 1992; Smoot & Duncan, 1997) indicatethat accelerated incentive pay is no more effective than linear pay, such as314

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a piece-rate pay system with a consistent payout for each work output pro­
duced. Participants working under two conditions (accelerated and linear)
performed comparably despite the fact that those participants earning accel­
erated payouts made significantly more money than those earning linear
payouts. Although not typically measured in such studies, it would be worth­while to also measure the levels of stress evoked by such systems whenevaluating their merit.
Small group incentives, equally divided

In industries where group work is required, the above pay systems are notappropriate. Instead, organizations may utilize an incentive system based on
performance tied to a group output or operational process. However, increasinggroup members diminishes the individual worker’s control of their wages(Honeywell et al., 1997), thus the justification for a small group composition.
Incentives delivered equally to members of small groups, with two to 12 employ­ees, show relatively high-performance levels that are often comparable to, and insome cases exceed, individual monetary incentives (Honeywell et al., 1997;
Honeywell-Johnson et al., 2002; McGee et al., 2006; Stolovitch et al., 2002).
Research indicates this system is most effective when all employees within thegroup perform at equal levels. When there are differences, high performers tend
to perform worse under small group incentives than they perform underindividual monetary incentives, and low performers report stress caused byfear of letting down their group (McGee et al., 2006; Thurkow et al., 2000).
Goal sharing, gain sharing, and profit sharing

These organization-wide variable-pay systems are based on achieving annualorganizational goals (goal sharing), organizational productivity over theprevious year (gain sharing), or pre-defined annual profit levels (profit sharing).
In most cases, the payout is capped at a percentage of an individual’s salary or
fixed wage or based on employees’ levels within the organization (Department ofLabor, 2020). The organization may also structure the payout to come froma bonus pool (Benson & Sajjadiani, 2017) where payouts may occur every fiscal
quarter or annually. These systems appear to have mixed effectiveness. Some
(Kruse, 1993; Osterman, 1994) have indicated these organization-wide incentive
systems can enhance employee performance, especially when used in conjunc­tion with other practices to improve performance. On the other hand, thesesystems have also been criticized for being largely ineffective (Benson &Sajjadiani, 2017). This is likely due to the variability in design and implementa­tion by the organization. Another factor to consider is the payout’s temporal
remoteness to actual employee behaviors, resulting in a diluted incentive effector even no effect on employee performance. Another disadvantage is that goal

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sharing is not indexed to the company’s profit, unless profit is an explicit goal
within the system (Abernathy, 2011). Due to the lack of laboratory research thatcan be conducted with this arrangement, the majority of research conducted onthese pay systems are based on pre- and post-implementation and survey report,
and thus limited in determining causality.
Practitioner innovations

Although behavioral consultants have long worked on compensation systems(Abernathy, 1990, 1996, 2014a), little has been done to demonstrate the effective­
ness of their work in a scientific fashion (perhaps owing to an ironic lack of
incentives for consultants to publish their work in peer-reviewed scholarly jour­nals). Nonetheless, such practitioner efforts align well with OBM initiatives ingeneral and help illustrate a behavior analytic approach to financial compensation,and therefore are worth an extended consideration. Abernathy et al. (1982)
arguably solidified initial interest in pay-for-performance in OBM with theirdescription of incentive pay systems in Virginia National Bank and Union
National Bank of Little Rock, Arkansas. When the bank employees were intro­
duced to these conditions, they increased production from just over 1,000 checks
per hour to 3,500 per hour at Union National Bank (Dierks & McNally, 1987) andfrom 1,465 to 2,250 checks per hour at Virginia National Bank (Abernathy et al.,1982). As summarized by Duncan and Smoot (2001), four characteristics of thesesystems appear critical from a behavior analytic perspective: (1) a precise defini­tion of performance, (2) frequent measures of performance, (3) specific and timely
feedback based on those measures, and (4) a clear relationship between perfor­
mance and pay. One example of a pay for performance system that integrates suchcharacteristics is Abernathy (1996)’s Total Performance System (TPS). TPS inte­
grates balanced scorecards, a profit-indexed pay structure, and performance
management to mitigate the challenges of the systems described previously. The
benefits and challenges of the TPS approach are summarized in Table 2.
Balanced performance scorecards

