Pros and Cons of Performance Based Pay

Contrast the advantages with the disadvantages of performance – based – pay

Which approach to pay do you think, would be the most beneficial to work organizations in the current economic climate. To begin this essay I would like to use the definition of what performance related pay is by Hoevemeyer : An intention to pay distinctly more to reward highly effective Job performance than you are willing to pay for good solid performance, the objective of which should be to develop a productive, efficient, effective organization (Hoevemeyer, 1989).

There are many advantages and disadvantages to performance- based pay, hroughout this essay I will contrast the advantages with the disadvantages, and at the end of this I will also come to a conclusion of which approach to pay do I think is the most beneficial to work organizations in the current economic climate. The types of performance based pay are: -Flat rate plus individual PBR system -Flat rate plus group/team-based PBR -Flat rate plus firm based PBR The first and most important advantage to performance- based pay is that this type of pay is a fantastic motivator.

Simply for a worker to get more money, which is the case in nearly every Job, he needs to work harder. This pay system is great for retaining key talent the organization has and getting unmotivated individuals to improve productivity. For a sales person, performance- based pay motivates you too sell your product, since it is the only way that you are going to get paid. There is also a feeling of accomplishment when you get your income, its like a reflection of all the hard work you have put in the month or week.

A disadvantage of performance- based pay that would contradict my previous advantage would be that motivation isn’t Just as simple as money = happiness! Too ittle money will demotivate but more money will not necessarily increase satisfaction or monivation. (Herzberg) Abraham Maslows hierarchy of needs model of motivation has 5 levels of motivation.

1 . Physiological.

2. Safety.

3. Social.

4. Self esteem.

5. Self actualization.

In the there are many other motivators than Just financial incentives, like need to belong to a group, to make friends, to work towards Job security and to work towards bettering yourself and your career.

Once your basic needs are satisfied, other factors start to become more important. Another advantage to performance- based pay that I think is rather important is that mount ot treedom that they might get, (depending where they work). For example a sales person would be interacting with customers, he wouldn’t be tied down to a strict schedule or be stuck behind a desk all day. Its also good as you can plan your day around personal appointments, like the dentist or your daughter’s piano recital.

A contrasting view of this would be that, in early careers, some people find themselves working an insane amount of hours, and with a performance- based pay, there may not be a limit to the hours you can work, as you can spend a big amount of time building up a client list. Also if you have a certain sales goal to meet or making up for lost time at that dentist or the piano recital, you can sometimes find yourself working through the weekends or even very late into the evenings. In line with this, another disadvantage would be the financial instability.

Your wage or salary cannot be sure. This would increase the tension of the employee. A good way to battle the tension or anxiety caused by performance- based pay would be to have some savings set aside for a rainy day or an emergency or if your performance hasn’t been up to par. This isn’t a great solution but it’s a way to help. Another great advantage for an organization that offers a performance- based pay scheme would be that it is attractive to workers who are higher skilled than their co workers in the same category of work.

For example, if I am an extremely experienced and educated sales rep, and I know I’m better than most people at the Job, I want to work in a place that will recognize my talents and will also be reflected in my pay. So the organization will have access to a wider range of more educated and experienced workforce. This is extremely useful for an organization, especially in the current conomic climate.

A disadvantage that I though went together in relation to my previous advantage (employees) is that employees that are working on the basis of performance- based pay, may only be inclined to actually do what is measured in their performance appraisal. For example, an employee who picks orders for customers in a warehouse for a wholesalers might have a daily goal or picking up to 14% of the orders placed in a day. He may have achieved that goal, but in the process of Just meeting the target, he has caused long-term setbacks but ignoring tasks involved in the company, like estocking the shelves, which is not ideal for an organization.

Another disadvantage to do with the employees is that this type of pay scheme can cause a split amongst employees. If some employees are not being rewarded as equal it can cause other employees to feel under appreciated or even start to have some resentment towards the employee who is getting the better rewards. This error can occur easily enough as not every single aspect of the Job can be monitored. It can be prevented by putting strict and clear stipulations in place for the system.