We know that reward has a relatively minor effect on employee performance, and might therefore expect to see a limited impact on business performance too.
This is certainly what the Institute of Work Psychology (IWP) has found. Their study of 308 UK manufacturing companies over 22 years has shown that "empowerment, teamwork and intensive training and development at an operational level had a far more significant impact on productivity than payment systems".
Another study looking at the impact of reward has recently been conducted by the Centre for Economic Performance. It's an important study that I've only seen reviewed in The Economist and focused on the world's third largest employer, the UK's National Health Service (NHS).
The study looked at the impact of imposing virtually uniform pay rates in the NHS meaning that it competes for nurses with private sector organisations / jobs where pay rates vary widely across regions.
"Its rigid pay policy makes it easy for the NHS to recruit and keep good nurses in poorer northern regions but hard to hire and retain them in the richer south. Hospitals in the north gain from a more stable pool of nurses. Southern ones have to lean on temporary agency nurses, who can be paid more but tend to be less experienced, less familiar with the hospital and less productive. Do southern patients suffer as a result?
The economists look at the proportion of patients aged 55 or more, admitted to hospital after a heart attack, who die within 30 days. They find a strong link between this ratio and local private-sector wages. The higher the private wage, making it harder to get good nurses in the NHS, the higher the death rate: to be precise, if the private wage is 10% higher in one area than another, the death rate is 4-5% higher."
The main focus of the research is to show the problems the government faces in assuming the UK is economically uniform when it sets wage deals, but more broadly, it also indicates the consequences all organisations face if they don't sent pay levels appropriately.
And this is just reward. The IWP and other research would suggest even greater consequences await poor management of other HR practices.
This was in fact what was found in earlier research looking at the NHS.
This research found strong associations between the extent and sophistication of appraisals, training and teamworking and lower patient mortality. A hospital that appraises around 20 per cent more staff and trains around 20 per cent more appraisers is likely to have 1000 fewer deaths per 100,000 admissions or a decrease in over 12 per cent of the expected total.