The paper presents a review of the study and practice pertaining to the effectiveness of performance-related pay with a particular emphasis on higher educational organizations. The overall research question guiding the review was to establish the extent to which performance pay-based practices have been successful undergoing great changes in management practice, and in particular, whether the implementation of new performance-related pay schemes is likely to be effective in higher educational institutions. It proves to be evident that the urgency and severity of the issues to increase the efficiency of the entire institution performance, its competitiveness and quality of products or services provided is straightforwardly related to the level of staff satisfaction, engagement, efforts, initiatives and commitments. The core objectives of the modern PRP schemes are to motivate, stimulate personnel by encouraging them work on results, implementing a strategy of organization growth and development, providing tangible rewards at the expense of incremental improvements of performance and transparency of appraisal systems. The research findings are based on the analysis of the contemporary methods of the performance measurement, which prove to improve the effectiveness of the whole organization focusing primarily on the requirements and needs of all stakeholders. Overtly, linking pay to performance is proven to increase workers' motivation, effort and loyalty to the company, covertly, it can generate psychological stress and perverse effects.