Benefits And Challenges Of Using Performance Related Pay To Motivate Employees Essay.

Boosts Career of Employees

What are the Benefits and Challenges of usin Performance related Pay to Motivate Employees.

Performance-related pay is a system that employers use to pay their employees depending on their productivity at the place of work. These systems vary depending on the type of industry, the number of employees, and the size of the firm.  Many companies use these systems because of the rewards that they get.  Employees also receive the rewards of performance related pay (PRP). However, those rewards do not come without certain shortcomings.

Performance related pay systems are popular with most people first of all because of their ability to boost the career of employees. If employers effectively implement these systems, employees can easily monitor their own performance and increase the prospects of their careers.  For employees who do good work, the systems also offer them a way to prove that they deserve salary increase or bigger bonuses. Since employees often receive basic pay, performance related pay can help them to increase their income.  Further, this system can increase the feeling of satisfaction.  When employees work hard, and their work is rewarded, that can significantly increase their level of job satisfaction (Wynn & Sorbero, 2007).

Performance-related pay is a vehicle for improving employee performance. This compensation plan ties employee performance to groups, corporate, and individuals. Since employees want high pay, this compensation plan motivates them to work hard so as to make more money. According to Stredwick (2003), this model clearly puts employees in front and the center of their own financial destiny. Employees can take full control of their destiny and are inspired to work as much as they wish to be paid for.

This compensation plan also enhances employee retention.  During a period when there was a nursing shortage in a medical center, and a busy town had a waiting list of nurse applicants. Since they paid by performance, nurses who were working hard were not encouraged to leave. The hospital held that there should be no low performers. This strategy helped them to retain a high number of qualified workers (Hellerman & Kochanski, 2009).

At the same time, performance related pay has several advantages for employers. The first benefit is staff motivation which eventually benefits the employer. When employers use this system, and they receive bonuses for actual results, they become more motivated and result-oriented.  Besides, they are able to attract new talents (Stredwick, 2003).

Improves Employee Performance

Qualified professionals always prefer to be paid depending on their performance as they are confident of their ability to deliver quality and meet deadlines. It also increases staff productivity. If proper performance related pay systems are used, this can lead to significant increase in staff productivity. When employees are satisfied, the rate of turnover is lower. Employees who are working hard and well paid are loyal to the company. The employer is also better placed to achieve their goals.  Performance related pay, therefore, helps employers to encourage employees to work hard and achieve company goals (Performance related pay, 2004).

Performance related pay also helps employers to differentiate between the performance of a low employee and a high performing employee. By doing this, Hume (1995) says it helps the employer to know who qualifies for different types of rewards. The company does not end up rewarding low performing employees at the expense of higher performers, which in the long run helps to create a good working environment for high performers.

Further, performance related pay, unlike bonus pay and profit sharing schemes, enables employers to differentiate between the performance of particular individuals and the overall performance of the company. While these systems also provide an overall reward, by reserving a portion of the available compensation for high performers, it promotes values such as effective customer service, positive coworker relations, and teamwork. In addition, this system provides a device for employers to recognize the performance of individuals on a one-time basis. Because of this, employers can use it to reward employees who participate in one-time projects like opening up new sales territories (Hume, 1995).

Another benefit of performance related pay is easing administration and understanding.  It sets out the standards that employees must adhere to. When a company adopts the policy, their employees get to know these set standards right from the beginning as they are part of their contract. Many sales organizations find this strategy useful. They pay their employees for performance by either a straight-forward scale using a particular formula or a percentage of commission (Johnson, 2011).

Pay for performance programs also create the room in the workplace for healthy competition.  When a company gathers records of performance and keeps this information, employees, who see this data are motivated to compete to reach and exceed the level that other workers have reached. There is also the element of cost-effectiveness.  Many employers are concerned about the cost-effectiveness of their processes (Hume, 1995).  When an employer pays their workers on a salary basis, gauging whether this amount is being spent on a worthy course is very difficult. However, when they implement performance related pay systems, the company can scrutinize hard facts regarding how effectively they are distributing costs (Grace, 2006).

Increases Employee Retention

Another benefit of this system is the existence of less supervision. Organizations operating with performance related pay policy have no pressure to supervise their employees.  Employees have a clear understanding of what they need to do and are motivated to do it as it is linked to their pay. As a result, they have to show initiative. This element enables these companies can function with fewer supervisors than those that use other strategies. The ultimate benefit is this can be increased profits (Grace, 2006).