A scorecard is a performance improvement tool that aims to align employee
performance goals and organizational goals and consists of multiple perfor­
mance measures related to the individual, team, and department responsibil­
ities (Abernathy, 1996; 2014a). Well-designed scorecards used across theorganization, department, and individual levels are necessary and can facilitate
cooperation, provide information to management about trends in perfor­
mance, and foster discussions about improving performance over time
(Abernathy, 1996 2014a). A balanced scorecard integrates quantitative goals
from multiple perspectives of an organization. By incorporating performancegoals on an individual, team, and organizational level, this can address the one-

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Table 2. Benefits and challenges of the total performance system.
For the organization, this system . . .
Benefits

For the employee, this system . . .

● Is tied to organizational strategies and ● Sets expectations about accomplishments

balanced across more than one important(per balanced scorecard measures) and ties
variable for the individual role andfeedback and monetary consequences toorganization
meeting those expectations● Does not risk one performance measurement ● Eliminates the ‘fairness’ concern with fixed
dimension over others such as: productivity,
wages that occurs when top performers are
quality, cost savings, sales/revenue
paid the same as low performers● Uses a payout formula that considers bothorganization’s profit and individual’s perfor­
mance (eliminates problem of paying highwages when organization experiences cash
flow or profitability problems)● Can be described as unfair; self-monitoring of
Challenges ● Can be time consuming to implement● Can pose a challenge with understanding theperformance measures may help
● May not be consistent when there is varia­
organization as a system and balancing
bility in an individual’s job role
weights across all organizational performancemeasures● May result in complaints and perceptions of
unfairness regarding measures and weights
selected, especially early in its implementation● May produce fear in some employees about
being measured and held accountable to theirperformance measuresdimensional concern of pay for performance systems. At all three levels,scorecards typically include measures and provide performance feedback
across Key Performance Indicator (KPI) dimensions to balance short-termand long-term goals. KPI dimensions could be sales and revenue, profit,
expenses, cash flow, regulatory compliance, productivity, quality, customer
service, and employee satisfaction.
These scorecards are balanced because weights are assigned to each measure
based on its value to the organization, value to the customer, ease of improve­ment/control the performer has over the measure, and urgency to improve.
The sum of the weights at each level equal 100%. Individuals earn a weighted
score from 0% up to 100%, upon which their performance pay is based. The
scorecard needs to be well understood for the tool and process to be managed
properly. Providing definitions of each component of the scorecard has beenviewed as helpful by the authors’ clients, and illustrating the components aswell, as shown in Figure 1. The following are definitions for the scorecard
elements as depicted in Figure 1.
1. KPI dimension. The Key Performance Indicator (KPI) aligned across theorganization.
2. Measure. A summary of what is measured.
3. Definition. A detailed description of each measure and how it is calculated
or collected over the month or quarter; this makes each measure and data
calculation clear to the performer and anyone viewing the scorecard.

Figure 1. Total performance system balanced scorecard example.

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4. Performance scale. A range from 1 to 10, with: 1 = the minimal thresholdof acceptable performance; 5 = the target or goal that an average perfor­
mer should achieve; 10 = the stretch goal or maximum performance.
5. Raw score. For each measure, this is the actual performance achieved
during a month or quarter.
6. Score. For each measure, this is the performance scale number corre­
sponding to the raw score. The number is multiplied by the weight todetermine the weighted score.
7. Weight. This number is assigned to the measure based on its value to theorganization, value to the customer, ease of improvement/control theperformer has over the measure, and urgency to improve. The sum of theweights = 100%.
8. Weighted score. For each measure, the score (corresponding to theperformance scale) is multiplied by the weight. The sum of the weighted
score for each measure = the overall score for that individual or depart­ment. The overall weighted score ranges from 0 to 10.
Balanced scorecards encompass several elements shown in OBM research to
improve performance. For example, under antecedent control, they provide
explicit metrics to employees to set expectations of performance, as well as
provide feedback after performance, which can function as behavioral con­sequences (Aljadeff-Abergel et al., 2017; Daniels & Bailey, 2014; Johnson,2013). Moreover, the monetary incentives linked to scorecard feedback may
further strengthen balanced scorecards as useful tools for improving perfor­
mance. Research has suggested that evaluative feedback combined with incen­
tives may be more effective than either alone (Bucklin et al., 2003; Goomas &Ludwig, 2007; Johnson et al., 2008).
Profit indexed performance pay

