Performance Pay

Written by Patricia Skinner
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Linking an employee's pay to his or her level of performance and output has become known as performance pay. In theory this is a very fair and acceptable way to reward workers for a job well done. In reality this method of rewarding employees can be fraught with issues.

Benefits of Performance Pay

To begin with, it is not unheard of for employees to accuse supervisors and managers of favoritism when settling levels of performance pay. For this very reason, performance pay tends to be more readily granted to the higher levels of company workers. In fact, over 80 percent of managers are now thought to be receiving rewards that are linked to their performance.

However, some estimates put the incidence of performance pay among ordinary workers at over 50 percent. There are very good reasons for paying a worker according to the work and effort he or she puts in. This kind of reward scheme is far more likely to motivate employees to give consistent levels of output. This method of pay is also more likely to attract the right caliber of worker for a given post, who is highly motivated and ready to commit to the job 100 percent.

There are different ways of structuring performance pay. Some companies opt for a short term bonus plan. Others simply link base pay to production. To assume that this type of pay scheme is always successful would be erroneous. In fact some workers find such programs to be a demotivating force rather than the opposite. Some individuals do not do well when placed in a highly competitive atmosphere.


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