Other than these benefits, there are challenges of using performance related pay. Various studies on this subject have revealed several problems in various areas.  While performance related pay can motive staff, there are instances when it can do just the opposite. These payment systems are not always as effective as some employers suppose. If a PRP scheme is not designed well, it can cause affect staff morale negatively whenever it offers an amount of money that is not enough meet their personal needs and subsequently motivate them.  Additionally, when managers lack the skills to implement the policies or when there is inadequate communication between managers and the staff, it can negatively affect the performance of employees.  Employees may begin to consider the strategy as a device that the management intends to use it to undermine their hard work (Grace, 2006).

Since the performance of PRP systems often depends on the appraisal of individual workers, which line manager usually do, personal favoritism and bias can influence pay decisions.   If employee expectations are not managed well, and when they consider that their works are being evaluated unfairly, they react negatively. Such a reaction can have an effect not only on the performance of individuals but also the whole organization.  Perceived unfairness can also make teamwork to be undermined, which in the long run to influence people to think that performance is not linked to their pay but with establishing connections managers and supervisors (Pay for Performance, 2012; Mrudula, 2006).

Another challenge with this system is it accentuates differences between the lowest paid workers and the highest paid employees. Highest paid employees begin to consider that they are more important to the company than their other counterparts.  When this goes on unchecked for an extended period, researchers say it can lead to unhealthy competition.  With this system, it is also difficult to design objectives that all employees can consider as fair and realistic. Some performance measurement strategies such as individual incentive plans are expensive to implement.  Managers often struggle to choose appropriate time frames for rewards. If rewards are paid after a long period, it may be difficult to motivate employees, especially those who are not paid well enough ( Siegers,  2012).  On the other hand, if payments are released within a short period, they can contradict organizational interests.  Further, non-effective PRP systems can interfere with other programs and initiatives of the company (Halsey, 2006).

Motivates Employers and Attract New Talents

There is also a problem involving the evaluation of the contribution of employees onto the overall performance of the firm. This problem usually arises when a company decides to use schemes based on group incentives.  In this case, when an individual fails to contribute, this can have little result on the overall performance of the group and the company. Therefore, it gives individuals an opportunity to do nothing completely for the advantage of his group and the company but still claim to have contributed to the general success of the company. As a result, such a person can end up receiving rewards owing to the hard work of other members of his group (Halsey, 2006; Boring, 2006).

An additional challenge that this policy can present is created room for employees to fear giving their leaders their input for changes. They are motivated to do this even if they have productive ideas to avoid the possibility of the reduction of their earnings. Since many successful companies rely on the advice and input of their workers to make decisions,  when employees feel insecure to give their ideas, that means the organizations can face many unforeseen problems (Brennan & Barnes-Murphy, 2013).

Another related challenge is resistance to change.  Employees always fear company changes, especially in operating procedures. They consider that changes in this department can cause a decrease in productivity.  Organizations that face such resistance are bound to use the best strategies to be able to remain productive. Research has established that those companies that choose to move on without putting into consideration the fears and demands of their employees often experience a reduction in production.  If they handle these issues unprofessionally, the result can be an increase in the number of employees who are not motivated to perform.  The most appropriate way of reducing this kind of employee resistance is providing enough training and explaining the reasons for implementing the changes (Risher, 2004; Bjo?rklund, 2001).

Performance related pay cannot be used many service sector jobs.  An employer can face a lot of difficulties when they try to measure the productivity or success of some workers such as teachers, doctors, and nurse. There is no way one can measure their performance in numeric terms, which makes the use of this policy limited to other jobs (Risher, 2004).

In addition, from the employer’s perspective, implementing performance-related pay can be very inconvenient. It requires wide knowledge about the services that the company provides as well as many other internal and external environment of the firm. Those who are responsible for implementing these policies must also know clearly beforehand what particular employees and groups do and what should be done to ensure their performance improves and remains above par (Risher, 2004; Mihm, 2003).

Increases Staff Productivity

In conclusion, given that all compensation schemes have some both benefits and challenges; employers need to decide on plans that best suit their needs. Apparently, performance related pay policies can transform organizations into a result-driven culture where the desire to receive more income, the desire to improve and the desire for increased freedom can propel organizations to move forward to the next level. These reward policies can also improve employee retention and ease administration and understanding.

However, ineffective PRP can also lead to a decrease in staff morale and eventually the lack of proper performance. Since it is difficult to use this system to measure the performance of people in most service jobs, employers cannot use it to do some jobs.  For employers who opts for this strategy and wants to ensure it is successful, they must ensure that all targets and criteria of evaluating performance are agreed upon by all their employees and managers. Besides, all their designed goals must be consistent with the general strategy of the company. Further, employers need to create a favorable environment for which employers are able to achieve their targets and organizational targets as well. Given that PRP can help organizations to achieve high goals, employers must be prepared to spend a lot of resources and time in it to remedy problems that can affect the process.

References

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