Pay for Performance Popularity

Pay for Performance Popularity

Introduction

“Pay for performance” term depicts a strategy of pay, where performance evaluation of employees individually or a group, or organization as a whole has a major influence over the increase in bonus or pay of each employee. In order to use pay for performance system efficiently and effectively, the organization must clearly define the goals of the organization and translate these goals into the expectations of an individual, process checks and continuous interpersonal communication must be emphasized, individual accomplishments must be carefully assessed, which will use to defend the deviation in rewards. In improving organizational performance it will be far more critical than rewards.

Pay Practices in United States

Private Sector

The main goal of private sector is to build a name in the market. In order to maintain a position in the market, profit is necessary for a business. Market prestige of any organization is linked with profit, performance of employees, and organizational productivity. A study over Lincoln Electric Company revealed that the employee productivity was linked with incentive pay (Heneman, 1992). Some other studies confirmed that the private sector also use merit pay. According to a study, about 90 percent of the 1000 Fortune companies use merit pay (Ledford et al. 1995). Successful pay plans of companies have been adopted by other companies of the private sector, to reward their productive and competitive employees (Tushman & O'Reilly, 1997).

Over the years an increase in the new pay schemes has been observed such as, total compensation, pay on skill bases, and broadband pay structures (Ledford et al. 1995). Pay structure, based on skills is very famous in the private sector because it increases the base pay permanently (Jenkins et al., 1992). Lawler (1990, p. 3) makes an important point when he says “reward systems have changed very little over the years, despite enormous societal business change.”

Public sector

Merit pay system was also started by the private sector in early 1980s, and the usage of this system was continued until 1990s. According to Heneman 1992, the reason behind the failure of performance based paying system in the government organizations is history of GS system against pay for performance system, lack of direction, and limited allocation of pay.

Performance measurements are used for defining specific management challenges by public sector managers. They use the performance measurements to assist them in the improvement of performance and evaluation of workforce. An assessment of Federal Government pay for performance plans has revealed that it is a combination of both ideas from academic literatures and private sector management (Behn 2003). In the same report Bhen also discussed how the two sources helped in defining attributes, characteristics and desired behaviors.

Objectives of Pay for Performance

Behind the pay for performance, an organization may have many different objectives. For instance, an organization might use incentives for retaining and attracting high performers. Another objective may be an improvement in employee efforts, which consequently results in high organizational ...