Pay for Performance

Abstract

Pay-for-performance is a method used by companies to foster hard work amongst the employees. This method allows the management of the company to pay the employees based on their performance. Employees may either become disadvantaged or benefit from the method, based on the efforts they put in.

Introduction

Most companies have adopted the use of pay-for-performance in order to improve the production and revenues earned from the company. The employers and the employees however tend to suffer, and it is for that reason, that this paper will discuss how to measure the effectiveness of pay-per-performance, disadvantages of the plan on the employees perspective, and employers perspective.

Question 1
            There are many ways through which an organization can measure the effectiveness of its pay-for-performance (Paludi, 2012). Employer turnover rates is one of the ways of measuring the effectiveness of pay-for-performance. After the adoption of pay-for-performance by a company, the company should pay attention to the turnover rates of its employees. If the employee turnover rates rises, then this means the plan is not effective for the company (Aquila & Rice, 2012). On the other hand, if the employee turnover rates is low, then it means the plan is good and effective for the company. However, this method measuring the effectiveness of pay-for-performance may not be effective, because the employees’ turnover rates might be low during the first month after the implementation of the plan, but after a period of two to three months, the turnover rates might rise (Cummings & Worley, 2015).

            Secondly, the company can also use revenue productivity to measure the effectiveness of the plan (Armstrong, Brown & Reilly, 2010). This is can be done through checking on the productivity of the plan after implementation, and comparing it to the previous performance of the company, prior to the implementation of the plan. If the company is ripping huge profits, and its productivity has also increased, then the plan will be a success. However, if the productivity and profits realized by the company drops, then the plan will not be successful (Aquila & Rice, 2012).

            Finally, the company can also check on the improvements of the losses it makes. If the company’s losses reduce, then it means the plan is effective (Cummings & Worley, 2015). However, if the losses double after the implementation of the plan, then pay-for-performance will not be effective at all. Measuring the losses realized by the company is often used in order to understand if the plan is having any effects in the growth and development of the company (Aquila & Rice, 2012).

Question 2

            Employees’ work in teams in order to improve the performance of the company, and to accomplish a lot of tasks within the shortest time (Cummings & Worley, 2015). In these teams, some employees may benefit solely from the efforts of other employees. For instance, a team of employees may be assigned a supervisor whose work will be to supervise the way the employees work (Armstrong, Brown & Reilly, 2010). Supervisors may therefore take advantage of their authority, thus offering little to no support to the team, hence making the team members to suffer, but in the end, if the team meets its required quarters, then all the team members including the supervisors will be rewarded equally (Aquila & Rice, 2012).

Employees working in different departments cannot be required to reach the same levels in order to be rewarded (Paludi, 2012). This consequently means, some employees work in departments which cannot favor improvements, hence making them to perform poorly as compared to other employees (Aquila & Rice, 2012). For instance, IT technicians and sales agents should not be required to meet the same level in order to be rewarded. This is basically because of the factors which may affect sales, in either a country or a region. A country which faces an economic crisis is likely to be affected by inflation, thus making the sales of goods and products in the market to drop drastically. In the same country, internet systems may be good, thus favoring the jobs of IT technicians, making them to achieve more due to meeting their levels of requirement (Cummings & Worley, 2015). This consequently leads to discouragement, whereby some employees tend to give up, hence increasing the turnover rates of the employees in the company. The management of the company should therefore consider the factors which may affect the performance of a certain employee, hence rewarding all the employees equally (Aquila & Rice, 2012).

Question 3.
Employers tend to also suffer from pay-for-plan performance, since it affects the performance of the company in general. The following are the disadvantages of the plan on the employer:

Weakening Quality

Employees work very hard in order to increase their pay, thus focusing on quantity rather than on quality (Aquila & Rice, 2012). Most employees consequently sell products in large quantities without considering the quality of services offered to the customers. In addition, when it comes to the production department, most employees tend to produce more products, thus compromising the quality of the products, a move which makes the company to lose its customers (Cummings & Worley, 2015).

Poor Employee Coordination

Employees tend to work in order to reach their goals, thus focusing only on individual tasks, a move which leads to poor coordination of the employees in the workplace (Armstrong, Brown & Reilly, 2010). The employees consequently concentrate on ways of improving their performance, thus reaching their goals (Aquila & Rice, 2012). On the other hand, the employer suffers, since certain tasks in the company cannot be accomplished due to poor coordination between the employees (Paludi, 2012). Furthermore, the company may receive proper strategies from the employees, due to their focus on achieving individual goals. This may also create enmity amongst the employees, making some of them to do things in order to make others to fail, which translates to the failure of the company (Cummings & Worley, 2015).

Conclusion

This paper has discussed how to measure the effectiveness of pay-per-performance, among the methods listed include the following: observing employee turnover rates, observing the levels of revenue and productivity, and observing the losses. In the second part, the paper discussed several issues related to disadvantages of the plan on the employees’ perspective. In this section, it was evident that some departments may not be favored by the economic situation pf the country, thus making employees in certain departments to earn more than others. In the last part, the disadvantages of the plan based on the employer’s perspective included focusing on quantity and not quality.

References 

 

Aquila, A. J., Rice, C. L., & American Institute of Certified Public Accountants. (2012). Performance is everything: The why, what, and how of designing compensation plans. New York: American Institute Of Certified Public Accountants.

Cummings, T. G., & Worley, C. G. (2015). Organization development & change.

Armstrong, M., Brown, D., & Reilly, P. A. (2010). Evidence-based reward management: Creating measurable business impact from your pay and reward practices. London: Kogan Page.

Paludi, M. A. (2012). Managing diversity in today's workplace: Strategies for employees and employers. Santa Barbara, Calif: ABC-CLIO.