Performance Myopia

on motivation and performance has been studied extensively. Particular attention is devoted to
pay-for-performance (PFP) incentives while research on the effect of PFP incentives on performance
has produced contradictory results. More importantly, incentives are not an isolated process;
the effect of incentives goes beyond individual or organisational performance because they affect
an entire organisation. Although incentives are included in most organisational design frameworks,
the effect of incentives on other organisational design components has been neglected.
The study uses the organisational design framework to focus on neglected relations between
incentives and other organisational design components. The purpose of the study is to explore
what are the organisational design components and how they are influenced by PFP incentives.
A case study research design was used. The data was collected in a small company in which
the incentive system was changed to PFP incentives as a part of substantial changes in
the organisational design. Data was collected through interviews with employees, supported by
internal documentation and observation. Thematic analysis was used to analyse the data.
In the case, the PFP incentives led to higher performance although the PFP incentives
restricted the new exploratory strategy and harmed cooperation. The effect of the PFP incentives
on exploration and cooperation was slow, and hardly visible, predominantly as a result of
unintentionally deviated attention.
The study points out that focusing solely on performance when designing incentive systems may
be myopic because PFP incentives may have a detrimental effect on other organisational design
components. Based on the results, the paper provides a set of suggestions to consider when
implementing PFP incentives.