HR bodies believe plans announced last week by Chancellor Gordon Brown giving public sector employers more power to set localised pay rates will help improve the quality of public services.
Brown, who announced the proposal last week as part of the Government's Comprehensive Spending Review, said the public sector national pay structure hinders recruitment and retention.
Under the plans, public service organisations which achieve service targets will also be eligible for extra Government funding.
John Philpott, chief economist at the CIPD warns that reforms, although welcome, must be handled carefully as they could demotivate staff working for under-performing public bodies.
Philpott believes more emphasis should be placed on teamworking and team reward.
He said: "As the CSR seems to appreciate high performance, early 21st century public service cannot be built on a mid-20th century approach to pay. It is clear that teamworking, continual learning and a mix of individual and team performance-related systems are the key to improvements in productivity and customer service."
Francesca Okosi, president of local government HR body Socpo, agrees with the move but does not want councils to compete for staff.
She said: "Pay is a regional issue. It is not as simple as a north-south divide, it is more complex."