Originally found at Phys.org

When it comes to retaining and motivating employees, raises may seem like a sure bet.

But a new study led by Tony Kong, an associate professor of organizational leadership at the CU Boulder Leeds School of Business, finds that performance-based pay can sometimes have the opposite effect—leading employees to withdraw and decrease productivity.

"Pay for performance is a double-edged sword," Kong said. "When used wisely, it can really motivate people and increase their sense of competence. But oftentimes employees feel like they choke under pressure."

Three-quarters of organizations currently leverage pay-for-performance compensation, including pay raises, bonuses and profit-sharing as part of their overall compensation plan, according to Salary.com.

But whether those incentives achieve the desired effects is a matter of some debate.

The research, published in April 2023 in the Academy of Management Journal, finds that how employees perceive pay for performance and react to it hinges on two factors: leader competence and warmth.

Continue reading the original article at Phys.org.

Read the original research in Academy of Management Journal.

Learn more about the AOM Scholars and explore their work:

• Dejun Tony Kong, University of Colorado, Boulder
• Sanghee Park, Hanyang University