What is Performance Based Pay?
According to an article on Business News Daily, written by Sean Peek, titled Performance-Based Pay Won’t Motivate Employees as Much as You Think (2021), Performance-
based pay is “compensation that is tied to employee’s contribution to a company”. Peek compares this to the work of a car salesman, if the salesman does not sell any cars that day the business won’t generate any profits and as a result the salesman won’t receive a paycheck. This
seems like the perfect situation for when businesses and employees are both being top performers in their industry however can cause issues with other business models. This model can also be hard for employers to keep track of as employee performance may change during any given time depending on supply and demand. Stress Vs Productivity
Performance-Based pay models does drive higher companywide job performance however may lead to higher stress levels for the employee to feel. This model has been shown to increase productivity simply because the employee’s livelihood relies on the pay that they receive to maintain their lifestyle and raise families. Peek (2021) continues to mention that performance-related pay might be perceived as exploitive in this sense. Pros of Performance Based Pay
According to Easymetrics (2018) the pros of Performance-Based Pay may include reduced turnover, reducing supervisor oversight as well as a cultural change. Beginning with reducing turning over, implementing a performance-based pay model in an organization will see an increase in turnover initially as the poor performers begin rotating out but by adjusting for the future Easymetrics (2018) notes that turnover often drops by 50% when it is fully incorporated by the employees. Next, there will be less of a need for a supervisor to keep an watchful eye over the performance based employees
Cons of Performance Based Pay
Peek (2021) listed the pros and cons of Performance Based Compensation. Listed pros include improving the retention of high-performing talent, where companies can incentivize employees loyalty and high performance of their work, this will have a positive impact on the amount of time HR representatives will need to spend recruiting new candidates; Performance Based Compensation also can reveal certain areas of improvement, this compensation methods
can help identify an employees weaknesses as well as weakness in the organization that may stem from training, processes or communication. Finally, this model helps set clear expectations of the employee to the employer when the employee becomes responsible for the
control of their pay and reduces miscommunication as well as transparency about their pay. References
Peek, Sean (2021) Performance-Based Pay Won’t Motivate Employee as Much as you Think.
https://www.businessnewsdaily.com/9712-performance-based-pay.html
