- Contingent pay only works for routine tasks. Performance related pay is especially unfit for executives because their tasks are anything but routine.
- Fixating on performance can weaken it. A focus on learning leads to better results than a focus on results. A strict focus on performance goals limits learning and innovation.
- Performance related pay undermines intrinsic motivation. In top management role intrinsic is especially important for creativity and innovation.
- Contingent pay leads to cooking the books. Emphasizing performance goals leads managers to start to play the game of making it look like they have accomplished those goals. While that happens unethical behavior is more likely to happen.
- All measurement systems are flawed. Performance related pay requires that you are able to measure whether results have been accomplished. Whichever measure you will choose, it will always be an imperfect quantification of what you expect of executives. Because of this their behavior will always be influenced in the wrong direction.
I suggest you read the article, it contains some interesting examples and links to research.