Pay for Performance: Get Rewarded for Exceeding Expectations - Essay Sample

Introduction

Pay for performance plan offers financial benefits to employees who meet and also exceed the performance standards and requirements of their employers. An employee can, therefore, only expect an increase if their performance meets the expectations of the employer. Pay-for-performance plans are different depending on the employer's guidelines as to what employees can expect to get as an increase based on the level of performance. An employer can decide to offer no pay rise for employers with below average performance. On the other hand, those who portray above-average performance can receive an increase in their wages while those that have excellent performance reviews can be given the uppermost pay raises.

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How could an organization measure the effectiveness of their pay-for-performance plans?

Evaluating the effectiveness of a reward program requires the use of various methods which are rigorous and consistent. An organization can use employee opinion surveys or focus groups on comprehending how workers, as well as managers, think about its fairness. A company can also monitor the influence of equality and impartiality on worker conduct. A company can also assess the operational outcomes that the pay for performance plan is anticipated to impact, for instance, turnover as well as engagement. A company can also calculate the ROI. The cost of the plan and the value added by employee reward programs can also be used in ascertaining the effectiveness of the reward program (Mishra, McConaugh & Gobeli, 2000).

A company can also calculate the attrition rates, length of service data, as well as the level of employee satisfaction. Employees can show what they have received in the form of rewards, and this can be used in assessing if the company has benefited. Companies also have to use business data in performing their evaluation to carry out a financial cost-benefit analysis of the rewards offered.

The effectiveness of the program can also be asses using pay satisfaction, turnover intention, and commitment. Pay satisfaction determines when their employees prefer the pay for performance system compared to a fixed salary or other traditional methods. Commitment measures the level of devotion an employee gains after the implementation of the reward program. Turnover intention measure if employees prefer to leave a company or stay due to the pay for performance plan implementation. A study that was done to measure the effectiveness of PFP using these variables indicated that there was no notable variation between employees' perception between the traditional and PFP systems. It is therefore vital for a company to select the method that is suitable to them (Kuvaas, 2006).

From an employee's perspective, what are the disadvantages of using a pay-for-performance plan?

Pay for performance is subjective in that some works can be easily be quantified and measured while others cannot. For example, the works of a salesperson are easy to measure and quantify; however, the work of administration is difficult to measure and quantify because since their work is not defined by specific goals. In this case, pay for performance can be frustrating to these employees since their evaluations are subjective. A disagreement with a supervisor could, at times result in low compensation (Mishra, McConaughy, & Gobeli, 2000).

Employees can be stressed due to job performance requirements, which can increase their job dissatisfaction. Stress about a job can make employees look for work elsewhere, which is not good for the employee and the company.

Employees can also content each other due to pay for performance plans where they can feel that their employees favor certain employees by giving them high bonuses and salaries. It can also create jealousy, thereby creating a hostile work environment, thereby affecting productivity.

From an employer's perspective, what are the disadvantages of using a pay-for-performance plan?

Employers sometimes use the pay for performance plan to motivate employees so that they can perform better by increasing their productivity. Pay for performance can take many forms such as cash bonuses, profit sharing, and even company stock. Even though pay for performance is effective for motivating employees who are motivated by money, its disadvantages have to be considered before it is implemented.

Pay for performance can result in a poor quality of goods and services delivered. Employees can concentrate on quantity rather than quality so that they can impress their employers. This situation can result in poor quality, which can disappoint customers and result in low sales and profits. For instance, a sales representative who is so concerned about, making sales can overlook the importance of performing the paperwork effectively or making sure that the product is in stock. The repercussions of this situation can be devastating to customers since some may receive the wrong items or have to wait for a long time before being delivered to them (Brown & Reilly, 2009).

Pay for performance also has the disadvantage of discouraging teamwork. Employees are motivated to achieve their individual goals to be rewarded and therefore, can choose to work alone to ensure that they reach their goals. Such employees are reluctant to help struggling workers since they can consider it wastage of time that they would use in boosting their productivity. The conflict between employees and employers emanates from a lack of cooperation or an employee having a negative perception.

It is difficult for employers to determine ways of measuring performance, which is an initiative that is subjective, resulting in the skewed appreciation of employees. Supervisors are, therefore, every powerful during performance appraisal since they are the ones responsible for the company. Supervisors tend to offer unfair appraisal to employees to achieve their objectives (Kuvaas, 2006).

Pay for performance provides inadequate motivation when the incentive is low. It, therefore, does not result in high productivity levels in some instances. Employees can also resent the employer for not providing a reasonable program that meets the standard of living. Employees could, therefore, be motivated to maintain their jobs while failing to put the additional effort due to the thinking that it is a waste of their time.

Pay for performance has the disadvantage of reducing pay equity and can make a company liable to costly equal pay challenges if it is not operated fairly. Pay for performance can also affect a company's finances negatively, especially when there is negative growth. Employees can find it hard to get their rewards, which can be devastating to them (Brown & Reilly, 2009).

Further employees can refrain from giving their inputs to the company due to the fear of facing a reduction in their wages. This is dangerous to organizations since they depend on the ideas of companies to make decisions.

Conclusion

Pay for performance plans are essential as they are used by companies to increase employee motivation. However, there are various disadvantages to an employee, such as the lack of fairness and increased stress levels. Further, it has various limitations to employers since it can affect the finances, productivity, motivation, and others which can be detrimental to an organization. A company can measure the effectiveness of its pay for performance plan using different methods such as ROI, cost-benefit analysis, turnover intention, and others.

References

Brown, D., & Reilly, P. (2009). Measuring the effectiveness of pay and reward practices.

Kuvaas, B. (2006). Work performance, affective commitment, and work motivation: The roles of pay administration and pay level. Journal of Organizational Behavior: The International Journal of Industrial, Occupational and Organizational Psychology and Behavior, 27(3), 365-385.

Mishra, C. S., McConaughy, D. L., & Gobeli, D. H. (2000). Effectiveness of CEO pay-for-performance. Review of Financial Economics, 9(1), 1-13.