The Salary Systems: Pay For Performance

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Introduction

Pay for performance is a payment scheme that is designed to tie the payments of employees to their job performance. The advocates of this plan hold the notion that it can attract and retain better and competent workers offering certain incentives for enhanced performance. Pay for performance can also be defined as a salary system of agreeing to a lower base pay returns for bonuses predicated upon realizing required production or meeting other goals and objectives of an organization.

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Pay for performance is used mostly by human resources departments of corporate organizations. In order for the employees to get increased pay, they must reach or surpass certain set targets either at the individual level, team or organizational level. Pay for performance is a way of ensuring that employees work with lots of efficiencies and also add value to what they do for their organizations and/or companies. In most cases, where pay for performance is used with employees, there is a part of the salaries that is fixed and another that is based on performance. This implies that an employee’s salary is partly fixed and partly varies.

The variance is pegged on the capacity of the employee to add more value and efficiency to his or her services to either the company or the organization. As much as the pay for performance scheme is meant to motivate the employees, it also serves as a tool to measure and analyze job thereby offering both the employers and employees the understanding of what is to be expected at the job and also knowledge on whether the performance of the employee is being effective with regards to the organizational goals (Murray et al 84-90).

Relevance of Pay-For-Performance to Firms

It has been argued that the scheme of pay for performance has been used to positively influence the performance of employees and also to have an impact on attraction and employee retention. Firms have many reasons that motivate them to use the scheme of pay for performance. Amongst the many reasons is due to limited funds and other resources that are demanded to meet the many expenses that come in their daily operations.

Firms that are strapped for cash and therefore cannot afford to raise salaries of their employees make use of the pay for performance scheme to distinguish their most important employees so that they are able to be recognized can be motivated, rewarded and retained. By using the pay for performance scheme, the firms are able to avoid raising salaries of employees whose contributions are wanting. This scheme prevents the employees from having negative attitudes with regards to salary increases; instead, it gives them the opportunity to partly determine the level of their salaries.

A few of the established firms sight the uniform salary plans for workers as being unproductive in the process of attracting satisfactory numbers of employees who are effectual; they further believe that the uniform salary system as being out of touch with the compensation practices found in other industries that actually peg employees’ payment to performance (Bogardus 276-301).

In fact, by allowing the employees to determine the increase in their salaries through motivated performance, they are able to put in extra efforts so that they can earn as much as possible. The effect of this is an increase in the whole firm’s output. The scheme increases the commitment of the employees. It has been argued that the payment plan gives the employees a clear idea of what the firm expects of them, the benefits they are likely to gain from delivering required results, the timeline for finishing the task and the workload that is necessarily required to complete the task successfully within the required time.

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Pay for a performance motivates the workers to perform their tasks with more creativity, smartness and also join their efforts as a team in order to achieve more goals of the firms. The nature of this payment scheme is such that when the employees achieve their set targets they are definitely able to get more increment on their salaries; however, their failure to achieve the target will mean their salaries reduced. The result that this scenario has on the firms is that the ratio between the total costs to labor cost relatively remains the same. Several firms have escaped or come out of possible bankruptcy due to the use of pay for performance.

Employees of such firms have been reported to increase their efforts and improve time management in doing their activities the firms. The increased output of the firms has contributed to their improved liquidity (Bogardus 400-405).

The proponents of variable payments or pay for performance have argued that, when implemented, such a salary plan can assist in rejuvenating firms and other corporate organizations and also reduce the cost of labor. The payment scheme generally is used by some firms to reduce the general costs of business operations. Through pay for performance, the firms are able to enhance their corporate performance within a competitive environment.

The benefit of pay for performance is also realized in cases where firms or companies may decide to form mergers or where a larger company acquires a smaller one. By offering withholding bonuses the workers of an obtained company preserve and then within the internal structure of the company circulate the knowledge that made the larger company be drawn by the smaller one. This enables the acquiring company to retain the employees of the acquired company instead of spending money to get and train new staff members. This will also ensure the acquiring company retains employees who are competent and experienced with the operations of the acquired company.

Pay for performance may also reduce the amount of time a supervising manager may dedicate to the monitoring of employees. The desire to make more money is a motivational factor that will definitely make hardworking and competent employees work either with very minimal or totally without supervision (Berger and Berger 545).

Financial Incentives That Can Be Offered To Workers

It is important to note that no one goes to work and never expects financial rewards. This type of incentive is given by employers indirectly or directly. Individuals at the workplace are actually in pursuit of money to provide for their security and comfort and they also do the same for their families and their significant others. Employees are always motivated to give high performance at their workplaces when they are sure that in return they will get returns of good salaries and wages. It is therefore important to note that both the employees and the employers realize that money is a fundamental motivation for performing satisfactorily at the job place.

The use of money as an incentive to enhanced job performance is premised on the theory of reinforcement. The theory of reinforcement is focused on the link between target conduct, like in performance at work, and the consequences that arise from such conduct. This is anchored on the techniques and the principles that are to modify the organizational behavior. The financial incentives that can be offered to employees are numerous. First, the company or firm can offer subsidized food or just offer free food. This strategy can work especially with large corporate organizations. It is crucial to note that food is an important part of employee motivation since they need the energy to perform.

