Course – BBA LL.
B (Hon’s) (2020-2025)
Subject – Compensation & Reward Management
Enrollnment No. – A50821520020
Topic – Pay for Performance
Submitted To Submitted By
Ms. Vaishali Gupta Ketan Mehta
Introduction
Pay for Performance is a compensation strategy that
uses salary, bonuses, or other benefits to directly
incentivize employee performance. Employee
Performance is generally measured by pre-defined
metrics or qualitative evaluations (performance
appraisals).
Challenges/ Problems
1. The Syndrome of Work
Performed in Relation to Pay
2. Negative Results on Spirit of
Cooperation
3. Lack of Control
4. Difficulties in Measurement
of Performance
5. The Credibility Gap
6. Job Dissatisfaction & Stress
7. Potential Decrease in
Intrinsic Drives
Solutions
1. Appropriately Linking of Pay and Performance
2. Pay for Performance as Component of HRM System
3. The building of the Trust of Employees
4. Performance makes a Difference
5. Multiple Layers of Rewards
6. Increase in the Involvement of Employees
7. Non-Financial Incentives & Motivation
Reasons For the failure of Pay for Performance System
01- The rating errors occur in a higher ratio regardless of the
type of appraisal used.
02- The dysfunctional conflict is raised in the organization as
individual goals are more focused than group goals due to
merit systems.
03- The duration of period evaluation of performance
appraisal is limited that sacrifices the long term goals of the
organization.
04- The interpersonal confrontation is raised due to the non-
agreement between the employees and supervisors on the
evaluation.
05- The service sector does not contain the individual merit pay
systems.
06- Limited amount of compensation is controlled by the supervisors
therefore the differentials of the merit pay are smaller and therefore
are objectionable.
07- The frequency & size of merit pay is influenced by a number of
bureaucratic factors which do not cover the performance of the
employees.
08- There are multiple purposes for the designing of performance
appraisals. So when there a number of accomplishing objectives in
front of a single system, then it is not possible for the system to achieve
all the objectives effectively. The supervisor faces difficulty in
performing the functions of adviser, counsellor & evaluator at one time.
Conclusion
The success or failure of a PFP plan can depend first on planning for it and second on
how it is implemented. Despite numerous advantages of the implementation of this
plan for some employees, a growing discontent was observed in some others.
According to the findings of the study, reviewing the principles of paying employees
according to the coefficients appropriate to each occupation, paying much more
attention to the qualitative aspects of employee performance, and computing the
payments based on individual performance not on the income of the departments
seem to be necessary. Therefore, implementing this plan could result not only in
benefits but also in observing equity and fairness. Therefore, the in-depth review of
such plans and the involvement of stakeholders in drafting and developing laws and
guidelines could reduce some of the challenges of implementing the PFP plan. It was
hoped that the results of this study would enable decision-makers and planners to
correct existing challenges and consequently promote them.
