Pay for Performance Plan
One of the central objectives of every organization is to have the best performance in its processes and activities. Organizations enhance work performance by putting together various resources such as; the physical resources, human resources, and capital resources. However, among these resources, effective management of human resources is the most vital approach to enhance an organization’s performance. As a result, managers in organizations are always at the forefront to ensure all human resource operations are running smoothly. Human resource management entails various scopes such as; performance appraisal, employee staffing, employee relations, and so forth. Moreover, managers are ever struggling to ensure that their organizations achieve the best results. Hence managers focus on the scope of performance appraisal. Through this approach, employers set up mechanisms to track employee performance and award the employees based on their performances. This approach has led to the introduction of the pay-for-performance approach as one of the methods to improve an organization’s performance. Several business organizations have therefore adopted this system in recent years. However, other organizations, such as public schools, have risen to resist the introduction of this approach to their systems (Brandl & Güttel, 2007). The divergent minds about introducing the model in organizations have led to serious controversies among organizations. This paper, therefore, seeks to provide a detailed analysis of the pay-for-performance approach as used in organizations.
Teachers performance pay in the United States
Approximately all public schools pay teachers depending on the salary schedule that differentiates what one teacher earns to the other. This form of salary payments depends on an individual’s seniority, experience, and credentials without focusing on the performance. As a result, various reformers in the US have regarded this approach as being problematic, and therefore it remains subject to change (Caillier, 2010). The reformers consider the traditional method of remuneration due to two reasons. First, the classroom setting provides an environment with the potential of moral hazard, yet it is difficult for the principal to take charge of what is taking place in classrooms. On the other hand, the criteria that differentiate the teachers’ pay do not correlate with the teacher’s performance.
The modern policymakers focus on tying teacher’s pay to the student’s performance in tests. Teachers who receive bonuses based on their return have most of their students scoring highly in their analyses. However, some section of teacher differs from this opinion due to several reasons. First, they claim that other teachers can manipulate students’ test performance to make them look like the highest performers. Secondly, performance in tests must necessarily not reflect the skills possessed by teachers to yield high performance. Lastly, the performance of students based on the test scores varies from time to time. As a result, it is convincing to determine the real performers. For example, a teacher who has been recognized as being the best performer this time may become the worst performer in the subsequent evaluation.
Generally, exposure to the pay-performance system to public schools will lead to an increase in adult wages, an increase in labor force participation, and a reduction in unemployment. Moreover, the chances of graduation also increased significantly as a result of providing bonuses to the teachers.
Overview of pay-for-performance
Pay for performance system is a new approach that is meant to replace the traditional system that determined the pay of an individual based on the seniority of an individual. Most people, therefore, regard pay-for-performance as a significant resource used at workplaces to enhance the efficiency of employees. The new system is quite different from the old order in several ways. While most organizations believe that the approach is going to improve their performance, some organizations have strongly come up to dispute the discovery. It is due to the controversies that the federal laws are facing a significant challenge of reinforcing the new system among all organizations. In this case, most business organizations have been in support of the system, while others, such as the public schools have not positively welcomed the changes. The employees in public schools have, therefore, created a mega debate whether the approach should be adopted or not. As such, there is no clear indication of whether the system is going to be included in public schools any time soon since everyone’s opinion counts.
One of the essential reasons as some organizations support the system is because it enables employee compensation, among other benefits. This has, therefore, helped to stimulate the individual performance of every employee. Moreover, apart from compensation, different methods in which an organization uses to pay employees include; motivating them, attracting and retaining them, regulating labor costs, treating them well, and so forth. These payment methods can as well be referred to as the organization’s pay objectives. Also, when implementing the pay objective into an organization, the organization is likely to face trade-offs, whether they have a pay for performance plan or not.
Designing an active pay for performance system
The decisions required to develop an active payment for performance systems are usually crucial. As a result, managers must be keen when making similar decisions to avoid chaos with the employees. The decision-makers should create a design that takes into consideration both advantages and disadvantages. Based on this, the managers remain with a task of discovering; who is to be rewarded, which reward will be issued, how to pay the employees, and suggestions to maintain the integrity of the payment system. It is the role of the managers in an organization to come up with mechanisms of identifying the right people for the rewards. For instance, in this context, the employees or teams with higher performance will be considered first. One approach that can be used to track employees’ performance is by measuring the outcomes of their work and recording them from time to time. On the other hand, since the results vary from one employee to another, the manager should, therefore, identify which reward is to be given to who and how it is going to be issued.
