Performance-based pay
Performance-based pay is an important concept that allows employees to be given financial and non-monetary incentives for attaining quantifiable and predetermined goals. Various factors weaken the performance-based pay system in most companies. The Halo effect is one of the attenuating factors impacting performance-based pay. According to Bellé, Cantarelli, and Belardinelli (2017, p. 278), the Halo effect refers to individuals’ tendency to like other individuals who are like them. For instance, people who are golfers are likely to interact positively and connect with other golfers. If managers have a favorable view of workers, they tend to give the workers underserved high-performance ratings and overlook the areas which require enhancement. This makes the HR managers carry out performance evaluation appraisals in a way that confirms and entertains bias. Also, managers who negatively view their employees tend to prepare performance evaluation appraisal, supporting and encouraging negative bias. As indicated by Liao et al. (2009, p. 371), HR managers who have predisposed positive views on their workers pay more attention to developing and improving skills of the employees and offering more promotion opportunities. Halo effect in organizations can be encountered by conducting performance reviews, which provide opinions from other parties like colleagues and other company managers using 360-degree performance evaluation appraisal.
Most managers use another attenuating factor that affects performance-based pay. Middle of the road ratings is common techniques used by managers in rating all workers in the middle. For instance, if managers are using a 5-point scale, they tend to rate all three employees. This technique has a risk because most HR managers do not like giving low-performance ratings to low performers because they fear shattering the employees’ confidence. This makes the employees fail to understand the sectors they need to improve to increase their performance. This indicates that HR managers should focus on establishing performance evaluation appraisals that need managers to state the strengths and weaknesses of the employees. All employees have areas that need improvement, and HR managers must assist the workers in identifying their areas for them to grow their jobs.
Moreover, another attenuating factor to performance-based pay is recalling and rewarding only recent employee performance. According to Villado and Arthur Jr (2013, p. 514), memory has limits, and most managers are inclined to recall the most recent performance of employees rather than evaluating their actions over a long period like one year. This has negative and positive outcomes for the employee’s performance evaluation appraisal and rewarding. This problem can be resolved in companies by conducting frequent performance reviews and companies to carry out shorter performance reviews quarterly or after every six months instead of focusing on annual reviews. HR managers tend to focus too much on specific job skills, and this can affect performance-based pay for the employees. Satisfactory performance in a job focuses on capitalizing on the strengths of distinct technical skills required for the job (Truxillo et al. 2012, p. 345). Workers are required to have soft skills such as the ability to work in teamwork and effective communication. The commitment of employees in meeting deadlines is paramount in the companies. Well-rounded performance evaluation and appraisal for compensating and rewarding employees should incorporate evaluating employees’ technical skills with other overall features that constitute good workers and team members for firms. Mostly attenuating factors that decrease performance reviews’ effectiveness can be eliminated by integrating various performance evaluation methods and appraisal.