Performance related pay (PRP) has become a growing trend over the past two decades in many organizations (Cadsby, Song & Tapon, 2007). The concept of performance-related pay was conceived as a way to motivate employees and encourage desired behavior as individuals differ in terms of their levels of motivation, drive and initiative. Organizations need to take this into account and set clear overall objectives for individuals that are also aligned with organizational objectives to ensure incentive plans work effectively. Numerous studies have been conducted on the topic of the effectiveness of incentive plans. Some management experts have suggested that incentives can be a powerful tool for motivating employees (Bennett, 1993), and Vroom's (1964) expectancy theory indicated that pay for performance provides a direct and explicit link between performance and result, which fixed pay does not do. However, author Kohn (1998) argues that money does not motivate employees and is not a substitute for good management. The purpose of this essay is to examine the benefits and costs of implementing performance incentives. The Benefits of Implementing Incentive Plans Managers must be familiar with how to use the power of incentives to promote individual motivation and organizational effectiveness. It can be a highly effective motivational tool and should be used in appropriate circumstances (Bennett, 1993). In particular, performance-related pay plays an important role in economic downturns. Because companies generally have a smaller amount of capital to allocate to compensate during an economic slowdown, offering pay raises or bonuses in varying amounts to top performers or the most they...... middle of paper..., May-June , 38-40. [Reply to Kohn] Davis, J. (1995), “Why rewards undermine performance: an exclusive interview with Alfie Kohn”, ACA Journal, 4(2), 6. Ganzel, R. (1998), 'What's wrong with pay for performance?', Training, 35(12), 34-40. Klie, S. (2007), 'New challenges in pay for performance', Canadian HR Reporter, 20(8), 9-10. Kohn, A. (1998), “How incentives undermine performance”, The Journal for Quality and Participation, March-April , 6-13. Levine, H.Z. (1994), “Why Incentive Plans Can't Work,” Compensation and Benefits Review, January-February, 77-78. Nankervis, A., Compton, R. and Baird, M. (eds.) (2008), Human Resource Management: Strategy and Processes. Sixth edition. South Melbourne: Thomson, p. 401-427. Verespej, M. (1998), 'Dissatisfaction with rewards', Industry Week, 247(4), 16. Vroom, VH (1964), Work and motivation. New York: Wiley.