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The second strategy is to provide onsite daycares for children and or the aging parents on behalf of the employees who already have family obligations. The firms can also have a policy of helping employees who wish to adopt children pay for legal fees. Third, the companies and firms use corporate discounts. This means that the employees should get discounts on all or some of the company products. The third financial incentives that can be offered to employees include retirement pensions and savings plans, low interest on loans taken by employees to purchase homes or any other durable assets. Fourth, the firms can come up with a plan where the employees are allowed to purchase a certain amount of the firm’s or company’s shares.

Firms that have this allowance have in many cases let employees purchase shares equivalent to a certain percentage of their monthly salaries. Lastly, the firms can also offer paid leave for hardworking employees. Such employees who may need paid leave are expectant workers, employees who get injured and ill on the lines of duty and those who have gone for the furtherance of career related to the firm’s tasks (Berger and Berger 545).

Non-Financial Incentives

Non-financial incentives are ways of motivations that do not involve the use of money to recognize the hard work of employees. Sometimes employees are not only motivated by money alone. In fact, there are cases where employees prefer non-financial rewards to financial ones. There are many non-financial rewards that employers can use as incentives to motivate their employees to work even harder. First, the firms can offer job security. The employees are always concerned with the security and sustainability of their job. When employees are assured of job security they will be grateful to the management by giving their best at the job.

Second, the employees can offer the workers challenging work. It is good to point out that in many instances; workers who are naturally dynamic are not always pleased with the routine job. Such employees are motivated when presented with challenging tasks. This requires that the management should understand each and every employee well according to his or her capability. Conversely, conservative individuals are never motivated when given challenging tasks. By understanding the two types of employees the employer is able to assign tasks depending on what type of tasks motivate a certain employee.

Third, recognition can be used to motivate employees. Workers always feel motivated when their good and hard work is recognized. Such appreciation actually needs not to be in the form of a material reward. Recognition of employees may include a word of appreciation; or just a gesture in any form made at the right time. The fourth one is a better designation. Employers should recognize that employees show some preference for a certain form of designation.

For instance, a salesperson may want to be designated as a sales executive. Opportunity for advancement is the fifth-way non-financial incentive that employers can use in motivating his or her workers. In this case, the employee should be provided with opportunities to grow and advance their careers and also move up in the career hierarchy. Sixth, the employees will feel motivated if they are involved in certain important decision-making in the firm or company.

This is especially important when the decisions to be arrived at directly affect the employees. Finally, the companies and firms can encourage some level of healthy competition amongst the workers and also motivate them through job rotation. In doing job rotation, the workers will be subjected to the experience of doing different jobs (Berger and Berger 545-548).

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How Firms Can Sculpt Their Pay for Performance Program

In implementing the pay for performance scheme, firms need to realize that this cannot work successfully with all the employees. It is important for the management of any firm to recognize the diversity of individuals in terms of performance. Different employees need different forms of motivation. Therefore, there is a need for employers to use a certain motivation mix, especially when planning for pay for performance scheme, which will motivate all the employees. Before designing and implementing pay for performance scheme, it is important for the employers to ensure that the employees to be subjected to the scheme have the right knowledge and skills to work at certain relevant levels.

Pay for performance should be implemented at different levels. These levels may include individual, group or organizational levels. The level at which pay for performance is implemented is one of the determinants of its attraction to employees or potential employees. There are employees who will be attracted to a company that implements pay for performance scheme at the individual level. This has the advantage that hardworking employees get paid an individual for the work they have done as opposed to rewarding the whole team due to the effort made by either one or just a few individuals while some are likely to be attracted to firms that base their pay increment on job outcome and not skills acquired.

Employers should ensure that pay for performance schemes are commensurate with the values that the employees have. In this case, it is important for the worker’s additional input to be gauged and paid an increment that the worker will accept as commensurate with his or her marginal output. The payment scheme may be supported by the workers; however, it can only work when the management of a firm comes up with proper, efficient and accurate mechanisms of measuring work performance.

Rewarding employees and at the same time hoping that they will not stop performing other duties is also a concern in the process of formulating pay for performance scheme. It is crucial to note that individuals whether at the workplace or not, are always seeking to perform tasks that are rewarded. Moreover, they will seek to undertake tasks that are most rewarded and neglect those that are neither rewarded nor less rewarded. But there are cases where the employers may seek to reward behaviors or actions that they actually discourage the workers from doing (Egenhofer and Fujiwara 4-20).

Cases Where Pay for Performance has been Implemented

The results of pay for performance may have been evaluated on both positive and negative sides. There are instances where the payment scheme has succeeded in increasing the performance of the firms and many other corporate organizations. In the health sector, pay for performance has prominently emerged and the healthcare providers are rewarded according to the quality of healthcare services they provide to patients. In this case pay for performance, rewards are given to employees who always succeed in meeting the set target performance. For instance, the Asian Call Centers have succeeded to increase their performance through the scheme of pay for performance.

