The Use and Effectiveness of Pay-for-Performance Programs

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Chapter I

Definition of the Problem

Compensation is the core function of human resource management which has significant direct or indirect implications for recruitment, appraisal, training, retention, and labor relations. Compensation establishes the use and effectiveness of pay-for-performance programs in the public sector, most importantly the State of Michigan, could possibly reap the benefits of higher productivity from their employers. Many administrations have implemented the pay-for-performance system which has improved their employees work performance. Such a system in the State of Michigan could also be as effective for management, as it can enhances the employee performance as it does in other administrations. Moreover, the State of Michigan Civil Service Commission developed a merit pay system in 1937 and has continued the same pay system since. As it stands today, employees both represented and non-represented are compensated with a seniority based pay system. Regardless of work performance, both classified employees receive step increases based on their tenure with the State of Michigan with the current seniority based pay system. However, with a pay-for-performance system, employees receive compensation based on generic percentages that are evolved from an administrations budget and based on their annual performance with the organization. This practice is very common amongst many corporations with the U.S. According to SHRM (n.d), there is enough evidence to conclude that employees perform at their best when their compensation is based on their performance.

Corporations hold their management team as the key source in providing and implementing the pay for performance system. An individual employee performance is critically evaluated during the time of compensation planning decisions. Ensuring the complexity of true pay for performance compensation in organizational culture, most employees tend to outperform one...
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