The question here is:
What type of VFD control does your application require???!
If you need Speed Control only use V/Hz control and your Reference Command will "go straight" to the Speed Regulator/Frequency Output.
If your application needs Torque Control with Speed Regulation, choose the Flux Vector Control Mode, however" you will generate the corresponding "difference" between speed reference and output frequency due to the required torque settings.
I think your answer is slightly confusing. The question should be what type of load are you trying to control?
V/Hz control is the simplest and most basic type of control, Flux Vector is a more advanced form of control and will improve the performance of the drive with better dynamic response. However, it still relies on the basic volts/Hertz core for controlling the motor.
If you are trying to control a simple centrifugal fan then V/Hz in most cases would be the ideal option however this will be open loop with no encoder feedback. In V/Hz mode the drive has no idea what speed the motor is running it just outputs the required frequency and hopes for the best.
As there is an encoder fitted it would suggest that closed loop control is required therefore Flux Vector is the way to go BUT you must ensure that parameter 88 is set to Speed Reg.
With Flux Vector control in Speed Regulation mode the motor should run straight up to the Speed Reference and stay there if the drive is set up correctly.
So the question is what type of load are you trying to control?
I would suggest as you don't seem to be getting very far I would start again with this drive, backup it up, if you haven't got Drive Executive then back it up to the HIM (that way you can always get back to where you are now).
When you have your backup set the drive back to defaults and using the Start-up Wizard go through all the commissioning steps, this should only take a few minutes. If conditions on your plant allow it may be worth initially setting the drive up to allow control from the HIM, that way you can play with it and verify that it is working correctly before connecting to the PLC.
Make sure you do an Auto tune, preferably a Rotate Tune. if in Flux Vector Mode.
If you continue to have problems please answer the following questions:
1. What load are you trying to control, is it variable torque, ie like a centrifugal fan where the faster the fan runs the greater the required torque or more constant torque which is something like a hoist or lift where you will need lots of torque at low speed.
2. Is this a high inertia application, another indicator that you need Flux Vector Control.
3. Where is the encoder fitted, on the motor (or somewhere else but running at motor speed) or is it the other side of a gearbox.