Productivity Based Pay Law and Legal Definition

Productivity-based pay rewards employees based on measurements of the quantity of work and outputs. Two types of productivity-based pay systems are gain sharing and profit sharing arrangements. These arrangements can be complicated and require the existence of sophisticated procedures for calculating bonuses.

The proponents of incentives claim that money is an important motivator for better performance, while the opponents insist that incentives can never bring lasting performance improvement, which is driven by intrinsic motivation.