Abstract
Employee’s pay is often connected to their performance in most companies. The name given to such compensation is pay-for-performance. Employers and employees enjoy the benefits of pay-for-performance; however, they both suffer some drawbacks. Improvement of poor performance history and maintaining excellent performance are the primary goals for the application of pay-for-performance programs. Specific guidelines should be followed for successful results of pay-for-performance programs. This research paper will discuss and analyze the various ways of determining the success of the program and the shortcomings of both the managers’ and workers’ perspectives.
Key words: Pay-for-performance, employers, rewards, shortcomings and employees,
Introduction
Pay for performance is becoming more and more popular in organizations whose main aim is to achieve great success. Pay for performance is a payment system where employees receive their wages and salaries based on their performance. Employees who work in organizations that have implemented this kind of payment system are given compensation based on the measures of work quality they deliver. The main idea of using pay for performance is to reduce bottom-line costs while increasing productivity and engaging employees. However, the results of the pay-for-performance system are sometimes not welcoming in some firms, as this is a controversial issue. The outcomes of pay for performance for organizations highly depends on attitudes, views, and perspectives of both employees and employers.
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Nonetheless, in most cases, good results come out after implementing such a payment plan in organizations. Measuring the effectiveness in organizations is essential to determine if the payment plan works best for the company or not. In this case, there are various ways to assess the usefulness of pay for performance plans. Not all pay-for-performance strategies are effective due to the differing perspectives of employees and employers on the same. Even with the gains of pay-for-performance programs, there are several limitations that both the employers and employees will suffer.
How to Determine the Effectiveness of Pay for Performance Plans
Adopting strategies to assess the usefulness of pay for performance plans implemented in a firm essential. The progress of the pay-for-performance programs needs to be measured and monitored by managers or, in most cases, by the Human Resource Department (Ismail, Anuar, & Zaid, 2015). Evaluation of the effectiveness of these payment plans implemented in a company can be done by merely assessing the impact of the program ( Anuar, Ismail, and Abdin, 2014). One way to determine the efficiency of the strategy is by evaluating the production levels of an organization. The productivity of a company often increases with the adoption of pay for performance plans. Most organizations that have adopted the performance-related pay programs show enhanced proficiency in the tasks they do. The main contributors to increased efficiency and productivity in a company are often employees. Therefore through the richness of employees in the firm, the management can see the ability of the payment plan (Lucifora & Origo, 2015). The measurement for improved performance is shown by the improvement of work quality with a reduction in errors leading to high efficiency.
Pay for performance plans will result in higher productivity, which leads to maximum profits in a firm. High cases of innovations and creativity can indicate better productivity by employees in a firm. Employees at various workplaces work hard to improve their performance in areas of change (Lucifora & Origo, 2015). The effort input by employees is because they are aware that numerous appreciation techniques. For instance, pay for performance plans are used to appreciate their efforts. With this payment plan put in place, employees are given the motivation to think of original concepts such as inventions (Idowu, 2017). Thus, increases, innovative employees illustrates the value of the pay for performance plan
Employees with enhanced performance in an organization show timelessness in delivering tasks (Anuar et al., 2014). If a company’s administration does not appreciate employees’ hard work, it may give rise to inefficiencies in their jobs. Pay for effective performance strategies can be evaluated by issues such as inefficiencies of employees’ tasks (Veschoor, 2015). Therefore, the effectiveness of the pay for performance plan can be measured by the efforts of a firm to implement strategies that help employees advance on the delivery of errands on time
The compensation for performance plans’ efficiency can also be measured by the degree of attraction and maintenance of staff. Employees’ fulfillment with the operations of the organization can be shown by the high standards of their recruitment and retention of competent. The opinion of employees plus their approach to the business’s administration is influenced by pay for performance. Organizations that implement performance-related pay plans record high low rates of turnover (Ismail, Anuar, & Zaid, 2015). Thus, they highly attract and retain competent employees compared to those who don’t adopt the program.
