Purpose This article seeks to examine the experiences of the recent introduction of performance‐related pay (PRP) in German public services. From an industrial relations perspective, it addresses the question of how different designs of PRP schemes and the circumstances under which PRP is implemented influence its functionality and its acceptance by employees. Design/methodology/approach The paper uses an analysis of 215 works and establishment agreements, 17 case studies in municipalities of the federal state of North Rhine‐Westphalia (including employee attitude surveys in three cases), and interviews with experts from the employers' federation and the trade union. Findings It is shown that – in accordance with the literature – enhancing employee motivation is not the only objective pursued by the collective actors in the introduction of PRP. Different PRP schemes have differing effects: highly selective PRP schemes tend to fail; schemes resembling conventional appraisal systems have little positive effect on motivation and performance, whereas participative systems focusing on the inclusion of employees can offer an opportunity to renegotiate performance objectives in the public services. Practical implications Factors such as balancing material interest and social recognition, and strengthening participative elements could be crucial for improving the acceptance and functionality of PRP schemes. Originality/value This paper provides first findings on the recent introduction of PRP in the German public sector and contributes to the discussion on the functionality of PRP in public services.
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