Moreover, managers focus on the following factors when they want to determine whether pay for performance is the right choice or not; focusing on goals, incentives, consistency, and clear guidelines. Firstly, for setting clear directions, managers are required to develop, document, and communicate clear guidelines regarding the compensation policies. The instructions need to cover bonuses, commissions, wage increase, and requirements. Secondly, to successfully implement the pay for performance plans, the manager must tie compensation and performance to the broader goals of the organization. Moreover, the payment for performance systems must be applied consistently and fairly. The system should be used at all times. It should not be a seasonal activity. Similarly, the managers must always ensure that the implementation of the pay for performance system is accurate. Lastly, companies must develop and maintain incentives at all times to encourage employees to be committed and smarter. In the process of developing incentives, an organization must be keen to ensure that as they inspire higher performance, profitability is also on the rise.
Apart from these approaches, a shift from the traditional system that focused on reward-based on tenure to pay for performance system might require more than legislation. The legislation will help to easily transition from the conventional systems of payment to the current performance-based system. Legislations will help to standardize the processes of determining payment for performance. For example, the legislation will help to ensure that there are at least some standard figures of compensation that an organization has to obey.
Advantages of pay for performance design
Pay for performance systems has extremely significant benefits to the organizations that use them. Firstly, pay for performance system serves a motivating drive in an organization. An organization that pay their employees based on their performance have motivated employees (Glassman et al., 2010). For example, if an employee has received some benefits from an organization such as free transportation or recreational services, the employee will be encouraged to work harder. Likewise, with this system, employees will enhance their commitments for them to register top outcomes as compared to other employees. Ultimately, the more committed the employees are, the more likely and organization also benefits.
Moreover, the use of pay for performance systems helps to enhance retention at the workplace. In cases that an organization offers to pay for performance jobs, employees will tend to create a long term relationship with the organization to keep on enjoying the benefits even in the future. The employees will be comfortable with the commissions and paychecks that are as a result of long-standing stints. Employee retention is a vital aspect of human resource staffing since it helps a company to have significant ownership of mega experiences. The experiences and skills are essential in solving an organization’s environment and operational issues. Consequently, employee retention will help to increase productivity within an organization.
Disadvantages of pay for performance design
Despite several benefits of fee for performance model, the system has some potential drawbacks. One of the significant disadvantages is the unfair treatment of employees by managers. The policies put in place to track performance may be, in some instances, corrupted, leading to unfairness within the system. For example, a manager may award a particular employee as the best due to biasness and not the actual results of the best performer. The process of favoring some employees may lead to an escalation of violence and hatred within the workplace. At the same time, people will raise the prices of their products to meet the increase in demand for the commodity. Similarly, the new system will encourage competition among employees, therefore, affecting collaboration and teamwork. Most employees will not be willing to help their colleagues with fear that they will outdo them in performance, thus making them miss awards. They will not communicate change even during the times when it is necessary.
Theories explaining pay for more performance model
Social sciences have put forward various theories that attempt to explain the logic behind pay for performance as the ideal approach towards achieving organizational goals. Hence, Expectancy theory has been the leading theory that provides a more convincing rationale on why payment for performance approach enhances employees’ commitment. The theory offers a prediction that performance can be increased, and employee motivation be enhanced, under a pay for performance model if the following conditions hold;
- A clear connection between pay increases and performance that are accurately and consistently communicated.
- Employees place much value on the to pay increase and view the increments associated with the pay for performance plan as being meaningful.
- The employees know the plan performance goals and regard them as doable based on their skills, abilities, and so on.
Another theory is the goal-setting theory. The approach complements the expectancy theory but adds an explanation of the conditions with which employees regard the plan performance goals as doable. According to this theory, employee performance can be enhanced when goals are moderately challenging, specific, and accepted by employees. Additionally, the increase in the likelihood of employees achieving plan performance goals is a result of an increase in supervisory support, feedback, and pay for performance plan making pay. The two theories combined argue that performance plans have the potential to increase performance by diverting the employees’ efforts towards the organization’s goals and through enhancing the possibility of attaining the goals given that factors such as; feedback, specific goals, doable goals, and consistent communication are met.
