Pay for Performance: What pay scheme is best for achieving results?

Much has been written, for and against, about compensation as a driver of performance. Two main theoretical constructs deal with this subject: extrinsic theory, including agency theory, whereby money is a main motivator to performance, and intrinsic theory which proposes that money does not motivate, and in fact may hinder, performance. However, corporations spend considerable effort in designing compensation packages with the objective of linking remuneration to performance. Practitioners have developed a variety of mechanisms to deliver pay packages, but heretofore there has been no attempt to validate which, if any, of these various approaches is better able to drive performance. This study addresses these questions: Are team incentives better? Is there an LTI vehicle, pay mix variation or pay for performance model that is best suited to drive performance? What role does Prospect Theory have in how incentives motivate performance? This book informs practitioners on the design of incentive compensation programs and academics of the value of pay as a motivator of business results.