Performance-Based Pay and Employees’ Productivity

The current fast-paced business environment encourages organisations to be highly aware of their performance and increase their productivity to stay competitive against rivals. Therefore, many firms have made some attempts to improve their productivity by replacing traditional fixed pay components with more unique and progressive methods of payment. This has been done as a step toward motivating employees to be more productive and efficient in the workplace as well as increase their connection to their company, therefore reducing the high rates of absenteeism and turnover. The diffusion of pay that is based on performance incentives is more prevalent in high-skilled jobs, manufacturing and financial services, in the private sector, but is less in hotel and restaurant businesses.

Performance-related pay has been explored from the perspective of its impact on the productivity of companies. While the majority of existing research supports the suggestion that performance-based payment methods are linked to higher levels of employee effectiveness and better matches between firms and workers, one crucial issue remains. The main issue is that most companies introduce schemes that align performance and payment as a part of other modifications in their practices of management and usually as a result of the significant reorganisation of work procedures and tasks. Therefore, it is complicated to remove the attachment between the influence of pay incentives on labour effectiveness from those of other work organisation practices. It is imperative to study the effect of performance-related pay on the productivity of companies as a separate phenomenon, without aligning it to organisational changes or management modifications.

Research Aims, Hypothesis and Questions

The aim of the current study is to examine whether the strategy of performance-related pay would have a positive influence on motivating employees to improve their performance. The research is relevant in the current business context because companies are continuously looking for ways to increase the motivation of their workers and bring value to organisations. It is hypothesised that when employees are compensated based on the effectiveness of their work and the value they bring to organisations, they tend to focus on the outcomes of the processes they do, which is imperative for boosting effectiveness. The rationale for the chosen hypothesis provides a perspective on how the independent variable, which is the pay-for-performance method, affects the dependent variable, which is represented by the changes in the performance of employees at organisations. The research questions are the following:

  1. Can performance-related pay motivate workers to improve their productivity in the workplace?
  2. How does the performance of employees change when organisations implement a model that aligns productivity with financial rewards?

Review and Critique of Research

The topic of performance-associated pay has been raised in scholarly literature as one of the innovations associated with implementing changes at organisations in terms of management and employee engagement. Although, findings on the issue have been varied. According to Park (2018, 22), who studied pay-for-performance (PFP) in modern practices of compensation, the framework of payment is greatly complex and requires employers to consider the characteristics of their environments in order to implement the method correctly. The pay-for-performance plan can have different variations depending on the size of rewards and the strength of relationships between the size of reward and performance. As found by Park (2018, 35), PFP increases the overall productivity of organisations by attracting and retaining workers and encouraging them to increase their efforts. Although, research measuring the effectiveness of the model remains separate from practice.

Depending on the way in which PFP schemes capture the work process, there may be differences in the impact of the framework for team-based and individual-based outcomes. In their study, Lucifora (2015) suggested that individual incentives that unite performance and pay demonstrate a more significant effect compared to team-based plans. This finding has been attributed to the combined effects of higher individual efforts as well as a more favourable composition of workers who exhibit productive outcomes for their organisations. For groups, PFP has been less effective, although favourable due to their lower power and the ‘free-riding’ of workers who get rewards at the expense of other employees (Lucifora, 2015). Nevertheless, the changes in work organisation practices and regimens will depend from one setting to another as there are differences of effects across different environments and firms. In addition, some managers fear to implement PFP because of the possibility of resistance exhibited by employees.

In terms of boosting the performance of future employees, pay-for-performance can be implemented as a measurement of potential success. According to Nyberg, Pieper and Trevor (2014), merit and bonus pay, as well as their multi-level trends, are positively correlated to future worker productivity. The scholars supported a contingency approach to performance-based payment models to impact future employee productivity as well as found that merit and bonus pay could become substitutes to each other and that the strength of pay-for-performance will depend on the job type and the time period over which it is being implemented. The variation in the measurability of workers’ productivity throughout different jobs will also impact the effectiveness of performance-associated pay.

Despite the previous findings, the study by Kato and Kodama (2015) found no significant productivity effect of performance-related pay in the context of Japanese companies. Although, the finding is relevant for firms that align with the lifetime employment practice, which rewards employees for long-term skill development and on-the-job training. Performance-related pay was found to have a positive impact on firms that do not subscribe to the lifetime employment practice and use the knowledge of workers to facilitate change and tap into innovative practices. These findings show that performance-related pay is a framework that may not work for companies that align with the traditional view of compensation practices.