Examples of pay for performance plan
The payment for performance plan is subdivided into various projects, which include; individual incentive plans, merit pay plans, and group incentive plans. First, different incentive plans include bonuses, commissions, and piece rates. This incentive, in many cases, is used to approximate the expectancy theory and the goal-setting theory. This incentive focuses on the pay increase to an increase in performance at an individual level. Regarding this, most employees view the personal level measures as the more doable because it is under an individual’s direct control. However, the personal incentive’ view is different from group incentive plans. The individual plans offer potentially more meaningful and larger payouts as compared to the merit pay plans. In general terms, various studies indicate that individual incentive plans have a positive impact on individual employee performance. This plan is also being recommend as the ideal one performing those jobs in an organization that have simple structures, when the performance is controlled by employees, when goals are relatively unambiguous, when the goals are quantitative, and when the payments made to achieve performance are great. Conversely, the individual incentives have some flaws. For instance, an individual gets to a point where he or she neglects other aspects of a given job because they don’t belong to him. Moreover, individual incentives make some employees report inaccurate and invalid data about performance, especially when the management is not trusted. Lastly, working with different incentives makes an individual disrespect team norms within the organization.
Furthermore, the merit incentive plan indicates it seems to be filling most of the gaps that the individual incentive plans leave behind. This plan is mostly employed with more professional jobs and complex managerial jobs. They are mostly used among employees in large private sector firms. Besides, the merit pay plan payouts are relatively small as compared to others. Moreover, the merit pay plan enhances employee perception of an individual as well as measures for job employee satisfaction. Some of the limitations of this plan include; lack of organizational factors that may affect the positive merit pay, lack of reasonable baseline reliance and baseline on the opinions for performance measurement. On the same note, quantitative measures seem to be the most acceptable because its success cannot be easily distorted because of their ability to dictate specific goals. However, the case is different from the more qualitative merit plans with a lesser amount of measures for performance.
Group incentives also form part of the plan in an organization that is meant to determine the salary schedule to be used in organizations. This is because the group incentive plans are typically tied to measures of work facilities, workgroups, and the organization’s performance. Usually, group incentive plans focus on complex structures, large working groups, and overall work performance. The plan represents an approach that is used to pay a group of employees based on their performance.
Recommendations
The use of pay for performance has been employed by several organizations all over the globe. It is evident that the introduction of payment for performance system is going to thrive further results. However, the opening of the payment for performance system in other organizations has become troublesome. For instance, for public school teachers, there has been a significant debate on whether to introduce the system or not. The teachers’ reformers who were meant to implement this system have failed due to the limitations they face from their counterparts.
In order to work in harmony with everyone in the environment, several recommendations are available. In the first place, the managers should ensure that they employ people with adequate skills, knowledge, and ability to an organization.
In the context of public school teachers, pay for performance system should be part and parcel of the program. Teachers should allow management to set up pay objectives that allow them to receive benefits, bonuses and awards based on their performance (Ballou, 2001). However, the payment set should not be on a permanent basis since the leading teacher might turn to be the last in the upcoming tests. Similarly, the awards provided should be based on the current performance and should have no effect on the subsequent performances. Additionally, the team is responsible for evaluating the performance of employees. Therefore, the management should by all costs avoid any form of biasness when identifying the best performer.
Conclusion
Pay for performance approach is a modern system of remuneration that is meant to enhance performance through increasing bonuses and benefits offered at the workplace. The system has been adopted by several organizations including the business ones (Durham & Bartol, 2000). However, other organizations such as, public schools have resisted the introduction of the system. those who resist this movement claim that the system will contain lots of biasness since other evaluators are corrupt and will award higher grades for those they know. On the other hand, performance of an individual keeps on deteriorating from time to time.
References
Ballou, D. (2001). Pay for performance in public and private schools. Economics of education review, 20(1), 51-61.
Brandl, J., & Güttel, W. H. (2007). Organizational antecedents of pay-for-performance systems in nonprofit organizations. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 18(2), 176-199.
Caillier, J. (2010). Paying teachers according to student achievement: Questions regarding pay-for-performance models in public education. The Clearing House, 83(2), 58-61.
Durham, C. C., & Bartol, K. M. (2000). Pay for performance. Handbook of principles of organizational behavior, 150-165.
Glassman, M., Glassman, A., Champagne, P. J., & Zugelder, M. T. (2010). Evaluating pay-for-performance systems: critical issues for implementation. Compensation & Benefits Review, 42(4), 231-238.