Performance Based Pay
Performance Management and Performance Based Pay
Compensation and Benefits
MGT 548
Cardinal Stritch University
Group MSM 3-356
Instructor: Rafael Viscasillas
7/25/05
Table of Contents Performance based pay is an effective way to adequately distinguish between the best and worse performers within the company structure. Commonly referred to as merit pay or skill based pay, performance based pay is a compensation system designed to reward employees for attaining additional skills or for completion of specific goals.
"The concept is attractive to many employees since there is a direct link between their compensation and the work-related skills they may learn and use and since service time with the company and job title are relatively less important factors in the pay and/or advancement decision process." (Dantico, 1994)
Performance management is an essential element of performance based pay. Performance management, or "the means through which managers ensure that employees' activities and output are congruent with the organization's goals" (Noe, Hollenbeck, Gerhart and Wright, 2003, 327), is not limited to performance appraisals. Performance management is a broader and more encompassing process than a simple performance appraisal. Performance appraisals cannot stand alone in improving organizational performance. The use of performance based pay as incentive and motivation can increase the rate of improvement.
Noe, Hollenbeck, Gerhart and Wright believe that there are three parts involved in performance management. These three parts are defining performance, measuring performance and feeding back performance information. This concept spells out which portions of performance is pertinent to the organization, measuring them using performance appraisals and allows managers to give employees feedback so the employees can adjust their performance based on the goals and desired outcomes of the organization. Adding a performance based pay
Compensation and Benefits
MGT 548
Cardinal Stritch University
Group MSM 3-356
Instructor: Rafael Viscasillas
7/25/05
Table of Contents Performance based pay is an effective way to adequately distinguish between the best and worse performers within the company structure. Commonly referred to as merit pay or skill based pay, performance based pay is a compensation system designed to reward employees for attaining additional skills or for completion of specific goals.
"The concept is attractive to many employees since there is a direct link between their compensation and the work-related skills they may learn and use and since service time with the company and job title are relatively less important factors in the pay and/or advancement decision process." (Dantico, 1994)
Performance management is an essential element of performance based pay. Performance management, or "the means through which managers ensure that employees' activities and output are congruent with the organization's goals" (Noe, Hollenbeck, Gerhart and Wright, 2003, 327), is not limited to performance appraisals. Performance management is a broader and more encompassing process than a simple performance appraisal. Performance appraisals cannot stand alone in improving organizational performance. The use of performance based pay as incentive and motivation can increase the rate of improvement.
Noe, Hollenbeck, Gerhart and Wright believe that there are three parts involved in performance management. These three parts are defining performance, measuring performance and feeding back performance information. This concept spells out which portions of performance is pertinent to the organization, measuring them using performance appraisals and allows managers to give employees feedback so the employees can adjust their performance based on the goals and desired outcomes of the organization. Adding a performance based pay
References: Great Expectations: The Key to Great Performance? (2004, May). Harvard Management Update. 9, 5 Daft, R. L. (2004). Organizational Theory and Design Eighth Edition. Mason, OH: South-Western. Johnson, L. K. (2004, August). Four Practices for Great Performance. Harvard Management Update.1-4 HYPERLINK "http://hbswk.hbs.edu/tools/print_item.jhtml?id=4332&t=bizhistory" Http://hbswk.hbs.edu/tools/print_item.jhtml?id=4332&t=bizhistory Mello, J.A. (2002). Strategic Human Resource Management. Cincinnati, OH: South-Western College Publishing. Noe, R., Hollenbeck, J., Gerhart, B., & Wright, P. (2003). Human Resource Management: Gaining a Competitive Advantage Fourth Edition. New York, NY: McGraw-Hill/Irwin. SuccessFactors PerformanceManager tm Overview, 2003.