Question #1
Effective implementation of pay for performance is quite challenging, and it requires full commitment from human resource and the top management. Strict rules have to be followed to ensure the pay for performance concept spreads through the organization well to achieve the benefits of the pay-for-performance (PFP) plan.
According to Sumod (2012) PFP plan applies when employees exceed a predetermined level of performance and achieve the desired results. PFP plan entails both cash and non-cash options, such as stock options, eligibility for training programs, trophies among other forms of recognitions. PFP can be used at an individual, team or business level. The common measures of performance used in PFP plans include fiscal targets like sales, production output, productivity gains and cost reduction. Other customer-oriented measures such as customer satisfaction can also be used.
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Miller (2010) states that an effective PFP plan only rewards top performing employees, and penalizes poor performers. An effective plan is not based on manipulating the system, such that managers can use flawed ratings and compensation data to reward poor performers. An effective PFP plan is based on best-results programs, which used effective calibration techniques and multiple metrics to ensure that high performance is measured effectively.
Miller (2010) also notes that culture plays an important role in ensuring an effective PFP plan. Organizations do not just use effective calibration and various performance metrics, rather they design good organizational cultures. Organizations with an effective PFP plan have leadership support and a conducive environment to improve performance, while organizations with ineffective PFP plans tend to blame limited compensation budget for poor performance instead of confronting poor performers (Miller, 2010).
Question #2
A PFP plan means differentiated pay for employees, and it is controversial on its own (Solmon & Podgursky, 2001). For instance, in the education sector, a teacher may receive a higher pay for performing additional functions such as mentoring students or other teachers, and these are roles which do not fall within their job responsibilities. When teachers are asked to do more than others and compensated for it, the system will be unfair to other teachers.
According to a study done by springer et al. (2010), the PFP program in public schools has a high attrition rate. Many teachers in the study left the program after one or two years because they could not handle the pressure. Teachers were frustrated by factors outside their control that affect performance, and they were tired of the new lifestyle which revolved around pay only. Factors out of teachers’ control such as family background, enrollment of new students in the middle of the academic year or the students moving to another grade (Springer et al., 2010).
PFP plan in the public school will reduce collaboration among teachers/ employees. It will pit employees against each other, minimizing teamwork as each individual will be working towards a lucrative paycheck. Employees will resent high performing employees, eventually leading to conflict in the workplace. According to Springer et al. (2010), in the Teacher Advancement Program (TAP) created by the milken Family Foundation, collaboration is crucial for the success of the PFP plan. Teachers must be willing to work together and mentor each other, but, it is impossible since they are all competing for increased pay.
Lastly, the metrics for measuring good performance among employees are still controversial. For instance, in public school, one wonders whether a good teacher is the one who follows the rules to the letter or the one who is innovative? Should the main metric of evaluation be the test score?
Question # 3
Employers also have a hard time implementing the PFP plan. Employers will spend too much time re-engineering the pay system to suit the PFP plan. Maintaining consistency when constantly adjusting the performance measures will be very challenging. Employers have to struggle with the question of whether a PFP plan is sustainable in the long run due to its negative impact on employees.
Creating a PFP culture is another challenge for employers. Employees are used to being paid on an hourly/ monthly basis and getting them to agree and support a PFP plan will be very challenging. Selling a PFP culture, especially among long-serving employees will be challenging as they feel that they have worked long enough, and their years of experience should be considered.
Employers will constantly deal with accusations of bias and favoritism. For example, in a public school environment, the principal hardly spends enough time in the classroom to judge the top performers and low performers. The administrators are more likely to use flawed quantitative results to judge the employees, and sometimes bias and favoritism will enter the PFP pay system.
Lastly, employers will have a hard time motivating low performers. In a PFP plan, the top 10 or 20 percent employers are rewarded well, while the low performers will not be rewarded. Unfortunately, employers still have to motivate the other employees because the organization cannot operate with 20% of the employees only. Increasing pay for the top performers without making an effort to improve for other employees can have negative effects on the team’s morale.
Despite the many challenges facing PFP plan, when created well, the plan can encourage collaboration and competitiveness at the same time (Solmon & Podgursky, 2001). The public education system is often criticized for lack of productivity, innovation and accountability. Implementing a PFP plan with arbitrary limits can improve the state of public education.
References
Miller, S. (2010). Pay-for-Performance Plans Would Increase Productivity, Employees Say. Society for Human Resource Management. Retrieved from: https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/productivity.aspx
Solmon, L. C., & Podgursky, M. (2000). The pros and cons of performance-based compensation. Milken Family Foundation.
Springer, M. G., Ballou, D., Hamilton, L., Le, V. N., Lockwood, J. R., McCaffrey, D. F., & Stecher, B. M. (2011). Teacher Pay for Performance: Experimental Evidence from the Project on Incentives in Teaching (POINT). Society for Research on Educational Effectiveness .
Sumod, S. J. (2012). Total Rewards & Pay-for-Performance. Available at SSRN 2004533 .