The success of a company is significantly displayed through the positive results of the performance-related pay. Employees expect the firm to safeguard their interests so that they can feel a sense of belong to the organization through the employment of a pay-for-performance strategy. The protection of the benefits of employees causes them to remain in the company for their development as well as that of the company. The great attraction of employees is an indication that the employees of the firm that adopt the plan are highly envied by other experienced personnel from other corporations. Therefore, the above aspects indicate pay-for-performance strategy is operational. However, the ineffectiveness of the program can be shown by the reduced retention rates of employees in a company, which signifies dissatisfaction with the pay for performance plan (Lucifora & Origo, 2015). Highly rated employees then resign from the corporation to look for better workplaces where there is high motivation. High turnover rates result from not involving staff in the designing of the payment strategy. Therefore employees regard the program as a disadvantage.
Another strategy to use in the determination of the performance-related plans’ value is the motivation rate of employees. The motivation of employees to perform their tasks is one primary goal for implementing the plan. Efforts carried out to guarantee the corporation’s objectives are accomplished used to measure the motivation of the employees. Highly motivated personnel are often dedicated to their jobs (Idowu, 2017). Efforts of the company to recognize and reward the work of the employees motivate them to improve their performance. The value of the tactics used to show the increased motivation measures achievement in the plans.
Furthermore, the usefulness of the pay for performance plan is also determined by the changes in the company’s culture. The pay-for-performance program can be identified as a failure or success by the enhancement or weakening of the company’s culture. Improved culture can be characterized by better teamwork among staff to join hands in performing tasks. An example of this cooperation is when employees come together to find solutions to a problem. Through this, the improved culture can be seen in the professionalism displayed by the employees at their workplaces. Management of the firm will implement the performance-related plan to ensure that the culture grows continuously. Often, organizations love to have a stable culture; therefore, they will put more effort into adopting the strategy (Veschoor, 2015). For that reason, discontent and inadequate application of the pay for performance plans are shown by the lousy employment relationship and reduced collaboration between employees. Desired results of the pay-for-performance are not achieved when there is a poor culture with divided employees who display low professionalism.
Weaknesses of Pay for Performance in the Employees’ perspective
The main goal for the execution of the pay for performance tactics by companies is to motivate and give prizes to workers for their excellent job done. The adoption of these plans makes employees happy and appreciates the acknowledgment efforts made by their bosses. Even so, some employees are delighted by the performance-related pay, as some find limitations in them (Lucifora & Origo, 2015). For instance, some employees may not be happy with the application of a pay-for-performance plan since their employers do not engage them in the development of the motivation method.
Perspectives by the staff of the payment strategy having its disadvantages are brought about by some complications that arise during the adoption of the approach. According to workers, a lack of sufficient motivation for the program is a disadvantage. Some pay for performance plans is too low to impact the personnel. Little incentives given by some employers do not provide the required motivation to increase productivity (Anuar et al., 2014). In some cases, the incentives offered to employees are meager to the extent that they demand programs that could help them increase their standard of living. With low pay for performance plans, workers see that it’s a waste of time and energy putting extra effort since just a little effort is enough to retain and maintain their employment. For that reason, workers view the application of performance-related pay plans as a disadvantage. With this perspective of incentives as a disadvantage, matters such as reduced teamwork among workforces arise in firms.
With incentive plans put in place, the personnel’s focus is on their objectives; thus, teamwork in companies reduces. Workers who need assistance with their tasks suffer from selfishness by others. Workers see collaboration is a waste of time as they could use that moment for personal development to increase personal productivity. Lack of cooperation among employees may lead to conflict among them. Conflicts arise in companies since some of them see their colleagues as barriers in attaining their objectives. Therefore, the pay for performance is viewed as having disadvantageous by employees due to the above occurrences. During the assessment of the workers’ performance, the management can be biased since employers may not be fair-minded in gauging those that are worthy of performance-related pay (Ismail, Anuar, & Zaid, 2015). Employees less appreciate the application of the pay for performance policies if they are given to the workers who are not worthy, disregarding the strategies as useless to them. In other words, according to the employee’s perspective, it is a disadvantage to have the incentive plans.
