Question

When determining the size of the monetary increase, what must management take into consideration for pay-for-performance to be fully successful?

Answer 1

1. Readiness of the company: Before Considering any decision, the management first make sure that the company is ready for pay-for- performance. Most of the companies have now already implemented pay for performance model rather than the fixed tenure. Now, the companies should not have to wait for the conditions to improve, rather they can implement this model to make an organizational change in the company.

2. Goals to be set in advance: The companies should set up predefined goals before switching on pay for performance before changing any pay system. The major goals for this system should always be recruitment, motivation, retention. Apart from this, they should be improving the pay for the highest performer.

3. How to measure performance: The system can be designed in 2 ways. First, the performance can be grouped, second, the performance can be individual. For the First, the employees working in backend or the employees whose activities indirectly support the operation of the company can be categorized. For example, I.T. executives, Sales operations executives. And on the other hand, the employees who are working at frond end or are directly linked to the accomplishment of the mission can be categorized. For example, Sales Executives.

4. Ways to reward them:

• Bonuses: Bonus is something that is given additionally to the employee apart from his or her base pay. Bonus should be purely depending on the performance of the company. It should not be guaranteed. Reason being, there might be some unavoidable circumstances like Covid Pandemic, Earthquake, Recession which can adversely hit the market. If the company will be profitable, the chances of bonuses will increase.

• · Performance based: These pays are incorporated based on the employee’s base pay. These are fully depending upon the performance of the employee. The importance of this system is that, if the overall profitability of the company is less, there are still chances for the employees to earn more based on the efforts they put into their work.

• · Hybrid Based: Companies can also choose to reward the employees in a mixed pattern of both bonus as well as performance based. This will help the employees to still earn more, apart from their regular pay if, the company is not profitable or if their individual performance was not up to the mark.

5. How these performances will be funded: The employees should get bonus and incentives when the company is capable of good income and profits. In good years, the employees are responsible for the company’s profitability; thus, they should be rewarded. Similarly , n bad years, the employees should share the downturn of the company by receiving little or no salary.

6. Performance Rating and Pay decisions: Usually supervisors rate the employees based on their performance and based on that, the increase in the pay is decided. This is an example of decentralized system of rating performance. This is mostly applicable in large organizations. On the other hand, in the centralized system of rating performance, top level management takes the rating decision. This is mostly applicable in small organizations.