To be effective, performance and reward management systems should encourage employees to demonstrate consistently those types of work behaviour and results that are deemed necessary to support the organisation’s strategic objectives and desired corporate culture. More so than other human resource practices, performance and reward management systems also exist to shape and reshape employee work behaviour in ways desired by the organisation. The shorthand practitioner term for this is employee engagement. Yet establishing and maintaining employee engagement is no simple matter. Performance and reward practices sometimes go badly awry, eliciting not the wanted work behaviour but, rather, systemic misbehaviour and disengagement. The means to avoiding such unfortunate behavioural consequences lie not in the behaviour itself but in understanding and influencing the factors that help to shape work behaviour – and, above all else, this requires close consideration of employee work attitudes and what has come to be known as the employee ‘psychological contract’.

In this chapter, we explore the complex links between employee attitudes and behaviour (i.e. engagement) with particular focus on the attitude that is generally accorded greatest importance as a determinant of employee performance; that is, work (or task) motivation. We shall see that, for all of its importance, and despite it being one of the most closely researched topics in the social sciences, the sources of task motivation remain a matter of long-standing and continuing debate in Western management thought. The chapter will also draw on the concept of the employee-centred ‘psychological contract’ to present a basic employee-centred framework for better understanding and influencing employee attitudes and behaviour in ways beneficial to both the organisation and the employees themselves. The chapter opens with a discussion of the three main categories of work behaviour, then moves to an overview of the three key attitudinal categories, as well as considering some of the possible associations between the two sets of categories. With these propositions in mind, the chapter next introduces the nature and practical significance of the notion of the ‘psychological contract’. This is followed by consideration of the set of perceptual factors that are widely regarded as lying at the centre of the employee psychological contract, namely, perceptions of ‘organisational justice’ and injustice.

The fundamentals

It is appropriate that we begin our journey by considering those ideas, concepts, propositions and debates that are fundamental to a rounded understanding of employee performance and reward management and, equally, to well-informed and effective practice in these fields.

The three chapters in part 1 are devoted to this end. Chapter 1 seeks to clarify the meaning, nature and purpose of our two focal human resource processes: performance management and reward management. While our treatment of the ‘what’ and ‘why’ of performance and reward management is written from an explicitly prescriptive-descriptive perspective, the treatment is neither wholly management-centred nor uncritical.

Building on this foundational knowledge, the two accompanying chapters consider, respectively, the psychological, motivational and strategic basics of performance and reward management. These chapters offer frameworks for practising performance and reward management in both a psychologically aware and a strategically informed manner. The development, implementation and maintenance of effective performance and reward management systems require simultaneous attention to each of these fundamental dimensions.

By ‘psychological’ dimensions we mean the attitudes, perceptions, values and emotional (or ‘affective’) states that prefi gure the observable actions-or behaviour-of individual employees, or at least that seem to predispose individuals towards certain behavioural actions rather than others. While ‘motivation’ is undoubtedly the most widely acknowledged and theorised of all work attitudes, as we shall see, there are others that may be no less salient or infl uential, including those that are grounded more in perception and in deeply held values and emotions than in dispassionate or rational cognition.

Performance management in action

The three chapters in part 2 examine the key concepts, techniques and processes associated with the management of employee performance. In chapter 1 we observed that, from a descriptive ‘cybernetic’ (i.e. systems) perspective, work performance may be thought of as having three horizontal or process dimensions – that is, inputs (knowledge, skills and abilities), task effort and other types of work behaviour, and outcomes or results; and three vertical or scalar dimensions – that is, individual, group and organisation-wide performance. By definition, the methods that accentuate behaviour and competency have an individual focus.

Chapters 4 and 5 examine the main performance management methods or techniques associated with each of these dimensions. Chapter 4 considers those approaches to performance management that are results-focused. Chapter 5 will then consider the methods and techniques that are behaviourally focused and examine the concepts and techniques that emphasise performance inputs or capacities in the form of performance competencies. Chapter 6 , the fi nal chapter in part 2 , examines both the provision of performance feedback to individual employees and practices directed towards performance development, including coaching.

System change and dynamic alignment

Having now laid out all of the pieces of the performance and reward puzzle, it is time for us to consider how to go about assembling these elements into a coherent whole. In this concluding chapter, we detail the alignment model approach to assembling the various concepts, practices and strategies explored in parts 1–4 into an integrated and strategically aligned whole. Specifically, we examine the requirements for and challenges associated with performance and reward system review and the steps involved in system change and development. Although our approach here is primarily prescriptive in nature, our prescriptions also draw on a range of insights available in the empirical or descriptive and critical literatures that have been referred to at various points throughout the text.

Base pay and benefits

Having considered the key psychological and strategic dimensions to understanding the employment relationship, as well as the three main approaches to managing employee performance, we can now turn our attention to the second of the two human resource management processes with which this book is concerned, namely, the management of employee reward and, in particular, the management of employee pay or remuneration. A remuneration system typically comprises three main elements: base pay, benefits and performance-related pay. In designing any remuneration system careful attention should be paid to three key considerations: first, the relative role that each of these three components will play in total remuneration; second, the practices that will be drawn on to configure each component; and third, the target level of total remuneration for each position.

The four chapters in part 3 cover base pay and benefi ts. Chapter 7 considers the rationale for base pay, the main options for confi guring base pay, the general strengths and weaknesses of each approach, and the incidence of each. It then details the pay structures associated with each option, while chapters 8 and 9 discuss the evaluation methods and processes associated with the development of pay systems based on each of these approaches. Chapter 10 then examines the logic of employee benefit plans and the main options for confi guring such plans.

Rewarding employee performance

Having considered the main options and processes associated with base pay and benefits, we can now consider the remaining major area of reward practice, namely, performance-related rewards. Also known as ‘incentive plans’, these are rewards that are contingent or ‘at risk’ in some way, rather than being ‘fixed’ or ‘guaranteed’, as is the case with more traditional forms of base pay. For this reason, such rewards are also commonly referred to as ‘contingent’ or ‘variable’ pay plans. Moreover, while many such rewards are financial in nature (i.e. performance pay or cash incentives), performance-related rewards may also take a non-financial form.

The six chapters in part 4 offer a detailed coverage of the main types of individual and collective performance-related rewards and of key themes and debates associated with such rewards. Chapter 11 outlines the main types of performance-related rewards, considers some of the general motives for adopting performance-contingent rewards, and overviews the main arguments and supporting evidence for and against such plans. Chapters 12 to 15 examine specifi c types of performance-related reward plans that are commonly applied to line employees and managers, with particular emphasis on plan usage, strengths and weaknesses. Plans covered include individual merit pay; recognition awards; results-based individual incentives; collective short-term incentives; and collective long-term incentive plans in the form of broadly based employee share plans.