Free comprehensive guide to employee pay and benefits

Attract and retain those of suitable abilities.
Motivate (or at least not demotivate).
Encourage performance improvement and discourage the retention of weak performers.
Help build commitment to the employer and their business objectives
Encourage team work.
Be perceived as fair.
Be flexible, reflecting the companies ability year on year to pay.
Be cost effective.
Be easily understood and straightforward to administer.

Real problems occur when a performance related benefit is poorly directed. For example when commission-led salesmen sell products that are not suitable for a customer (this practice has cost the UK Financial Services billions of pounds in the last 15 years). It can be equally damaging if performance rewards direct individuals not to cooperate with other members of their work team.

See next pay systems design indexed right.