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The major disadvantages of the recognition major forms of performance based pay

In recent years, some employers have moved toward a pay-for-performance model, which provides financial rewards for employees who meet and exceed performance standards. Over time, analysts have observed both advantages and drawbacks to this method of determining employee pay.

Pros and Cons of Monetary Incentives

Pay-for-Performance Policies Employees usually expect to receive regular wage increases even if their job role. Many companies offer an automatic annual salary increase around the time of a performance review.

The Disadvantages of Employee Rewards Programs

Some businesses, however, are no longer providing raises to employees just for showing up for work. Instead, a worker can expect an increase only if his performance meets or exceed his employer's expectations. Pay-for-performance compensation models vary, but typically present workers with guidelines as to what kind of increase they can expect for varying levels of performance.

For example, an employer may provide no increase for workers with poor performance evaluations; but those who receive a satisfactory, above average or excellent review could expect corresponding increases; and those who have excellent reviews would receive the highest raises.

Advantages of Pay-for-Performance Many companies have adopted this compensation system, because they believe in its benefits, which include: The reasons why an employee remains in his or her job are often complex.

Many individuals derive significant satisfaction from work that they find meaningful.

Unfair Evaluation of Work Performance

However, workers are also significantly, if not primarily, motivated by financial concerns. If a worker knows that meeting performance objectives will result in a compensation increase, they may be inclined to work harder and improve their skills.

You can expect that your top talent will be approached by other employers. If you want to keep exceptional employees, you must offer them a competitive compensation package. When your best employees know that they will be rewarded for their efforts, they are more likely to stay with your company. Disadvantages of Pay-For-Performance Not everyone is enamored with pay-for-performance compensation increases, however. Some analysts are skeptical that it is an effective way of motivating employees and retaining good workers.

The primary disadvantages cited are: Performance measurement is often subjective: The work of some employees can be easily quantified and measured. For example, a salesperson may be asked to meet specific sales numbers for the year. However, many workers, particularly those in administrative roles, perform vital functions, but their work isn't defined by achieving specific goals. For these employees, a pay-for-performance plan could prove frustrating, in large part because their evaluations are more subjective.

Advantages & Disadvantages of Pay-for-Performance Policies

A personality conflict with a supervisor could, in some cases, result in lower compensation. Performance reviews are falling out of favor: The pay-for-performance model often hinges on the results of an employee's annual performance review.

However, many employers are finding such reviews ineffective, and are abandoning them in favor of encouraging managers to provide feedback to employees throughout the year. Other Considerations Before instituting a pay-for-performance system, review your human resources policies and ask your attorney for guidance.

  • The classic example of this is creating an incentive or commission for salespeople based solely on revenue generated, without any regard to profitability;
  • Employee reward programs that receive the most scrutiny are usually within organizations perceived most likely to also grant golden parachutes;
  • For example, a salesperson may be asked to meet specific sales numbers for the year;
  • Here are some of the potential pitfalls to using a monetary incentive program;
  • The Disadvantages of Employee Rewards Programs by Ruth Mayhew - Updated September 26, 2017 Many employees welcome the recognition they receive in the form of monetary rewards, and employers who implement employee reward programs usually do so as an expression of appreciation for their most valuable resource -- human capital;
  • Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges.

Workers who are not successful in pay-for-performance reviews may perceive the system as unfair. This could potentially lead to the employee taking legal action against your company for discrimination.

  • Advantages of Pay-for-Performance Many companies have adopted this compensation system, because they believe in its benefits, which include;
  • Refers to what you will get paid on a regular basis, and you want to check market information to make sure you are paid equitability for what you contribute;
  • Use to promote teamwork and collaborative efforts;
  • Actually, the compensation strategy helps with the major issues that companies have;
  • That employee may be less motivated going forward.

An experienced attorney can help you minimize the risk of a lawsuit and other penalties.