Pay For Performance And Employee Performance

Pay for performance is a common theme throughout almost all organizations. Merit increases, performance bonuses for executives, and commissions for real estate salespeople are common examples of this concept.

The first implication is determining what to reward. Management must first align overall strategy with projected business outcomes, and decide what type of performance will be measured, analyzed and considered in a pay for performance program. Key factors such as support from the management, establishing a valid and fair measuring system, along with a credible evaluation system and projecting effectiveness of the program in the long term are all needed in order for the plan to function

Pay-for-performance plans are formal compensation systems that are directly related to organizational or individual performance. The United States Department of Labor defined pay-for-performance as a raise in pay based on a set of criteria put in place by employers, and notes that the Fair Labor Standards Act,

A well-articulated compensation philosophy drives organizational success by aligning pay and other rewards with business strategy. It provides the foundation for plan design and administration and anchors current and future plans to the company's culture and values (Kaplan, 2006, p.32). Recognizing and rewarding achievement is the cornerstone of the company A’s compensation philosophy. The mission of the company is to attract, select, place and promote all individuals based on their qualifications. The company believes that performance-based compensation helps attract, develop and retain talented professionals. In addition to base pay which based upon local market conditions and targeted to be above market, the company provides the following types of potential compensation to reward performance:

Performance based pay strategy is a variable pay system which is intended to increase employee productivity by rewarding employees based on their performance rather than paying based on the time that an employee spends at work (Wisegeek). Due to the fact that performance based employees have a vested interest in the success of the company their productivity is likely to improve which can lead to the need for fewer employees to maintain production levels leading to a reduction in labor costs to the employer. Studies have shown that time based employees only produce 50 to 60 percent of the output of performance based employees (Atchinson).

Overtime, market analysts have been inquiring about on the need and impacts of minimum wage on people groups' lives, which is known as “minimum wage.” It is the smallest measure of pay (enforced by the legislature since 1938) that employers can pay their workers for labor per hour. From that point forward, this wage level has been expanding with time. Its essential point is to handle poverty and enhance ways of life by guaranteeing each laborer appreciates a base level of salary. In any case, some policymakers

Pay for performance systems have further been proven to have two advantages for organizations: attracting more high-quality employees and motivating employees to exert more effort at their jobs. (Gordon, Kaswin) This paper will show the positive benefits of performance pay as

I don’t think PFP (pay for performance) is a bad idea in the workplace. However, I feel that employees should be aware that is how they will be paid before they begin work at a company who pays that way. This is fair and the employee knows what they are getting into. Many people are doing their job correctly so working for their pay by PFP is no big deal. My daughter is currently getting paid that way and she is happy at her job and is getting paid well because the customers are leaving wonderful comments about her. It is a personal preference, but do not see a problem with it.

O’Neil (1998) suggests six minimal criteria for the design of a performance based pay system. The first of these criteria is that the reward system should be self-funding, that is, the performance increases should as a minimum offset the cost of the rewards provided. The second criterion is that the distribution of the rewards must be consistent, fair and justifiable. In addition reward plans must be transparent and clearly communicated. The third criterion

Pay for performance is an incentive program. A way to compare is when in sports a player can make more money for doing better or meeting certain goals. So if a pitcher pitches a no-hitter he may receive an additional bonus on top of his salary. Pay for performance concerning health care is looking at not only success rates but overall outcomes. This means Patient A has a surgery she comes through without complications, and she heals quickly, is discharged and when she comes back for a follow-up everything is moving along as the physician plan. This is a good outcome. Now if the same patient, acquires an infection,does not heal in a reasonable amount of time or dies then the outcome is not favorable and pay for performance is affected. because pay for performance is difficult to measure in long term situations many times, the outcomes are measured in sections such as various components that create a patient’s overall health rating. for instance, Patient B is 300 lbs suffers from high blood pressure, high cholesterol, and diabetes pay for performance would look at each component and see if the health services being provided are aiding in the betterment of the patients health. At the core pay for performance is more about accountability, keeping medical professionals abreast of what is really going on with patients regardless of income or background.

Recognizing and rewarding high-performance is a key recommendation for any approach when managing any merit pay program (HRIS 2012). Merit pay is a compensation system where base pay increases and is determined by an individual’s performance. Using a merit pay plan is a good way for an organization to reward high performance is one benefit when using merit pay programs. The first step in implementing or improving a merit pay program is to have a solid performance management program, and this is another way a merit pay program is beneficial. Merit pay is a way to be successful and effectively implement merit pay with a uplift in salaries, and this is a third way using a merit pay program is beneficial to an organization. There are some drawbacks when using merit pay programs, such as paying some employees more than others. If you pay high-performing workers more than low- performing employees, the high- performers may stay, causing the low- performers to complain or leave the organization. A second drawback in using merit pay program is that employees become less motivated if not paid to their satisfaction. For example, if employees feel they should be making more money for their performance, this causes them to have low self esteem, and want to find employment at other organization. The last drawback associated with

Although research generally confirms that pay-for-performance plans can influence greater outcomes, it is unclear how effective different pay plans are relative to each other (Park, 2012). Like most things in business, compensation is something that requires evaluation, study, assessment, strategy, modeling and integration.  Achieving a pay for performance culture does not happen without paying attention to the behaviors, activities, rewards and motivations that have to be linked and reinforced through a well engineered and successfully executed process.  Actually if that process does not tie rewards to shareholder financial objectives, employ the proper mix of compensation elements, result in meaningful dollars, embrace performance that employees can impact and are effectively communicated and reinforced, then the results it produces will likely fall short (Vision Link Advisory Group, 2013).

The company’s compensation programs are result oriented market focused and flexible. Pay for Performance is one of the key compensation program, which includes various pay, benefits and special programs offered by the company.

There are many qualities that lead to how an employee is compensated. They are judged on their efficiency, productivity, compatibility with their fellow coworkers and their ability to generate profit in addition to many other skills required for their position. When companies take into account all of these attributes how do they determine how much money employee should receive? Chief executive officers are responsible for a company’s success or failure, all responsibility is placed on their shoulders, so how much payment should CEO’s receive? According to entrepreneur.com an employee is an investment, “You never want to pay more than the job is worth to you… How much more valuable will this person make my company?” These questions play a pivotal role in deciding an employee’s value. When there are succinct indicators to decide an employee’s salary why would a company continue to overpay their employees?

This research essay will aim to answer the question of the effectiveness of pay-to-performance initiatives. This essay will begin by examining the efficiency wage theory and the research frameworks before analysing the implications of the backwards bending supply curve theory as well as the theory of diminishing returns. This essay will then conclude with an answer on the effectiveness of pay-for-performance initiatives.