One concern of performance pay is that the employee payouts are not tied to the
profitability of an organization. Abernathy (2011) proposes using an organiza­
tional multiplier, a complex formula that indicates an organization’s profitability
to guide pay for performance systems. In order to determine what value to use forthe organizational multiplier, the organization must first determine its threshold
amount to ensure the profitability of the organization. Then the organizationmust determine a percentage of the profit to share with employees and theexposure amount. In order to determine the organizational multiplier, the expo­
sure is divided by the percentage of the profit and then added to the threshold
amount. This value is set at 1. Typically, organizational multipliers range in value
from 0 to 3. To create the organizational multiplier scale, divide the exposure by
the percentage of profit times the desired multiplier scale value (e.g., 2 or 3) before
adding the threshold amount. If the company is not profitable, then there are no

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payouts beyond an employee’s base pay regardless of individual performance
scores. If the company achieves its maximum profitability, employees can poten­
tially earn up to three times the organization’s established percent of base pay. By
incorporating the organizational multiplier in a formula called Profit-Indexed Pay(Abernathy, 1996, 2011, 2014a), the financial health of the organization isreflected in the payout. The complete Profit-Indexed Pay formula comprises
the multiplier of an employee’s quarterly salary or base pay, a basis percentage
set by the organization, the organizational multiplier, and the individual scor­
ecard performance, all multiplied together which equals performance pay.
Although the Profit-Indexed Pay formula is straightforward and only involves
four metrics multiplied together, determining the organizational multiplier scale
is complex and time-consuming. Unfortunately, the complexity of this formula
can leave some organizations hesitant to use it. A simpler adaptation to theoriginal formula may be multiplying the quarterly salary or base pay, times
a percentage of profit, times the individual scorecard performance, which equals
performance pay. This adapted profit-indexed performance pay is a simple profitsharing approach to establish a static budget available for individual payouts
each year, quarter, or month. For example, if payouts happen quarterly and theorganizational profit is $25,000 in a quarter, that is the amount available for payfor-performance across the organization in the following quarter. This solution istransparent to employees with the ability for the organization’s leaders to define
what will be available as pay-for-performance based on the individual employee’s
balanced scorecard result.
Performance management

The performance management element of the Total Performance Systemprovides a focus on data to evaluate performance, troubleshoot problem
areas, and implement solutions toward maximizing performance. OBM practi­
tioners engage clients to use performance management techniques such as the
ABC analysis (Braksick, 2007; Daniels & Bailey, 2014), diagnostic tools such as
Austin’s (2000) Performance Diagnostic Checklist (Gravina et al., 2021), andMager and Pipe’s (1970) problem solving questions. These techniques, coupledwith direct observations, data gathering and analysis, and collaboration withorganizational management on identifying solutions, become a foundational
element of performance management. During implementation, there is a heavy
focus on individual, group, and organization-wide performance feedback.
Abernathy (1996; 2011, p. 2014) emphasizes a rich feedback loop to ensure
the success of other elements of the Total Performance System.
Little empirical research has validated the Total Performance System in its
entirety as a result of the multilevel components and complexity. However,components such as scorecards and performance management have had
successful empirical demonstrations. In a controlled field study, LaMere

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et al. (1996) implemented a pay system that closely resembled the Total
Performance System. The organization was a waste disposal firm that
employed 22 roll-off truck drivers. When given the opportunity to earn 3%,6%, or 9% of their total wages in incentive pay, drivers’ performance acrossseveral measures immediately increased. The increase averaged approximately
20% over baseline, for 28 weeks for the group with the longest intervention in
the study. While the researchers referred to this as a piece-rate pay system, it
had many of the characteristics of a multidimensional pay system, such as: (1)several performance measures that were assigned point values, and taken
together comprised the primary performance measure – percentage of jobs
completed in less time than baseline; (2) performance management used in theform of feedback based on measures, and incentive pay delivered weekly; and(3) incentive payout values derived from projected labor-cost savings, which
made the program affordable to the organization.
In recent applied studies in health and human service settings, researchers
implemented balanced scorecards across multiple performance dimensions,either alone (Griffin et al., 2019), or as part of a treatment package along withtraining, coaching, and publicly posted feedback (Szabo et al., 2012). Bothstudies used multiple baseline designs and showed increased staff performancefor the intervention period of up to nine weeks and 16 weeks, respectively, ata low cost to the organizations. Additional empirical research would be
beneficial as organizations, such as healthcare settings, are increasingly inter­
ested in seeing evidence-based approaches for improving performance(Rosenthal & Dudley, 2007).
Parallels with research outside of organizational behavior management

