Discuss about the Pay-for-Performance in Downward Economy?
Pay-for-performance in the downward economy can have several implications. In using this way of paying to the people in the organisation at the time of downward economy can have the below issues that consequently can affect the compensation to the employees:
Lack of Flexibility in Performance Measurement:
Pay-for-performance is the component of the compensation made by the company based on meeting certain performance criteria. The major issue related to pay-for-performance in the downward economy is the lack of flexibility of the performance measures. The downward economic decreases the demand for the goods and services in the market that affect the ability of the people to perform as per the fixed performance measures. It influences the compensation of the employees, which are paid on the performance basis (Milkovich, et al, 2013). In addition, at the time of the economy not being in the good condition, employees cannot perform as they do in the normal time and it can influence their performance to achieve the targets and consequently the compensation.
Through this method, employees are paid through the quantitative goal, which is not changed and remains same at the time of economic downward also. So, the lack of the flexibility of performance measurement creates the major issue for the firms to adopt this method of paying the employees adequately and in a fair manner (Stroud, et al, 2012). It influences the performance and compensation of the employees and consequently their morale and contribution because the compensation is based on the employees’ performance, which declines at the time of downward economy. A decline their morale and contribution make the situation of organisation worse due to inability to achieve the targets and for being competitive (Milkovich, et al, 2013).
It also causes a decline in employee satiation, which is the major issue faced by the firms in the use of pay-for-performance in the downward economy. It also affects the growth of the organization with a decrease in the loyalty of the employees towards the organization. It also creates problems for the organisations to manage the employees’ performance and to retain the skilled employees in the firm in this crisis situation (Indianna, et al, 2015).
The lack of flexibility in the performance measurement also affects the organisational ability to determine the right compensation for the employees at the time of economic downturn (Indianna, et al, 2015). But at the same time, it is effective to improve the compensation policy of the firms to meet the situation of the economic downturn as it enables to reduce the payment based on the performance of the employees.
Lack of Reliable Performance Indicators:
Lack of valid and reliability performance indicator is another issue in using pay-for-performance in the downward economy. It is because of inability to have a clear picture of the demand and the supply conditions in the market. The performance indicators in pay-for-performance are not considered reliable in the downward economy due to declining demand and consequently the spending of the people, which makes it less effective to use for compensating the employees (Anderton and Kenny, 2010). It creates trouble for the companies to pay the employees as per their performance, which creates issues of their retention and loyalty with the firm. It also has a negative relevance with the compensation structure of the organisation due to decline in the value of compensation and the performance evaluation for the employees that affect their ability to perform well and consequently, it causes a decline in the overall competitiveness of the firm. It is because due to unreliable performance indicators, employees face the problem to achieve their targets and goals and consequently to improve their compensation.
At the same time, the downward economy also affects the compensation of the labour class employees. It is because in this condition, companies reduce their production quantity, which increases the cost of manufacturing per unit and use of pay-for-performance is not suitable to this condition, while keeping the same performance indicators to evaluate their performance and to pay them (Damaris, 2013). The labour class employees face more problems in the absence of getting adequate compensation. It causes a decline in their performance and consequently the organisational productivity, which affects the overall competitiveness of the firm. Although, it is beneficial for the firm to make its compensation policy strategic in the line of its growth objectives and to face the situation of the downward economy, but it increases employee turnover that causes an increase in overall cost of the business (Koyuncugil and Serhan, 2013). It is because in the situation of the downward economy, most of the companies have higher targets with less performance based incentives.
Anderton, R and Kenny, G. (2010). Macroeconomic Performance in a Globalising Economy. USA: Cambridge University Press.
Damaris, P. (2013). Spiraling Downward: Thinking About and Planning for Economic Collapse. USA: Prepper Press.
Indianna, D., Coy, M and Berman. E. (2015). Public Administration and Policy in the Caribbean. USA: CRC Press.
Koyuncugil and Serhan, A. (2013). Technology and Financial Crisis: Economical and Analytical Views: Economical and Analytical Views. UK: IGI Global.
Milkovich, T. G., Newman, M. J., Cole, D. N., Yap, M and Gerhart, B. (2013). Compensation. USA: McGraw-Hill Ryerson, Limited.
Stroud, C., Viswanathan, K., Powell, T and Bass, R. P. (2012). Prepositioning Antibiotics for Anthrax. USA: National Academies Press.