Question

Making managerial pay contingent on measures of managerial and/or firm performance motivates them to deliver good performance for shareholders. However, it also burdens them with greater risks than they may like. How do organisations balance these two considerations when choosing managerial pay and performance measures?

Answer 1

It is evident that making the managerial pay congtingent on measures of managerial and / or firm performance certainly motivates the employees. It actually buids up the team spirit amongst the team members towards attaining the higher output and attain their ultimate goals. The team actually toils hard towards achievement of the targets with highly focused efforts. This ultimately results in achievement of targeted results and in turn contributes towrads the profitability of the organisation. Hence, the share holders in turn are certainly benefited out of the said concept.

However, every coin has two sides. Likewise for certain projects / tasks, wherein the possibility of the positive results may not be there due to some prolong awaited pending govt. approvals, the mentor and the team members may get demotivated since any toiling efforts are not all to achieve the targeted results. e.g. :- If XYZ Co. has executed a bridge construction contract with ABC Co. wherein XYZ Co. has to construct the bridge with in time period of 2 years. Now, the top management of XYZ Co. gives the target to its finance department regarding collection of remaining dues from ABC Co. However, fact is that, the Co. can get the payment only after the approval from the concerned Govt. Dept. regarding certain CIVIL drawings and the said approvals are under litigations. Hence, in our example, any target assigned to Finance Dept. employees shall not be feasible to be achieved by them which can lead them to demotivation.

As a result, any organisation / top management has to strike a balance between the managerial pay and performance measures, keeping in to consideration the qualitative as well as quantitative issues like unforseen events, situation beyond control, legislative issues etc. In a nutshell, the performing employee should always be awarded with the greater perks and remuneration in order to keep them motivated.