There are also other small and large companies that have managed to improve their output and profitability through implementing the scheme of pay for performance. In the United Kingdom, the new-fangled pact meant for broad health practitioners is said to be representative of one of the most fundamental shifts in the direction of pay based on performance. It was mainly meant to address the disparities in the management of chronic diseases; the management was to be between the ethnic and socioeconomic groups. However, the pay for performance never worked for the intended purpose. Pay for performance incentives given to the general practitioners never addressed the targeted disparities that exist in the management and containment of diabetes between the ethnic groups (Barker 165).

As much as pay for performance has been praised by many corporate organizations as a way of improving employee performance and hence the efficiency of production, there are a number of failures that have been associated with it. Generally, the use of this payment scheme has provided managers with excuses to neglect their managerial duties arguing that failure for the employees to improve on their work results in a reduction in their pay.

This can only serve to the company performance to be static since some employees may just feel alright with what they get. There are many local and international firms that have been known to implement pay-for-performance schemes and later dropped them due to their inefficiencies. At Hewlett-Packard, the program was discontinued. The HP company had launched pay for performance plan in all its thirteen branches in 1990, however, three years down the line the program could not work properly. Due to this, all the thirteen branches closed the pay for performance schemes.

Conclusion

Pay for performance has been used to reward employees whose work is commendable. It is a payment scheme in which a part of an employee’s salary is fixed and secured and the other is left at the risk of the employee’s performance. The advocates of this plan hold the notion that it can attract and retain better and competent workers offering certain incentives for enhanced performance.

Pay for performance can also be defined as a salary system of agreeing to a lower base pay returns for bonuses predicated upon realizing required production or meeting other goals and objectives of an organization. Pay for performance has been used to positively influence the performance of employees and also to have an impact on attraction and employee retention. Firms have many reasons that motivate them to use the scheme of pay for performance. Some of these reasons include reducing expenditure on labor and increasing employees’ efficiency at work.

The proponents of variable payments or pay for performance have argued that, when implemented, such a salary plan can assist in rejuvenating firms and other corporate organizations and also reduce the cost of labor. The payment scheme generally is used by some firms to reduce the general costs of business operations.

Through pay for performance, the firms are able to enhance their corporate performance within a competitive environment. The pay for performance scheme increases the commitment of the employees. It has been argued that the payment plan gives the employees a clear idea of what the firm expects of them, the benefits they are likely to gain from delivering required results, the timeline for finishing the task and the workload that is necessarily required to complete the task successfully within the required time.

There are a number of both financial and non-financial incentives that employers can use in motivating their employees. Financial incentives may include but are not limited to the firms offering job security to their hard-working employees. The employees are always concerned with the security and sustainability of their job. When employees are assured of job security they will be grateful to the management by giving their best at the job, recognition can be used to motivate employees.

Workers always feel motivated when their good and hard work is recognized. Such appreciation actually needs not to be in the form of a material reward. Recognition of employees may include a word of appreciation; or just a gesture in any form made at the right time, the employees can offer the workers challenging work. It is good to point out that in many instances; workers who are naturally dynamic are not always pleased with the routine job. Such employees are motivated when presented with challenging tasks. This requires that the management should understand each and every employee well according to his or her capability.

Conversely, conservative individuals are never motivated when given challenging tasks. By understanding the two types of employees the employer is able to assign tasks depending on what type of tasks motivate a certain employee and also the employers should recognize that employees show some preference to a certain form of designation. For instance, a salesperson may want to be designated as a sales executive. Opportunity for advancement is the fifth-way non-financial incentive that employers can use in motivating his or her workers. In this case, the employee should be provided with opportunities to grow and advance their careers and also move up in the career hierarchy (Berger and Berger 545-548).

It is important for the management of any firm to recognize the diversity of individuals in terms of performance. Different employees need different forms of motivation. Therefore, there is a need for employers to use a certain motivation mix, especially when planning for pay for performance scheme, which will motivate all the employees. Before designing and implementing pay for performance scheme, it is important for the employers to ensure that the employees to be subjected to the scheme have the right knowledge and skills to work at certain relevant levels.

The failure of the pay-for-performance scheme has been witnessed in several corporate organizations. For instance, the pay for performance scheme that was implemented in the United Kingdom’s health sector was meant to address the disparities in the management of chronic diseases; the management was to be between the ethnic and socioeconomic groups. However, the pay for performance never worked for the intended purpose. Pay for performance incentives given to the general practitioners never addressed the targeted disparities that exist in the management and containment of diabetes between the ethnic groups. This is also the case with many public and private firms all over the world (Barker 165).

Works Cited

Barker, Carol. The Health Care Policy Process. London: SAGE, 1996.

Berger, Lance and Berger, Dorothy. The Compensation Handbook. New York: McGraw Hill Professional. 2008.

Bogardus, Anne. PHR / SPHR Professional in Human Resources Certification Study Guide. New York: John Wiley and Sons, 2009.

Egenhofer, Christian and Fujiwara, Noriko. Shaping the Global Arena: Preparing the EU Emissions Trading Scheme for the post-2012 period. European Republic: CEPS, 2007.

Murray, Peter. et al. Contemporary issues in management and organizational behavior. Toronto: Thomson Learning Nelson, 2005.

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