Impact of performance pay on enhanced employee performance: mediating role of work motivation and pay satisfaction

Abstract

Performance linked pay programme is a well-established practice in the industry across the globe aimed at driving enhanced performance. However, there are conflicting views and findings by researchers and the industry practitioners as to whether performance pay plan does really meet with its objective in driving enhanced performance. This study tried to examine this basic question. It also aimed to probe the mediating effects of ‘work motivation’ and ‘pay satisfaction’ in the relationship of performance pay plan and performance. The findings indicate that, contrary to common belief, performance pay, as such, does not drive enhanced performance. However, performance pay plan competitiveness factor of the overall performance pay construct does have significant positive impact on performance. Work motivation as mediating variable has significant positive impact in enhancing performance. Mediating impact between pay satisfactions, though, is found to be statistically significant but have negative impact on the performance.

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