Performance Based Pay

In: Other Topics

Submitted By Sabs
Words 479
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As our text states performance based pay should fit within the organizations external and internal environments. The “two external environmental components that have had a substantial effect on performance based pay are technology and laws and regulations” (Jackson, Schuler, & Werner, 2012, p. 402). Today, technology is helping to make performance management more accurate and laws and regulations can influence performance based pay as they help “change the cost of incentives to employers and the value of incentives to the employee” (Jackson, Schuler, & Werner, 2012, p. 429). In addition to this, performance based pay not only reduces labor costs but it helps attract, retain, and motivate employees.
There can be many challenges with performance based pay. Two disadvantages of merit pay are measurement problems (how actual performance is measured) and the cost to the organization in giving merit raises instead of lump sum payments. A bonus program can also be costly and at times structured in a way that employees do not view it as fair. In my company we all receive a holiday bonus. The amount is determined not only by work performance but by seniority. In my experience this tends to create an issue of fairness amongst employees and can be a challenge. For example: there can be an employee who has been with the organization for years but puts in less work then an employee who may have been with us for 3 years and puts in more work. Employees don’t love that bonuses are partly based on seniority. No matter what, if HRM practices are not aligned with the pay system it will affect the success of the performance based pay system that is used in the organization. The HR triad needs to work together to make sure that the pay practice that is chosen is consistent with the environment of the organization as well as other HR practices. By aligning practices it will…...

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