Drawing on both expectancy and equity theory, identify and discuss the main factors that are likely to influence the effectiveness of performance-related pay schemes in organisations.

Performance-related pay is a financial reward to staff whose work is considered above average. It is usually used for employees whose work achievements cannot assessed simply through numerical measures. Performance-related pay schemes are usually linked to the appraisal process, on which evaluation on staff performance during the year can be made. Performance-related scheme is a highly attractive system to encourage employees towards the organisation's objectives. According to the Wyatt study (1990), which measured effectiveness of performance …

…the research for the definitive solution to the motivation problem, one part of which is a fair rate of pay, is another endless quest for the Holy Grail in organisational theory. Porter an Lawler emphasised that the expectancy theory is just a framework of requirements for motivational strategies. Equity and expectancy theory do not provide managers with a direct recommendation, but with a model within which performance-related pay schemes can be operated willingly and successfully.