Making sure that there are sufficient resources to reward the hard workers may result in the compression of salaries. Staffs who get the impression that their welfares are not protected by their managers view the pay for performance as inconvenient to them. Payment inconveniences are due to the reduction of their payment given to them. For this reason, employees see pay-for-performance as a massive disadvantage. To ensure that employees are satisfied with the management of the organization, employers need to involve them in the planning of the performance-related pay (Ismail, Anuar, & Zaid, 2015). Employees, therefore, see performance-related programs as a disadvantage.
Weaknesses of the Pay for Performance Plans in the Managers’ perspective
Several disadvantages of the pay for performance are displayed despite their benefits to the employees and the employer. A bad, organized strategy that is unproductive mainly causes firms to suffer the problems that are associated with the program. The employer mostly felts the pain of these limitations that occur in the organization. Thus, the employer will view the usage of incentives as a hindrance. One of the problems of pay for performance following the bosses’ view is an imbalance.
Organizations may lack other forms of motivation due to their emphasis on the usage of pay for performance to compete with other firms. Different inspiration approaches, for example, training and development, will be required with time to enhance the pay-for-performance plan. Still, this does not apply to companies that lack these methods. Within some years of inadequate performance compensation with no supplementary strategies, competent employees then resign from the company to look for greener pastures. With such cases, performance-related payment is viewed as a shortcoming by the manager.
Pay-for-performance is viewed as a disadvantage by employees because of the period used in designing the performance-related pay plans and the required stability. Re-structuring of the pay system in companies takes too much time. Furthermore, most systems may end up being ineffective when employees are not successfully motivated (Idowu, 2017). Employers also find it challenging to maintain the payment system consistently, and this may lead to the frustration of employees when they fail to receive consistent payments. The disappointment of employees may negatively affect productivity, thus reducing their performance. Low productivity by the employees is directly proportional to the performance of the organization (Lalloué et al., 2017). The issue of consistent payment becomes a cumbersome issue for the employer to handle. Therefore, pay for performance is considered a shortcoming from the manager’s viewpoint.
Another problem that comes with the pay for a performance payment system is the difficulties in fairly determining the hard work of staff. Ensuring the standard of production by employees is entirely objective is a difficult task for the employer. Inaccurate and inefficient evaluation of performance appraisal leads to high pressure on the employer. When the wrong performance assessment is done, conflicts and resentments arise between companies and their workers’ who feel they are not treated equally. Grudges in the company make the management of the operations hard without the support of the employees. Such reasons may affect the productivity and growth of the organizations, making it disadvantageous to the employer.
From a manager’s view, the plan is a disadvantage due to the complicated implementation process. The execution process involves designing, conception, and implementation, which can be a hard task for the employer. At the end of it all, it may fail to be effective. Setting up objectives related to the payment system may also be a problem for the employer. Even after the implementation of the payment system, the employer’s goals may not be in line with the expectations of the employees, and this may bring about disagreements in the company. Thus, the employer may consider the strategy as a hindrance to the company.
Conclusion
The main aims of pay for performance plans are to inspire, improve, and enhancing the work output of personnel to increase the efficiency of the organization. For the program to be successful and produce desired results, workers must be engaged in the designing and planning of the payment systems. Failure to participate in the planning results in the undesired effects produced by the plan. Effectively addressing the limitations that come along with the implementation of the program ensures that the program provides desired results and benefits both the employee and the employer.
References
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Ismail, A., Anuar, A. & Zaid, M. F. (2015). Administrator’s role in performance based reward as a determinant of employee outcomes. Management and Marketing Journal, 0 (1), 92-110
Lalloué, B., Jiang, S., Girault, A., Ferrua, M., Loirat, P. & Minvielle E. (2017). Evaluation of the effects of the French pay‐for‐performance program‐IFAQ pilot study. International Journal for Quality in Health Care, 29 (6), 833‐7.
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