Pay for performance is a form of variable pay where compensation is determined by the results of an individual or team. The aim is to move away from fixed pay systems where employees feel entitled to a regular remuneration regardless of their effort. Incentives have become popular as they motivate employees to consistently achieve higher performance standards when it directly translates to greater monetary reward. The ultimate goal is to stimulate more positive outcomes from employees so they can achieve more within the same time while retaining high quality ( Witter, et al., 2012) ..
These schemes are gaining popularity as they essentially allow employees flexibility to determine how much more they can earn. The traditional fixed remuneration left many high performers feeling like their extra effort and potential was unappreciated or even unnoticed. Recognizing and rewarding exceptional performance ensures that these outstanding individuals consistently achieve and even surpass set targets and in so doing motivate the poor performing to average employees elevate their standards too. This leads boost the morale of workers and shows the workers that the organization cares that it rewards hard work ( Organization for Economic Co-operation and Development, 2007).
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These incentive programs benefit both the employee and the employer because the more the employees produce the more revenue the organization makes. Therefore for the plans to be effective they need to be designed well. This entails conducting proper research to determine the right mix of long-term and short-term incentive plans for your organization. Examples of popular incentive plans include: special recognition plans, stock options, individual incentive plans, cash profit sharing, gain sharing and team awards ( Witter, et al., 2012) .
Despite the rise in popularity of pay-for-performance plans new studies show that an increasing number of employers are not happy with expected outcomes. They feel that the traditional incentive pay programs such as merit increments on pay and annual bonuses no longer motivate employees like they used to. Therefore new strategies should be innovated to continue the success of pay-for-performance plans.
References
Witter, Sophie, Fretheim, F, Kessy, F L, & Lindahl, A K. (2012). Paying for performance to improve the delivery of health interventions in low- and middle-income countries . (Witter, Sophie and Fretheim, F and Kessy, F L and Lindahl, A K (2012) Paying for performance to improve the delivery of health interventions in low- and middle-income countries. Cochrane Database of Systematic Reviews, 2 (CD0078). ISSN 1464-780X.) The Cochrane Collaboration.
Organisation for Economic Co-operation and Development. (2007). Full Employment Strategies for Cities: The Case of Glasgow . (OECD Papers, 6, 12, 1-18.) Paris: OECD Publishing.
