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In this study, we will discuss the performance pay plan introduced during the last decades worldwide to acknowledge the top performers of the organisation. There are certain benefits of this plan such as; to motivate the employees positively. However, this plan has certain drawbacks from both employer's perspective and employees perspective. The effectiveness of this plan could be measured by the quantitative method through a questionnaire. Which would include the employee's satisfaction level, the turnover intention of employees, and the performance of the employees.
The term pays for performance means the compensation plan where the performance of an individual and the organisation is evaluated which significantly influence the pay of the employee. However, the employees do not rely on motivation through money to improve the performance of an individual or organisation. Most employees are motivated through other factors such as personal pride, or their desire to contribute. The monetary rewards could rarely motivate people to go some extra miles for the organisation. According to the employee's behaviour, they need both intrinsic and extrinsic rewards (Howard et al., 2016). The organisation can measure the effectiveness of their pay for performance plans through various factors such as the satisfaction level of employees, turnover rate of the staff, appraisal and performance management, and the productivity of employees. From the employees perspective, this plan is failed and create job insecurity for a competent employee. The performance is not only influenced by the abilities and skills of a person but also influenced by other external factors. For instance, a bank manager who was an average performer at one branch in terms of bringing deposits. He was transferred to another branch where he performed very well due to the nature and position of that market. From the employer's perspective, this plan is not effective because it reduces the sense of teamwork among the employees. Every employee will try to achieve its personal goals and earn more amount of money. The employees might use negative approaches to beat their colleagues. It also results in the deteriorating of the quality of the products or services. And due to the speed of work the quality is compromised.
The good performer will be rewarding as the increases in bonuses, and rewards. The best performers of the organisation are rewarded, to motivated and acknowledge them to continue such performance in future as well. Moreover, moderate or average performers will also provide a small amount of increase in their salary or bonus. Which will be a kind of motivation for them to perform better in future. While the poor performers will have no increase and might receive some kind of show cause or warning letter etc. to promote it. Which will persuade them to perform better in the future. Many districts in the USA have taken the initiative of performance-based pay policy to reward the top performing teachers. The achievements of their students measure the performance of teachers. The purpose of this policy was to encourage, motivate, and acknowledge the teachers who are working hard and producing better results. Despite some positive outcomes of this policy, there are some consequences of this decision. This policy aimed to correct inefficiencies found in the previous traditional compensation schedule. It helps to motivate teachers to perform better and align their behaviours with institutional goals. This HR policy in one way helps to achieve the organisational goal, which is set with the individual goals of the employees. It also encourages the average and poor performers to meet the required criteria for their career growth and sustainability. The higher performers have more job security and can retain their job as a teacher for a long time. However, there are certain drawbacks of the performance pay policy. The opponents of this policy claim that teaching performance cannot be measured with the achievement of students. The grades of students depend on various factors such as the subject, students ability, and the level of study.
Moreover, the purpose of a teacher is to teach the students for some non-monetary gain, but it could confine their purpose to money only. This competition for the good grades of teaching will limit the learnings and lessons to the standards of tests and exams. The creativity and extra knowledge sharing of the teachers could be stopped. Some performances are measured easily such as the production, and sales etc. However, some performances could not be easily measured mostly in the service industry. Where the quality of service provided by an employee to one person is different from the service provided to another person. Organisations can measure the effectiveness of the pay for performance plans through various parameters. Usually, quantitative approaches are used to determine the effectiveness of this performance plan (Gerhart, 2017). The HR of the organisation measure the performance-based pay plan through the level of satisfaction of employees, the turnover rate of the staff, appraisal and performance management, and the productivity of employees (Dohmen and Falk, 2011). This plan has many drawbacks from both the employee's point of view and employer and employee perspective. On the employer perspective, there are many drawbacks such as; the quality is being compromised, the teamwork is also affected by the greed earning more money and beat other employees in this race. From the employee's perspective, the pay for performance plan has certain disadvantages such as it will create job insecurity for a competent employee.
The fundamental objective of the business organisation is to maximise its profit and minimise its costs. During the last few decades, the organisations have introduced the pay for performance plan which helped the organisation to improve the performance of the employees. This approach was used to acknowledge the services of top performers of the organisation. However, this plan also holds some disadvantages because the monetary rewards are not sufficient to motivate the employees.
Dohmen, T., & Falk, A. (2011). Performance pay and multidimensional sorting: Productivity, preferences, and gender. American Economic Review, 101(2), 556-90.
Gerhart, B. (2017). Incentives and pay for performance in the workplace. In Advances in Motivation Science (Vol. 4, pp. 91-140). Elsevier.
Howard, L. W., Turban, D. B., & Hurley, S. K. (2016). Cooperating teams and competing reward strategies: Incentives for team performance and firm productivity. Journal of Behavioral and Applied Management, 3(3), 1054.
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