Pay-for-performancecan sometimes be regarded as incentive pay or merit pay.Pay-for-performance concerns paying or compensating a person beyondhis or her salary because of accomplishing a certain measure ortarget that has been agreed upon (Minor,2015).Different companies have realized success emanating frompay-for-performance. The incentives that organizations give employeeshave the capacity of motivating workers and making them moreproductive. Therefore, pay-for-performance can be considered as avital aspect in the improvement of a firm’s productivity, as wellas a critical element in benefiting employees. It can be argued thatpay-for-performance helps in balancing the gains of an organizationand that of employees. The purpose of this report is to discuss howan organization can measure the effectiveness of theirpay-for-performance initiatives, as well as the disadvantages ofusing a pay-for-performance plan from an employee and employerperspective.
Howan Organization Can Measure the Effectiveness of Pay-for-PerformancePlans
Theeffectiveness of pay-for-performance plan is critical in ensuringthat an organization becomes successful through using the plans.There are different measures that can be utilized in measuring theeffectiveness of pay-for-performance plan. One of the measures is theobjectivity of the plan. For an incentive pay initiative to remaineffective, there is the need for the plan to remain objective. Inthis case, objectivity is perceived to play a critical role inhelping an organization balance the risks, compensation costs, andimproving employees’ morale (Vance, 2015). In case it is not in aposition to realize these aspects, then it is deemed ineffective.Another measure of effectiveness is controllability. It is importantfor an organization to establish whether workers can be capable ofinfluencing the outcome of the plan. In case the employees can impactthe outcome of the incentive pay, then it is ineffective because itmay become a profit sharing program. Besides, the relevance of thepay-for-performance scheme can be used in establishing itseffectiveness. For the initiative to be effective, it needs to berelevant to the health of the business.
Disadvantagesof Using a Pay-for-Performance Plan from Employees’ Perspective
Pay-for-performanceplan tends to have some disadvantages on the side of the employees.One of the demerits is that it is deemed to control the conduct ofworkers. Since the initiative controls the behavior of employeesthrough seduction, it is perceived by employees as a way ofmanipulating them because they tend to have less power (Vance, 2015).Another disadvantage is that the pay-for-performance schemes createcompetitiveness amid workers, a move that undermines thecollaboration of employees, as well as the formation of teamwork.Employees who attempt to accomplish personal objectives are sometimesunwilling to becoming team players. Such workers may be hesitant tooffer help to struggling co-workers because they view it as wastingvaluable time that they can be utilized in enhancing their personalproductivity. In some instances, conflict may emerge amid employeesdue to the perception that one worker may be hindering others fromperforming well in order to achieve his/her personal objectives(Johnston& Marshall, 2016).Besides, another disadvantage of pay-for-performance on the view ofemployees is that it mitigates risk taking, innovation andcreativity. When there is pay-for-performance plans, employees arelikely to become dormant and fear to think outside the box since theymay feel that such an option would jeopardize their opportunities ofreceiving rewards.
Disadvantagesof Using a Pay-for-Performance Plan from Employers’ Perspective
Oneof the disadvantages from the perspective of employers is that apay-for-performance initiative may fail to be effective, a move thatwould result in the plan being considered as a profit sharingprogram. It is the employer that is likely to lose when earnedprofits are to be shared anyhow. Also, pay-for-performance plan has adisadvantage in that it may cause workers to emphasize on quantityrather than quality (Ellig,2014).In such an instance, the quality of services provided by employeesmay end up being low. This implies that customers may receive poorquality services from the employees as they try to focus on quantityand undermining quality. In addition, pay-for-performance plans mayoffer insufficient motivation to employees, which may result inworkers performing lowly (Ritter,2013).When the incentive to work is low, employees are likely to worktowards levels of productivity that match the incentives. Therefore,employers would lose in case the pay-for-performance plans do notprovide adequate motivation.
Inconclusion, pay-for-performance concerns paying or compensating aperson beyond his or her salary because of accomplishing a certainmeasure or target that has been agreed upon amid the employer andemployee. Different measures can be used in measuring theeffectiveness of pay-for-payment, and may include objectivity of theplan, controllability, and relevance. In a worker’s perspective,pay-for-performance plans may lead to employees despising teamwork,which may influence employee growth. Alternatively, in case the plansare ineffective, the employers may be at a disadvantage becauseworkers may work towards quantity instead of quality. Furthermore,pay-for-performance plans may offer insufficient motivation toemployees, which may result in workers performing lowly.
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Johnston,W.M. & Marshall, W.G. (2016). ContemporarySelling: Building Relationships, Creating Value.New York: Routledge.
Minor,J. R. (2015). Anexperimental study on the effect of a participatory merit pay designprocess on perceptions of merit pay.New York: Northcentral University.
Ritter,G. W. (2013). Astraightforward guide to teacher merit pay: Encouraging and rewardingschoolwide improvement.Thousand Oaks, California: Corwin.
Vance,M.C. (2015). Managinga Global Workforce.New York: Routledge.