Although the current paper is focused on behavior analytic innovations with
monetary incentive systems, it would be remiss if non-behavioral research was
not at least briefly considered. Even if explanations about data are steeped inmentalistic terms, if performance data exists it should not be ignored simply
because it was generated by someone from a different theoretical paradigm(after all, data are data). Overall, this research aligns well with behavioral
research. Two meta-analyses found positive overall effect sizes for individual
monetary incentives when analyzing 146 (Garbers & Konradt, 2014) and 7,987(Kim et al., 2021) studies. Kim et al. (2021) conducted a meta-analysis to
examine the relationship between incentives and overall performance, forwhich they found a positive effect size (δ = .52). Further, to follow up andextend previous meta-analyses with conflicting results regarding the impact ofmonetary incentives on performance in interesting tasks (Jenkins et al., 1998;
Weibel et al., 2010), they found a positive incentive–performance relationshipin both interesting (δ = +.58) and non-interesting tasks (δ = +.52). Thesefindings were consistent across moderators such as task intensity, different

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types of performance, and work autonomy. Furthermore, these findings were
contrary to often-stated claims that incentives have a negative effective oninteresting tasks and thus undermine intrinsic motivation (Deci, 1972; Deciet al., 2017; Pink, 2009). In fact, research suggests monetary rewards improveoverall motivation regardless of intrinsic motivation and that pay-forperformance can sustain improvement even after removal (Benzer et al.,2013; Hendijani et al., 2016).
Garbers and Konradt (2014) examined effects of individual and team-based
incentives on performance and found a positive overall effect size (δ = +.32). In
their analysis of moderators, they found larger effect sizes for field studies (δ =+.34) than for laboratory studies (δ = +.29) and smaller effect sizes for lesscomplex tasks (δ = +.19) than other types of tasks. Similar to our description
earlier in this paper of small group incentives, this meta-analysis found consis­
tently positive incentive-performance relationships for team-based incentives,
which were comparable to the results of individual incentives, and further foundthat effect size decreased as the number of team members increased.
Even though the explanatory mechanisms vary, the basic conclusion
reached across disciplines is the same: namely that monetary incentives canbe successful, when implemented carefully with thoughtful design. Of course,that last added qualification is quite vital and highlights the importance ofreviewing the literature for caveats in implementation (to be discussed
shortly). For anyone interested in a particular topic within monetary incentive
approaches (e.g., gainsharing), they would be well advised to consult the vast
research literature available.
Incentive systems and “the greater promise”

OBM has long been concerned with using our interventions (including those with
monetary incentive components) for the good of the worker first and foremost. In
what is likely the first full OBM article ever published, Aldis (1961) considered
how basic experimental research might inform our incentive systems (e.g., greater
immediacy, piece-rate, etc.) to increase productivity. Nonetheless, he concluded
his article by noting that the “greater promise is that such experiments may lead tohappier workers as well.” (p. 63). Throughout his writings, Abernathy saw that thetrue potential of pay-for-performance was to ensure fairness for the workers andto improve the human condition in general (Abernathy, 2014b). Our discipline
should not simply be a tool to help corporations make more money, but rather anapproach to improve the lives of people while at work.
Without careful thought and attention, application of our science could beto the detriment of workers. In laboratory research, we can arrange condi­
tions such that the animal will behave in suboptimal ways, especially as
deprivation levels for the animal increases, even to the point that the energy
expended to get a food reinforcer exceeds the energy that the food provides

