Question

An organization’s overall well-being in many instances has a direct tie to economic conditions. This is especially true for businesses whose products or services are elastic (i.e. price sensitive) or depend heavily on consumer’s discretionary income (i.e. non-necessities or luxury items). This has forced many companies to become more “lean” in terms of their workforces, which in turn has had an impact on compensation practices. One of which is moving to more “performance based pay models”. Research this topic and provide a summary of your thoughts.

Answer 1

In order for businesses operating in the perfect competition market, where the price elasticity of demand is high. There is a need to implement lean methodology both in the supply chain/the manufacturing process as well as workforce management. We see that companies that depend upon a minimal profit margin especially need to be able to maintain their operation cost in order to remain profitable. Performance-based pay allows both the company and the employees the benefit of being able to receive the most benefits from this process. A company can essentially promote good behaviour, higher performance output, higher throughput and create a healthy workforce competition amongst the employees while the employees are motivated to perform in order to receive the most benefit and also attain a sense of self-achievement which allows them to feel satisfaction from their job and maintain the necessary output for the company.

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