Pay for Performance

Topics: Incentive, Human resource management, Incentive program Pages: 5 (830 words) Published: February 27, 2015
HRMT 407
Pay for Performance
Positive or Pitfall?

Andrew Ray

In an ever changing economy where competition to perform at the highest levels is required for individuals and companies to succeed, how are companies to ensure that they hire, promote, as well as retain the highest quality employees? One method of enticing employees to perform at the highest levels is the theory of Pay for Production. The basic concept is to offer employees the ability to increase their salary by meeting and or exceeding benchmarks set by the company. In an article written for SimpleHR Guide. Com., pay for performance is described as “not just a pure compensation and benefits concept. The pay for performance is a right mix of the HR Process, which supports the optimal performance of the organization and it pays the most performing employees significantly differently, includes special compensation schemes for the selected groups of employees and gives career opportunities o the best talents in the organization” (HRM Guide, 2014). By offering incentive pay for higher production, organizations hope to entice their employees to strive for higher salaries through increases in output, in turn creating a situation where the organization sees and increase in profit. In numerous studies conducted, the implementation of a pay for production plan is the key to success. A well planned and organized pay plan is developed with the expectations of management as well as one that ensures that the employee fully understands the scope of the plan has traditionally had the greatest amount of success.

Martha Lagace discusses in her article Pay for Performance Doesn’t Always Pay Off; “Scholars have argued that the real problem is that incentives work too well. Specifically, they motivate employees to focus excessively on doing what they need to do to gain rewards, sometimes at the expense of doing other things that would help the organization” (Lagace, 2003). Unless employees understand that the pay plan is a reward for increased productivity for both the employee and the company, employees tend to concentrate their efforts on those areas which offer the highest increases. One other aspect of pay for productivity that tends to undermine the effectiveness of this type of reward based system is the actual benefit costs to the organization over the expected costs. Managers tend to underestimate the actual cost that can be incurred do to the higher output of their employees. When organizations fail to adequately estimate the cost increase, adjustments to production requirements are often changed to higher levels to reduce employee incentives; this can lead to employee dissatisfaction and loss of productivity.

Pay for Performance has been a hot topic of discussion within the education community since the implementation of No Child Left Behind. A number of elected officials on the National as well as State and Local levels believed that the implementation of a Pay for Production type of pay system would motivate teacher to perform in turn increasing the level of education American children received. The concept was that teachers whose students received higher test scores on standardized testing would receiver higher pay because in theory they were instilling a better education on their students. In an interview with Education World; Douglas Harris of Progressive Policy Institute stated “If you tie a lot of it (pay for production) to test scores; there are so many other variables involved with students. Because goals for educators are so complicated, it’s hard to settle on factors, we’re trying to measure teacher’s contributions to learning” (Delisio, 2014). Every child learns differently, basing pay strictly upon test score would fail to take into account those students who learn at a slower pace than their classmates yet still continue to improve. Developing a pay plan that takes into account the differences in student development as well as the...

References: Delisio, E. R. (2014). Education World: Pay for Performance: What Are the Issues. Retrieved from Education World: http://www.educationworld.com/a_issues/issues/issues374a.shtml
HRM Guide. (2014). Pay for Performance. Retrieved from HR Management Guide: http://wwwsimplehrguide.com/pay-for-perrmance.html
Lagace, M. (2003, 04 14). Pay for Performance doesnt always pay off. Retrieved from HBS Working Knowledge: http://hbswk.hbs.edu/item/3424.html
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