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(Christopher, 1988; Zentall, 2014). Skinner (1953) once pointed out that we
can get a pigeon to respond as fast as five times per second and to maintainthat rate for hours. It is not difficult to imagine how such arrangements could
be used for the exploitation and ill health of workers, especially among themost vulnerable or deprived members of society. In laboratory settings, any
potential dangers to the health of the experimental animal are mitigated, forexample, by careful maintenance of the animal body weight so that any losses
are offset with additional feed away from the experimental chamber (Ferster& Skinner, 1957). No such provision is inherently provided for the care ofpeople when they are overworked by their employers. Therefore, any OBM
professional must be mindful of ethical considerations when advocating forthe redesign of monetary systems.
Returning to our earlier example of Lincoln Electric’s pure incentive pay
system, even though the company may boast of low turnover rates, that out­
come may obscure some negative aspects of their approach. With the exceptionof job-related illnesses or injuries, Lincoln Electric offers no paid holidays orsick leave (Klein, 2012), which induces many employees to work while strug­
gling with illnesses (Hartman, 1992). If aging employees are unable to work as
fast, then they simply earn less. In short, there is no safety net at a company like
Lincoln Electric, for both good and bad. It is a high-pressure work environmentthat sees 20–50% of new hires quitting within 3 months (Hodgetts, 1997). The
overall turnover rate remains positive because employees who make it past thefirst 90 days tend to become lifelong productive employees and hiring is done
infrequently. Such outcomes work well for a single company but could be
problematic for the overall employment culture if implemented at a larger scale.
Although our work needs to be financially feasible for the organization, it isimportant to not become preoccupied with the measure of money alone (orany measure that indirectly stands in for money, such as productivity). This istrue of any work within OBM, even if the issue is more salient when the topic
involves monetary incentives. Within the context of incentive pay, Davis andHoyt (2020) found that piece rate pay was associated with negative effects on
worker health, with greater risks found among women, minorities, and lowincome workers. Johansson et al. (2010) reported that piece rate pay wascorrelated with risk taking and mistakes. However, they noted that they
could not conclusively determine that such monetary incentives will always
produce negative side effects. Instead, they suggested that the appropriate
answer about the impact of pay-for-performance is, “it depends on.” Inother words, the details of the implementation are critically important to thesuccess or failure of any incentive system.
For example, Oxenbridge and Moensted (2011) studied room attendants
who were paid by piece-rate and found that the payment method increased the
speed at which employees worked. Unfortunately, it also led to an observed
increase in employees working unsafely and routinely exposing themselves toJOURNAL OF ORGANIZATIONAL BEHAVIOR MANAGEMENT

323

greater injuries. The work setting in this study only measured and rewarded
the completion of clean rooms, with little training or emphasis on safety. Froma behavioral perspective, these risky and undesirable outcomes should not be
surprising. As the old adage goes, you get what you pay for. If you only pay forincreased productivity, then you will get all forms of increased productivity,
including the unsafe forms (or perhaps exclusively the unsafe forms, if unsafe
performance is easier or less time consuming). If one wants to improve bothproductivity and safety, then measures and consequences need to exist for
both productivity and safety. If other measures matter, such as quality, time­liness, teamwork, or creativity, then those measures need to be reflected aswell. Evaluating performance via a single metric creates the risk of unmea­
sured performance worsening for other criteria. The net effect of an interven­tion may depend upon a consideration of all these systemic factors.
A balanced approach with pay-for-performance

We must design our incentive systems holistically to ensure fair working con­ditions that are optimal from the perspective of both the employer andemployee. Failing to address this leaves us open to criticisms of being antilabor or misunderstanding what really motivates employees. One of the advan­
tages of a performance scorecard is that several measures can be used to balancedifferent needs, making sure that employees are rewarded not just for working
harder, but also working in alignment with safety, quality, or other standards.
Incentives can be integrated in coordination with other safety and total healthinitiatives to ensure the well-being of employees (Ludwig & Laske, 2021; Olsonet al., in press). Incentive systems can have criteria in place for quality. Finally,
we can involve employees in the selection of measures and design of incentive
systems to promote satisfaction and allow transparency about the structure andreasoning for incentive measures. Research has suggested that workers will
perform better when they help design an incentive system, as compared with
an identical incentive systems designed without employee input (Caza et al.,2015; Cooper et al., 1992). When unions or employees in general are involved in
the design of reward systems, workers show improved satisfaction, greater trustin management, and a greater tendency to remain with the organization(Jenkins & Lawler, 1981; Schwarz, 1989).
Therefore, a balanced approach suggests that monetary incentives should be
implemented as part of broader supportive system, and not as a cure-all single
component. Compensation metrics must take into account issues such as
quality, safety, health, and satisfaction through a cooperative framework.
Part of Lincoln Electric’s success with incentive pay comes from the supportiveelements such as profit sharing, job security, and employee input on manage­
rial decision making. During a tour of Lincoln Electric, union executives fromother companies had difficulty finding a need for a union at the manufacturer

