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Rewarding Excellence: Pay Strategies for the New Economy

One book, placed in its field — what Edward E. Lawler III's book gets right, where it goes further than the rest, and what the rest of the field adds.

By Mike West · July 24, 2026

Human capital is the chief source of competitive advantage in the new economy, and reward systems must be designed to attract, retain, and motivate it. Reward systems should pay the person—their skills, knowledge, and market value—rather than the job. Effective pay for performance requires significant variable pay, objective measures, and a clear line of sight between behavior and rewards.

Human capital is the chief source of competitive advantage in the new economy, and reward systems must be designed to attract, retain, and motivate it. Reward systems should pay the person—their skills, knowledge, and market value—rather than the job. Effective pay for performance requires significant variable pay, objective measures, and a clear line of sight between behavior and rewards.

The reader You are building a real capability: Rewarding Excellence: Pay Strategies for the New Economy.

The external problem. Organizational Performance and Competitive Advantage erodes when it is left to instinct instead of method.

The internal problem. You were taught the moves piecemeal, never the whole model.

The path

  1. Master person-based pay (skill/knowledge/competency).
  2. Master performance-based pay.
  3. Master market position of rewards.

Success. Organizational Performance and Competitive Advantage becomes something you produce by design, not by luck.

At stake. You stay dependent on instinct, and it fails you when the stakes are highest.

Organizational Performance and Competitive Advantage

The ultimate outcome of effective reward systems: the development of core competencies and organizational capabilities and the motivation to use them, yielding superior financial and strategic performance.

Why it matters. A reward system that produces satisfied, well-paid, loyal employees but no distinctive capability or motivated effort has failed at the only thing that finally counts — sustained performance.

The myth: Practitioners assume that if attraction, retention, and satisfaction are all healthy, superior performance follows automatically.

The reality: Attracting and keeping talented people creates only the potential for advantage; performance requires that rewards also develop core competencies AND motivate people to actually apply them — capability without motivation, or motivation without capability, both fall short.

How to:

  • Trace each reward practice to the specific competency or motivated behavior it is meant to produce, and cut practices that trace to neither.
  • Balance rewards that build capability (skill development, competency pay) with rewards that trigger effort (performance-contingent pay) so both feed the outcome.
  • Measure performance against capabilities rivals cannot easily imitate, not just against last quarter's financials.

Grounded in: Rewarding Excellence: Pay Strategies for the New Economy

The playbook

Sources