Corporations have always been challenged with finding ways to improve employee productivity so as to increase their performance and have better returns. Rewards, particularly money, have been used by many corporations to influence the performance of the employee (Beer & Katz, 2003). A pay for performance plan is a system used to reward employees only when specific targeted performance is achieved. This label covers a wide spectrum of compensation system that can be grouped in two general categories: merit and variable pay plans and these include both group and individual incentive plans (Milkovich & Wigdor, 1991).
According to the findings of Milkovich and Wigdor (1991), the effects of pay for performance as evidenced from research, surveys, theory, and clinical studies suggests that these plans, in certain instances, may produce positive plans on individual job performance. According to Beer and Katz (2003), a survey of 205 executives from different countries gives their perceptions of the causes and consequences of using incentives. Bonuses are used to motivate employees.
The executives believe that incentives rarely improve performance. The survey found out that incentives more likely will attract and keep an executive and this is more prevalent in the United States than in Europe and Asia (Beer & Katz, 2003). While pay for performance programs may be popular, it does not mean they are efficient and or desirable. Since these programs are created for human beings, a consideration should be made on what motivates them.
Some people have argued that the system of pay for performance may have a destructive effect on intrinsic motivation, teamwork, creativity, and self-esteem (Deci & Ryan, 2008). According to Beer and Kutz (2003), incentives do work so well but employees may get so motivated to work hard towards earning the bonus at the expense of other chores that might be profitable to the company. A challenge to the top management of the company is on the implementation of the pay for performance program among the employees.
The management faces barriers like difficulty in linking performance to the effort put in by an employee: when fine distinctions are being made or very small differences exist, then performance becomes very difficult to measure; when external factors outside the control of the employee affect the program like a delay in delivery, the this affects performance; due to difference in levels of performance between employees, the managers may tend to treat them differently, this might damage they relations and discourage teamwork.
It is also very difficult to establish a link between the pay and performance due to the following reasons: the employees start to rely on the incentive pay and will consider it unfair when it stops; the employees will also start comparing their pay with the rest of their colleagues in other departments to point out inequity, this might break the link between various department much needed by a firm; budgets for incentives always limit payouts; in case of change in a way of performing a task i.
e. due to a shift in technology, inequity can be realized and this causes strain between the employees. The pay for performance is used objectively to motivate the employee, increase his commitment, to reinforce values and cultures of a corporation, to discriminate equitably between the employees basing it on performance and finally to align with the company performance (Beer & Katz, 2003). Human beings always have a need to satisfy; this drives man to attain perfection through self-development.
Integrity, responsibility, simplicity and naturalness usually characterize the highest state of self-actualization (http://www. accel-team. com/motivation/index. html, 2010). When employees are given an incentive for a job well performed, they get motivated to even work much harder towards achieving the goals of the company. The pay for performance makes the individual motivated to achieve; it also brings more money into the pocket of the individual hence he or she can take care of his financial needs.
Research has shown that factors such as job security, advancement, type of work and the company matter much to an employee more than the money. Contrary to the common belief that money is the best motivator, some researchers are strongly opposed to the use of money to motivate individuals. They view money as lacking long-term value (Schraeder and Becton, (n. d. )). Instead, organizations should tap into employees’ intrinsic motivation to have them do a good job, produce quality products, and be proud with what they do.
This is achieved through giving the employees an opportunity to input into their jobs hence increasing their creativity (http://www. accel-team. com/motivation/index. html, 2010). Hewlett-Packard is a corporation that has experimented on the pay for performance program in the early 1990s. These experiments were deemed to be successful since they were the initiatives of the local management who had a very high level of commitment to their successful implementation.
These initiatives also had the full approval and support of the top management who allocated resources to support the programs. Since HP is a high-commitment company in which communication is good and the trust between the management and the employees is strong, these programs were predicted to succeed. HP authorized a diverse set of 13 different alternative pay programs. These involved team and skill based pay systems; gain sharing and bonuses and some cash incentives.
The local management felt it needed to use the pay for performance to induce the employees to achieve particular goals, reinforce learning or team behaviour in semi-autonomous teams or to compensate the individuals. These programs were all discontinued after three years, reasons being: Some employees felt insulted by the fact that the company tried to “bribe” them to reach a goal they were ready to reach; when these programs stopped, employees, since they are used to the extra incentive, felt bad about it and they became less motivated for the job.
In this HP example, managers concluded that it is better to coach employees in how to improve their manufacturing processes than giving incentives inform of pay (Beer & Katz, 2003). Finally since an employee most certainly has a family, there are both positive and negative influences the pay for performance may have on the individual’s relationship with their families. The bonuses and incentives given to an employee translates to better living standards for the family in terms of affording the things that money can buy hence an individual is well capable of taking care of his or her family.
The employee who is paid for his performance is motivated to continue working harder and may end up being a workaholic, this is very dangerous to the family unit since he no longer spends much time with their families and this might even lead to broken families in extreme cases. The health of the individual is also negatively impacted on in some cases where the individual has no time to concentrate on things concerning his body. The implemented incentive program must measure and reward the right things for it to meet the objective of contributing to the company’s success.
If this is met, pay serves as an important tool to deliver business priorities. According to Britton (1997), when these programs measure the wrong things, they have a negative impact on motivation and they can result into a destruction of long term motivation, destroy employee relationships, and an aversion to taking risks. These rewards are considered as bribes. Though these rewards can bring very positive results in achieving the goals of a short term projects, corporations should take more into account before implementing them for long-term projects.
It can be arguably said that large corporations should not implement these programs; instead they should focus more on training their employees to become better motivated to achieve their goals. References Beer, M. & Katz, N. (2003). Do Incentives Work? The Perceptions of a Worldwide Sample of Senior Executives. Human Resource Planning. Vol. 26, issue 3, p. 30. Deci, E. L. & Ryan, M. R. (2008) Facilitating Optimal Motivation and Psychological Well-being across Life’s Domains. Canadian Psychology. Vol. 49, issue: 1. p. 14. Milkovich, T. G. and Wigdor, K. A. (1991). Pay for Performance: evaluating performance appraisal and merit pay.
[Online] Available at: http://books. google. co. ke/books? id=5c_gqEyozHwC&printsec [Accessed: 4 May 4, 2010]. Accel-team (2010) Employee motivation: Motivation in the work Place – theory and practice [Online] Available at: http://www. accel-team. com/motivation/index. html [Accessed: 4 May 4, 2010]. Schraeder, M. and Becton, B. J. (n. d. ) An Overview of Recent Trends in Incentive Pay Programs The Coastal Business Journal. Vol. 2, issue 1 p. 24 Britton, A. (1997) Full Employment in the Industrialized Countries. International Labour Review. Vol. 136, issue 3, p. 293 International Labour Office: ProQuest LLC.