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(which has never had a union) and noted that most of the Lincoln employees
were already getting what they had been fighting for at their respective unions.
However, it is rare that corporations will put forward such a comprehensive
approach, or as one of the union leaders put it, “I’m not worried that unions
are going to become irrelevant because most of you are too dumb to run yourcompanies this way!” (Solman, 2011).
Although the focus of this paper has been on economic influences, it would
be negligent if the possibility of non-monetary incentives was not acknowl­
edged, especially when monetary incentives are not feasible. For example,
feedback, praise, recognition, and celebrations have also been used successfully
to drive performance (Daniels & Bailey, 2014; Johnson, 2013). The key variable
is to not be wholly dependent on hourly wages as the only source of motivation
and acknowledgment for workers. Mixed models are also possible, such as
including an hourly base pay that could ensure financial security for employ­ees, but with additional monetary incentives to promote discretionary effort
and recognition to those who do more than the minimum. Regardless ofwhether incentives are to be implemented as supplemental reward or as partof a complete pay-for-performance system, implementation should be donewith a careful consideration of the necessary supporting factors.

Making sure that the organization is prepared for a change incompensation practices

Taking into consideration everything discussed in this paper, as well asrecommendations by pay-for-performance experts (Abernathy, 2014a;
Daniels & Bailey, 2014; Garbers & Konradt, 2014), effective performancebased pay at the individual and organizational level should:● Be structured on company values and strategic objectives● Be agile to adapt to changing business needs● Consider

both the organization’s profit as well as the individual’s
performance● Be focused on employee contributions and used to maintain or increase
performance● Be transparent: scorecards, measures, and results are shared to set expec­
tations and are aligned with feedback and incentives● Be contingent on an employee’s own performance● Measure performance within the performers’ control, and/or obstacles toperformance be within managers’ control to remove in support of theperformers● Be based on clearly specified behaviors or accomplishments

JOURNAL OF ORGANIZATIONAL BEHAVIOR MANAGEMENT

325● Be certain, ethical, and fair (i.e., if the performance occurs, the individual

will always receive the pay)
● Be paid as soon after the performance as possible, or at least linked withfrequent feedback● Be based on measures agreed upon by both the employee and supervisor● Be designed to avoid ethical concerns or potential discomfort expressedby employees about working under a pay-for-performance system

Pay-for-performance readiness factors

Based on our experience, if an organization is not ready, the system will beineffective at best and detrimental at worst. Prior to implementing a pay-forperformance system, we recommend the conditions outlined next to avoid
potential organizational and individual challenges or ethical dilemmas thatcan result from pay-for-performance systems.
Executive and management readiness

Executive and senior leaders need to spend time identifying organizationallevel results aligned with their business strategies. This will take time, energy,
and oversight from the start. It is not only important for management to usescorecards as tools to discuss and provide consequences for department andindividual performance; they must own the scorecards, meaning the score­cards are used by the employee to self-manage their own performance, raiseissues, and hold themselves accountable to their performance. The process ofmanaging performance and pay for performance will not be successful unlessmanagement is committed to this system as a new way to manage performanceacross all levels of their organization. Sharing return-on-investment data helps
executive leaders buy in to pay-for-performance systems.
Manager and supervisor buy-in is also crucial. For many organizations, thistype of system changes the behaviors required by managers and supervisors,which may be time-consuming and discouraging at first. It is up to executive
leaders to create and deliver positive consequences for their managers andsupervisors, contingent on engaging in those new behaviors. This is especiallytrue at the beginning when requirements change, more work is involved, andpay is not yet attached to the scorecard results (i.e., design, development, andbaseline phases). As with any change initiative, over time managers andsupervisors will experience the benefits (i.e., natural positive consequences)of their scorecard-related management activities.

