MIT Sloan Management Review Article on Break the Link Between Pay and Motivation

Pay-for-performance (PFP) compensation systems were invented in the industrial age to drive individual performance — and despite research showing that this approach is ill suited to much of the knowledge work performed in organizations today, the practice persists as the norm.1

Compensation systems remain stuck in the past for several reasons. The first is, essentially, inertia: Companies have been using PFP for decades, and the best practices disseminated by compensation consultants usually derive from it. Additionally, most leaders are either not aware of the research on PFP or dismiss it as unreliable. Finally, leaving PFP behind and taking the leap required to design and implement a new compensation system can be a fearful prospect, given the potential impact on performance and results as a consequence of getting it wrong.

About the Author

Jonas Solbach is market reach strategy manager at Hilti Group. Klaus Möller is professor of controlling/performance management at the University of St. Gallen. Franz Wirnsperger is managing director of the Hilti Lab for Integrated Performance Management at the University of St. Gallen.

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