Epistemological and Ontological Assumptions

When it comes to the ontological assumption of the proposed study, it should be noted that a significant gap in knowledge exists regarding the effectiveness of performance-related pay for boosting employee productivity. There is a difference in the impact of PFP frameworks depending on the setting and the characteristics of the workplace. Moreover, there is no ‘true’ or ‘false’ answer as to whether performance-related pay could boost the effectiveness of employees because evidence showed that the framework’s effects are based on the contexts in which it is being implemented. The epistemological perspective states that in order to determine the effects of the PFP framework, survey research is necessary to conduct. The survey will be based on the theory of rationalism, which regards reason as the main source and test of knowledge. With the help of the study, it is possible to develop knowledge that would point to the effectiveness of PFP for boosting the performance of employees.

Research Design

To determine whether performance-associated pay motivates employees to boost their performance, a quantitative research design was chosen. Quantitative research represents a systematic exploration of a phenomenon by collecting quantifiable data and performing mathematical, statistical and computational methods (Haq, 2015). In the current context, it was chosen to implement survey research, which is one of the key tools of quantitative methodologies. The survey will ask questions to a sample of respondents to understand what the target audience thinks about a given phenomenon and its impact on their work. The gathered data will be analysed to produce numerical results (Kabir, 2016). The rationale for choosing survey research is associated with the need to involve employees who work at organisations and experience the effects of performance-related pay directly. The range of effects provided by the framework will provide a perspective on the either positive or negative effect of performance-associated pay on the effectiveness of employees.

The advantages of the chosen design include the possibility of generalising findings in the case of a well-designed selection process, the ease of analysis, as well as the consistency of data (Garg, 2016). The limitations of the design include difficulties understanding the context of a phenomenon, the possibility of data not being robust enough to explain complex issues, as well as difficulties accessing available data. Given the advantages and disadvantages of the study, a quantitative study can be beneficial for answering the research questions by offering a framework for a future in-depth exploration of the issue. Therefore, after the quantitative research is implemented, there is a potential for a qualitative study that will broaden the current findings.

Sampling Strategy

The most likely sampling strategy that could be implemented in the study is convenience sampling. This method is linked to selecting participants on the basis of their availability and the willingness to become involved in the research on the topic at hand. Due to the need to select organisational contexts, convenience sampling will allow finding firms that will fit the purpose of the study as well as those that are willing to reveal their perspectives on the issue. The advantage of the selected sampling strategy pertains to the ability to obtain useful results associated with the implementation of pay-for-performance methods to boost productivity. The sampling strategy aims to find a target population of participants who will provide their unique perspectives on the implementation of performance-based pay to boost their performance. However, convenience sampling is a non-probability approach that can present significant bias (Jager, Putnick and Bornstein, 2017). Also, the sampling strategy may lead to a sample that is not representative of a population. Given the limitations of the chosen sampling approach, it is imperative to design a survey that would ask respondent specific questions that leave limited room for bias.

Research Methods

Survey research is a proposed research method intended to question participants on the effectiveness of performance-associated payment for encouraging the productivity of employees. Both managers and employees will participate in such a survey. To test the effectiveness of the strategy, it is possible to implement a short-term organisational change to embed a PFP model into the workplace setting. Pre- and post-experiment results will be gathered to compare the differences in perspectives on the productivity of employees as related to the integrated payment model (Gosnell, List and Metcalfe, 2018). The productivity of employees will be compared before the change and after the change to determine whether the PFP framework had any impact and whether the impact was either positive or negative.

Surveys can be conducted cheaper and faster compared to other primary data collection methods, such as experiments or observations. Since it is expected that a large sample will be involved, the survey will allow collecting significant volumes of data over a relatively short time period. The participants will have the ability to remain anonymous, which means that they will be more open and honest about their perspectives on the effectiveness of performance-associated payments for personnel.

Analytical Strategy

After the survey was created and conducted, the researcher will proceed to analysing the results. This step is highly important as it requires great attention to detail as well as the knowledge of statistics and relevant skills for using computer software packages (Kabir, 2016). The way in which the analysis of data will be conducted depends on the scope of research, the capabilities of the scholar, as well as the target audience to whom the study is being targeted. In particular, the research is highly relevant for organisational managers who are looking to boost the performance of their workers by implementing a new approach toward rewarding them.

