Pay for Performance

Pay for performance is an old but an effective compensation system which companies have been using since years to motivate the employees in improving their performance. The companies’ profitability is attributed to the employees’ performance due to which they are given a part in profit sharing. Pay for performance is indeed an effective system motivating employees to work productively and foster employee commitment and dedication to the company. It is not harmful for the employees in any way because even if the company profits decline, the employees and the executives do not receive anything less than their base salary.

Pay for performance usually benefits the employees and executives but at times results in no benefits when the profits are low. Therefore, it is an efficient system for ensuring that the employees stay motivated and perform to their fullest potential in order to enjoy higher bonus from the higher profits (Chingos 2002). Since employees and executives are always waiting for rewards and bonuses therefore, providing low benefits or bonuses sometimes disappoints them and lessens their hard work for the organization. However, it must be remembered that rewards are not only of external nature but also of internal nature.

Instead of providing extra cash to the employees, they can be recognized and praised for their hard work while the deserving ones can be promoted as well. The top management must make them feel important so that they are not disappointed on receiving fewer bonuses for a particular year. In fact, today people value internal rewards more than the external ones therefore companies can take advantage of this fact and start valuing their employees internally through praise and recognition.

REFERENCE Chingos, P. T. (2002). Paying for Performance: A Guide to Compensation Management, 2nd ed. Wiley.

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