Different people in an organization often view pay differently. "For example, senior managers may see it as a cost, line managers as an investment and HR managers as a means of attracting and retaining competent staff. Increasingly, it is recognised that remuneration is not only a cost, but also a tool in influencing performance. High-performing organizations are restructuring around teams and processes, rather than individual jobs, to achieve cost effectiveness, flexibility and improved quality of products and services, which require multiskills and different motivators."" (de Silva, 1998:10).
The direct linkage between performance and rewards also tends to impoverish both management and employees in the kinds of rewards that are valued. Within the definition of rewards there are a large number of rewards that indicates to an employee that his contribution is valued. However, once a formal system is set up to publicise a direct link between performance ranking and reward, the reward chosen becomes the only credible indicator of management's evaluation of individual performance (Oberg, 1972:62).
Performance-based remuneration plans motivate employees to devote effort to in-role performance by controlling their behaviour and outputs. However, the downside is that these causal linkages could discourage employees from engaging in behaviour that is not linked to monetary reward. .
Performance-based remuneration is based on the Agency theory which postulates that the interests of the Principle are divergent from that of the Agent and hence, a control system is required to ensure that employees maximise their individual performance or in-role activity. .
It is evident from the above that employees need to be rewarded for their performance in terms of their own particular needs and expectations and organisations need to communicate effectively their ability to satisfy employees' intrinsic needs.