Suggests that heightening competition within the pharmaceutical sector means that improving performance in R&D is increasingly important. One approach to achieving this is to consider the introduction of financial incentives within reward systems. Considers the evidence for the success of performance‐related pay (PRP) systems arising from the relatively few empirical accounts available. Concludes that there is little concrete evidence that PRP improves the performance of either individuals or organizations. Concedes that where it can be demonstrated that employees are satisfied with a PRP system we might expect them to be motivated and this should have positive results on performance. Considers the operation of the PRP system within the research division of a major UK‐based multinational pharmaceutical company. Looks in detail at management operation of, and employee responses to, the system. Concludes that not only is it unpopular but it may have potentially serious dysfunctional side‐effects in an R&D environment.
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