Knowledge-based organisations these days follow a performances-based payment plan offering awards to employees for cost saving suggestions, bonuses for perfect attendance or merit pay based on supervisory appraisals. The objective of performance pay is to develop a productive efficient and effective organisation which enhances employees’ motivation and effectiveness. Performance pay is based on employees performance on the job. It is believed that this approach attracts and retains better talents.
A growing number of companies in recent times have established compensation programmed for employees that offer additional compensation based on individual, group and organisational performance. The logic behind this move is understandable. Organisations want every individual to think of performance in the same way as the organisation. You have to compete, get ahead, deliver results and fight for the winning slot almost on a daily basis. In such a scenario, the employer-employee relationship assumes a mercenary dimension, bulldozing poor performers at every stage. The organisation becomes cold and transactional rather than warm and relationship oriented. It affects workforce camaraderie and undoubtedly kills the morale of a large majority of employees who lag behind in the race. The single-minded focus on the performance, of course, helps the organisation in weeding out the dead wood and remain highly competitive.
Guidelines for Effective Performance-based Pay System
To be fair to employees, organisations should keep the following guidelines in mind while instituting merit pay systems:
1. Establish high standards of performance, so that only the truly outstanding employees emerge as winners.
2. Develop accurate performances appraisal systems. The focus must be on job-specific, results-oriented criteria as well as employee behaviours.
3. Train supervisions in the mechanics of carrying out appraisals and offering feedback to employees in a proper way.
4. Tie rewards closely to performances.
5. Use a wide range of increases. Also, make pay increases meaningful.