The results of the survey will be assembled in a usable format to allow comparison within the survey groups and between the results gathered before and after the implementation of the PFP model. A T-test will be used to determine whether the scores of pre- and post-experiment groups differ on the variable of performance. It is expected to find a positive improvement in the performance of employees with the implementation of performance-related pay. A T-test is an inferential statistic method used for determining whether there is a significant difference between the means of two groups, which are related in specific features (Guetterman, 2019). To determine whether the performance of the same employees changed under different conditions, a matched T-test will be applied. This method of data analysis is used for testing whether it is a significant mean difference between the two sets of paired data (Fralick, Zheng, Wang, Tu and Feng, 2017). The key aim of data analysis is to determine whether there would be a change in employees’ performance for the better after the implementation of the performance-related payment model at a particular organisation.

Ethical Issues

The key ethical issue that may be raised in the study pertains to the anonymity and confidentiality of study participants. Both confidentiality and anonymity represent ethical practices intended to protect the privacy of human subjects when collecting, analysing and reporting relevant data (Allen, 2017). Researchers are expected to show respect for their participants and avoid naming individuals in a study if the latter has expressed the desire for their confidential information not being released. In particular, the issue is relevant in the context of the current study because the workers of firms will be involved as participants. In order to address the ethical issue, the researcher will collect informed consent from participants to ensure that they understand the purpose of the study and its methodology. The informed consent form would also include information on how the personal information of the participants will be used and protected.

Contribution of Research

The exploration of the available evidence on the topic of performance-related pay influencing the productivity and effectiveness of employees showed that there is a significant gap in research. For organisations that adhere to the traditional methods of compensating their workers, the approach has shown to bring limited improvement in performance due to the characteristics of the context. Variable pay for performance under significant constraints can have considerable limitations, ranging from incomplete contracts to irrationally-developed incentive systems. Thus, by revealing the effects of PFP models on the productivity of employees in the modern organisational context, it is possible to bridge the gap in available research.

Another significant contribution of the study is the intention to deal with participants who operate in organisational contexts every day and can provide data on how their performance would change. The majority of studies explore the topic from the standpoint of systematic reviews on the implementation of performance-related compensation of employees. By involving both employees and managers of organisations, it is possible to reveal valuable insight into the ways in which the productivity and effectiveness of workers will change if they are motivated through financial incentives. The study will also provide a perspective for organisations to make changes in the ways in which they approach payment frameworks and study the influence on their performance and productivity. There are numerous avenues for further research on the topic of performance-related pay, and the current study will offer a basis for organisations to implement the model and measure its impact on productivity. For instance, it is possible to study the topic from the qualitative perspective by exploring the attitudes of workers toward performance-based pay.

Reference List

Allen, M. (2017) Confidentiality and anonymity of participants. Web.

Fralick, D., Zheng, J., Wang, B., Tu, X. and Feng, C. (2017) ‘The differences and similarities between two-sample t-test and paired t-test’, Shanghai Archives of Psychiatry, 29(3), pp. 184-188.

Garg R. (2016) ‘Methodology for research’, Indian Journal of Anaesthesia, 60(9), pp. 640-645.

Gosnell, G., List, J. and Metcalfe, R. (2018) ‘The impact of management practices on employee productivity: a field experiment with airline captains’, Economics Stanford. Web.

Guetterman, T. (2019) ‘Basics of statistics for primary care research’, Family Medicine and Community Health, 7(2), pp. e000067.

Haq, M. (2015) ‘A comparative analysis of qualitative and quantitative research methods and a justification for use of mixed methods in social research’, Annual PhD Conference, University of Bradford School of management. Web.

Jager, J., Putnick, D. L. and Bornstein, M. H. (2017) ‘More than just convenient: the scientific merits of homogeneous convenience samples’, Monographs of the Society for Research in Child Development, 82(2), pp. 13-30.

Kabir, S. (2016) Basic guidelines for research: an introductory approach for all disciplines. Chittagong: Book Zone Publication.

Kato, T. and Kodama, N. (2015) ‘Performance-related pay and productivity: evidence from Japan’, RIETI Discussion Paper Series, 15-E-088, pp. 1-27.

Lucifora, C. (2015) ‘Performance-related pay and labour productivity’, IZA World of Labour, vol. 152, pp. 1-10.

Nyberg, A., Pieper, J. and Trevor, C. (2016) ‘Pay-for-performance ’s effect on future employee performance: integrating psychological and economic principles toward a contingency perspective’, Management Department Faculty Publications, 111, pp. 1-31.

Park, S. (2018) ‘Pay for performance in modern compensation practices’, Compensation & Benefits Review, 50(1), pp. 21-35.

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