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Pros and Cons of Pay for Performance in Business Organizations - Essay Example

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Pros and Cons of Pay for Performance in Business Organizations

Nowadays, the utilization of this scheme is widely used not just in the United States but all over the world as documented by the Harvard Business School. While others have strongly supported the view that performance based compensation will promote efficiency and satisfaction in the business organization, some empirical experiments failed to display its significance. In line with this, this report will look at the pros and cons of pay for performance. This paper will apply pay for performance both for employees work on their own and those working within a team.
Pay for performance is based on the premise that money is a motivational factor. This premise assumes that in order for individuals to work harder, monetary incentives should always be present. Pay for performance is a system which directly links money to higher and more efficient performance.
According to Pinto, performance based is the best from of compensation in this knowledge-based business environment. He argues that the "old archaic systems and processes of lax reviews and annual automatic pay increases across the board results in increasing jeopardy for employees whose pay has escalated over the years to a level that simply cannot compete in the modern global environment" (Pinto 6). This is supported by empirical results the most famous of which is the GE experience. It should be noted that Jack Welch significantly improved the performance as GE as the entire workforce "shaped up as nobody wanted to be at the bottom" (5). In some situations, money can function as a primary motivator in the case of workforce in the developing countries. An increase in their salary almost always motivates to work harder to finance their families' expenditures.
Performance-based compensation is also favored because of its relative simplicity. This system is regarded to give immediate and meaningful feedbacks. Also, this system presents measurable objectives. It should be noted that performance is often based on quantifiable factors like revenue, profit, bookings, and shipments. It is contended that "reasonable, measurable goals and performance objectives" (Pinto 8) could be a good basis of assessing the relative performance in an individual.
All the aforementioned advantages can be directly applied to pay for performance in individual employees. However, Kohn argues that this scheme can be detrimental for the organization as it may actually "damage quality and productivity, and cause employees to lose interest in their jobs." According to him, pay for performance rewards through seduction as an employee is directly manipulated to perform well by offering rewards. He also argues that this system ruins relationship as it strongly emphasizes the disparity of power between the giver of the reward and the receiver. As pay for performance usually breeds competition, it ruins the relationship among employees and encourage them to become individualistic. Also, this system ignores reason as the only basis of performance is the attainment of quotas. Thus, management is limited in seeing what is wrong with the system which hinders productivity (Hays 20).
Team Based Pay for Performance
Pay for performance if also being promoted within teams. As management recognize that employees should be coherent and work as ...Show more


One of the most challenging tasks of a manager is establishing tools in order to fully motivate employees. Motivational factors are essential in ensuring that employees are doing their best to excel in their respective post. However, the long quest for the best motivational technique which encompasses the uniqueness of each individual and each business structure remains unresolved.
Author : cyrusrutherford
Pros and Cons of Pay for Performance in Business Organizations essay example
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