Motivating employees may prove to be difficult for a manager. Pay for performance (PFP) is a salary administration program that gives employers insight on their performing and nonperforming employees and issues rewards based on the same. This is through merit rating which determines the increase in an individual’s salary. The system enhances the productivity of workers, encouraging the performers while motivating poor performers to increase their income by improving work performance (Pay-for-Performance ’s Effect on Future Employee Performance, 2019 ). It then aligns with the main objectives for an organization for their pay system in attracting and retaining workforce, coming across as fair and equitable, and improving the performance of their employees while modifying their labor costs.
The decision to implement a PFP plan, as well as the choice of the plan, depend on the organization’s compromise of factors like equity, costs incurred and performance. Implementation thus has to cater for the accuracy in measuring employee performance as well as the cost of implementing by using quantitative measures. While estimating the cost within a highly developed internal labor market, supervisory approximation of individual performance will be used alongside the incentive plans so as to increase the accuracy. Additionally, piece rate plans (per unit of item) are then tied to the supervisor’s approximation which provide a quantitative measure the employee performance.
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To increase the employee motivation for performance, the most important factor is to define goals and increase the chances of achievement by ensuring the goals are doable, acceptable and specific. Individual incentive plans are easier in theory due to the ease in approximation and goal setting, as well as the individual level of goal completion. The quantitative measures are also less likely to be distorted meaning larger payouts for the employee. These plans are most suitable for employees with simple, structured jobs where performance goals are under their control. Alternatively, the option of a merit plan used in most managerial organizations may be explored. This would employ a merit grid under which the employer would supervise and reward according to an employee’s salary grade, position in grade and individual performance (Pay for performance, 2019). The performance appraisal is a result of an employee and their supervisor’s joint annual job objectives.
Due to the interdependence of tasks, need for cooperation and work group performances in an organization setting, group incentives are the most suitable plans to enhance motivation. Group incentive plans are tied to the work group level and mimic the quantitative measures of performance of the individual incentives. To achieve maximum employee input in the group setting, employees have to be included in the group plan design and decisions with emphasis on communication. Additionally, the plans and payouts have to tailored to the smallest feasible unit (Pay for performance, 2019). As the performance improves the employees then get a share of the financial gain. The payments from the incentive plans should not, therefore, not be added to the base salary so as to make the direct labor costs more competitive. Group incentive plans may offer relatively high payouts which increase when an employee’s performance increases but they also risk the alternative of low payouts when these goals are not met. It is then important to design cost of living adjustments to the base salaries for these cases.
If all other factors are equal, then the pay for performance plans that an organization implements should help them in acquiring and retaining high quality talent. The employer offers incentives that are relative to an employee’s preferences and skills while seeking hiring opportunities, while an employee seeks continuing inducements offered relative to their level of contribution. Research shows that merit pay has a positive correlation to the retention of employees with high performance rating which translate to high wages and increase in pay (Pay for performance, 2019).
The pursuit and adoption of pay for performance plans is based on fairness and equity, which is difficult to achieve since different people have opposing views on the definitions of the same. Employees view on fair compensation is directly related to their motivation to perform, their contributions and the compensation of those who are perceived to have similar contribution. In designing a PFP, it is then important for an employer to consider three groups with which employees use to assess pay fairness; people working similar jobs in the organization, people working similar work groups in the organization and people working similar jobs outside the organization. The organizational structures put in place to ensure uniformity requires employee participation in the pay design decisions. Similarly, the consistency in adherence to the rules governing the pay allocation and other organization safeguards enhance the employee’s perceptions on fair treatment and pay satisfaction.
References
Pay-for-Performance ’s Effect on Future Employee Performance. (2019). Retrieved from https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1115&context=managementfacpub
Pay for performance: Evaluating Performance Appraisal and Merit Pay. National Academic Press(NAP). (2019). Retrieved from https://www.nap.edu/read/1751/chapter/7