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Participant readiness

Employees may resist working under a pay-for-performance system fora number of reasons, and therefore, it is important to design a fair andethical system, obtain participant collaboration and buy-in, and clearlycommunicate all features of the system prior to implementation. These
considerations are described next, along with techniques to ensure parti­
cipants are prepared to work under such a system.
Fair and ethical system design

To ensure fairness and compliance, compensation systems must adhere to
local and federal Human Resource (HR) regulations. As an OBM consultant orpractitioner, it is important to understand compensation laws for the organi­zation’s location (e.g., see https://www.dol.gov/general/aboutdol/majorlaws
for a summary of the major laws of the U.S. Department of Labor). For new
employees hired under an existing pay-for-performance system, clearly com­municate the performance measures and pay contingencies to avoid surprises
and adhere to HR regulations.
In addition to fearing the unknown, participants may worry that thesesystems are management’s efforts to get more work for less pay. O’Brien(1990) suggested data-driven collaboration between labor and management
to help management be less punitive and more reinforcing with OBM solu­
tions such as pay-for-performance. Systems designed to benefit both theorganization as well as the employee, with input from all stakeholders includ­ing participants or their representatives (e.g., unions), can result in a positive,
ethical work environment (O’Brien, 1990).
Communication

Once the system is designed and ready to be implemented, it is important tocommunicate to participants how the variable pay system follows HR regula­tions, benefits the employees as well as the organization, and is fair andattainable for all participants. As mentioned above, participants may fear
punitive consequences associated with clear behavioral measures. To assuage
these concerns, Warman et al. (2020) conducted multiple informational ses­
sions and private meetings with participants in a health and human service
setting just prior to pay-for-performance system implementation. OBM con­sultants must partner with participants, including management, to identify
and agree upon measures, clarify what those measures will and will not be used
for, and to ensure ethical practices are followed (Abernathy, 1996). As notedby Warman et al. (2020), due to the limited prevalence of pay-for-performancesystems, OBM consultants must work with the organization’s management tocommunicate expectations, explain new pay contingencies and formulas, andverify participants’ understanding. This communication is often delivered
during training sessions or performance appraisals.

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327

Performance measures/data collection systems

For scorecards to function most effectively, the organization must have IT
systems in place to collect data and populate scorecards. When scorecards rely
on too much manual data collection and analysis, they become cumbersome
and are therefore abandoned. The IT system is typically purchased or createdduring the pay-for-performance system design.
The organization should have a system for sharing scorecard results “ata glance.” This can be integrated within the IT data collection system. The
more frequently and easily employees and their managers or supervisors canview current scorecard data, the more effective the program will be. The
system will not work if delays are long between the behavior and whenemployees see their scores and/or earn payouts. With scorecards being visible
and shared such as using an online database, employees should immediately
see scores that bridge the gap between behavior and payout.
Even with the most robust data collection systems, managers need time
allocated to complete or review (in the case of automated scorecards) theirdepartment and employees’ weekly, monthly, and/or quarterly scorecards, andprovide feedback to their employees based on results. When adequate time is
not allocated, competing work tasks may take precedence, resulting in an
improperly implemented or abandoned system.

Program design and implementation resources

The following personnel, time, and financial resources are crucial for design­
ing and implementing successful pay-for-performance systems.
Program champion

With the most successful pay-for-performance scorecard systems, the organiza­tion identifies a program champion to serve as a single point of contact. This
person should be able to answer questions and provide support. He or she musthave access to the IT system(s) and scorecard data. The program champion isoften someone in a quality control, training and development, or humanresource role.
Scheduled time to design, implement, and test

Time needs to be set aside to fully design, implement, and test the scorecard
system and measures (i.e., collect baseline data) prior to attaching it to perfor­
mance-based pay. As described earlier, if employees do not have control over themeasures, there are likely to be problems, such as fear of punitive consequences.
During pilot testing/baseline, the organization should gather frequent feedback
from employees in every department and revise the measures as appropriate.

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Organizational financial stability

The organization should be financially stable. Ultimately, pay-forperformance scorecards produce impressive returns on investment in quality,
productivity, customer service, employee retention, that all contribute tofinancial health. However, if the organization cannot afford the initial payouts,
employees and their managers will not receive contingent performance pay
and the return on investment will be much lower.

