Rewarding performance
As a manager, one of the most important things you should think about is the relationship between pay and performance. There's really two reasons why you can gain a lot by tying pay to performance. One, of course, is the motivation side, there's an incredible amount of research evidence that says, if you tie pay effectively to performance, you can get better performance out of people who work for you, and work with you in the organization. But it's not just that, it goes back to the traction retention issue that we talked about, and that is, if you pay people for performance, ultimately, you will end up paying your better performers more than your lesser performers.
That is sensible and good policy, because their market value is higher, and if they leave, you lose a lot more, you lose a very valuable piece of your organization. So paying for performance simply makes a lot of sense, but, and here's where you need to think very carefully about what you're going to do, and how you're going to do it. It's not necessarily easy to decide.Source: https://www.linkedin.com/learning/human-resources-pay-strategy/rewarding-performance