Question

Describe pay for performance including examples of jobs that might have that type of compensation. What are some benefits and downsides to pay for performance?

Answer 1

Payment based on performance is an increasingly popular business model to encourage everyone to work harder.

A pay-for-performance initiative rewards hardworking employees by providing them with payments based on what they produce for the firm. It is also called an incentive pay program. The ultimate goal is to inspire positive action in each employee, such as manufacturing more products or selling more items in the same period of time as before.

Cost center type jobs like accounting, administrative and human resource positions tend to be more negatively challenged by the performance based model. Higher performance based model could cause them to have anxiety and not be as productive in their position. Jobs like sales, client engagements, marketing and public relations is more suitable to the performance based payment plan. These positions tend to thrive in the payment based on performance much better because their performance bonus should be directly correlated to the work they have done over the course of the year.

Benefits:

• Boost Motivation and Morale: it helps increase motivation among workers. Enacting this type of program indicates to employees that the company cares and wants to reward good behavior.

• Productivity-Connected: Because a pay-for-performance initiative is directly connected to the productivity of employees, it is usually cost-efficient. The more the workers produce, the more money the company makes. A pay-for-performance program can also help the company identify which employees are capable of the highest performance when given incentives.

• Less Supervision: Companies operating with a pay-for-performance policy experience a decrease in the need for employee supervision. Employees show initiative because they know their work output is directly linked to their pay. Companies can function with fewer supervisors, which saves them money in overhead cost. Some businesses find pay-for-performance plans advantageous because the policies usually result in an increase in productivity, which helps them increase profits.

• Increase in Earnings: Pay-for-performance plans allow employees to increase their earnings because they are in control of their wages. For example, if an employer pays employees commission-only salaries, an employee's earnings are solely dependent upon his success. During certain times of the year, such as holiday seasons, employees can increase production in an effort to earn extra money. Not only does an increase in earnings benefit the employee but also the employer because of an increase in productivity.

• Employees are working towards a goal, and given financial incentive for reaching it.
  
• There presumably are less wasted hours. When works is completed, employees move on to the next project knowing they will be incentivized beyond their base salary.

downsides:

• Contention among Employees: A worker sometimes feels as though a manager shows favoritism to certain employees to help them achieve bonuses and higher salaries. Employees who are not earning bonuses can show jealousy toward those who are earning performance bonuses. Jealousy and contention create hostile work environments, which can reduce productivity.
• Less Employee Input: they can cause employees to fear giving managers their input for changes. Employees hold back their input even if their ideas are good because they are concerned about a reduction in earnings. Many companies value and depend on the input of their employees to make decisions regarding the company.

• Employee Deficiencies: if employees don’t have the proper knowledge, training and experience to perform at higher levels, it may not work; you have to invest money in getting them the training and resources they need. In this case, starting a pay-for-performance program can become a cumbersome and expensive endeavor.

• Hard to Change: it is difficult to change or end this program in the future. If employees start to get used to the program and enjoy the benefits, it can negatively affect morale if you start making changes. It is also hard to get the terms of an incentive pay program just right. You have to determine the amount of pay that will produce the maximum productivity from employees. Getting to that level may require many trial runs.

• Payment based on performance can cause the workers in some jobs like  accounting and HR some serious anxiety.
  
• The business model also changes the work environment. The idea might be to transition to a goal-oriented office, but it might end up a cutthroat culture.