Clear expectations

In successful pay-for-performance scorecard systems, organizations initially,
and on an ongoing basis, set clear expectations with managers and employees
about what is required of them and how the system aligns with and contributes
to the organization’s goals.
Any added time and work commitments related to collecting, reviewing,
and reporting scorecard data should be set before baseline data are collected. If
managers and supervisors will be collaborating with a program champion and/or data analyst, those relationships should be made explicit. Everyone should
be given instructions about who answers any questions.
Managers, supervisors, and employees also need a clear description about
how individual scorecard measures and the overall system align with theorganization’s goals and strategies. This transparency helps to overcome
potential concerns or confusion participants may have when the system is
introduced.
Per the Executive and Management Readiness sections above, it isimportant for executive leaders to deliver ongoing feedback to managers
and supervisors about their participation in the program. This includes
reviewing scorecards with managers/supervisors and following up on how
they share data with employees. These executive, management, and super­visory behaviors should be included on their individual scorecards as wellto encourage leadership behaviors as part of the whole process(Abernathy, 2011).

Frequent, contingent consequences and incentives

This condition may seem out of place, given that pay-for-performance scor­
ecard systems are monetary incentives. However, other consequences andincentives should be considered as well.
It is important for executive leaders to provide relief from activities occur­
ring in participants’ jobs that could compete with successful work on scor­
ecards. This is particularly true in the beginning.

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329

As mentioned earlier, in successful scorecard systems, executive leaders
provide social recognition and praise to managers and supervisors when
they successfully use scorecards to manage their teams. This is also importantduring the program baseline before monetary payouts are available.

Readiness checklist

Organizations considering pay-for-performance should check all the follow­
ing boxes in Figure 2 before they embark on a pay-for-performance scor­
ecard system.

Figure 2. Total performance system, pay-for-performance, readiness checklist.

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Conclusion

Although the concept of pay-for-performance rather than pay-for-time-atwork is a simple idea, the actual implementation can be complicated, espe­
cially when it disrupts standard practices and implementers are mindful
about ensuring fairness and equity. Research will continue to be needed associety and businesses evolve. As reflected in our summary of pay-forperformance research, very few applied studies examine pay-forperformance systems in real work settings. There are concerns cited bymost of the researchers whose work is summarized here that their laboratory
research may not generalize to work settings (e.g., Bucklin et al., 2003;
Johnson et al., 2008; McGee et al., 2006; Slowiak et al., 2011). Extending
any of the individual monetary incentive research to real-world work settings
would be of tremendous value to the business world.
Conceptually, we know a lot about the potential benefits for both the organiza­tion and the individual employee under pay-for performance systems, yet very
few organizations have reported their results. We are aware of dozens of applica­
tions of pay-for-performance using scorecard systems, mostly consistent with ourdescriptions. We believe this is partly because of propriety concerns, however, we
encourage these organizations when possible to publish their approaches andresults as case studies for others to learn from and extend to other industries.
As outlined in this paper, extensive pay-for-performance research andpractice over time has led to several recommended behavior-based practices.
Any system needs to be balanced and weighted across variables important toboth the individual and the organization. To ensure that it is likely to succeed
and that it is administered fairly and ethically, we implore readers to adhere to
the factors described and summarized in the readiness checklist. We encou­
rage OBM researchers and practitioners to continue implementing, analyzing,
and researching pay-for-performance systems while exercising caution against
potential drawbacks. Pay-for-performance can have a positive economic andcultural impact for both organizations and individuals when implemented
appropriately. The contrary is also true, inadequate compensation systems
could lead to unintended and potentially disastrous outcomes, such as unfair
pay distribution to certain performers, punitive intentions by management,competitive cultures, or issues related to employee fatigue, safety, or stress. To
avoid or mitigate unintended drawbacks, effective and ethical pay-forperformance systems, as outlined in this paper, should involve all stakeholders
including participants in the design, payout equitably contingent incentives
across multiple performance dimensions, clearly define conditions underwhich incentives are earned, and follow through on performance expectations.
When used carefully and with broad consideration, monetary incentives canJOURNAL OF ORGANIZATIONAL BEHAVIOR MANAGEMENT

331

be a powerful tool to potentially improve the social condition, aligning thegood of the business with the good of the employee.

Disclosure statement
No potential conflict of interest was reported by the author(s).

ORCID
Douglas A. Johnson

http://orcid.org/0000-0002-7802-3566

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