This explanation goes against the more traditional reasoning in economic theory, which puts great emphasis on marginal productivity when it comes to determining wage levels.
The most obvious examples of this can be found in high-profile "Winner takes all" situations like the competition for the position of CEO of a company. However, the mechanism can be found at various levels in a company. For example, the members of a team might know that one of them is going to be promoted in a month. This creates competition among the members, which in turn (usually) leads to an increase in productivity.
In such tournaments, the deciding factor is relative performance, not absolute performance. Putting it in a less formal way, a worker does not have to be perfect to get the reward - he just has to be better than everybody else, no matter how small the difference is in the end.
- Tournament Theory by Robert Schenk