Pros & Cons of Pay for Performance

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When workers don’t have any motivation to perform at high levels to help your company succeed, your job as the owner or manager is to take action to get them in gear. One such action that you can try is to enact a system of pay for performance. Before you enact a pay-for-performance policy at your company, however, examine the various pros and cons of this type of strategy.

About Pay for Performance

A pay-for-performance initiative rewards hardworking employees by providing them with payments based on what they produce for the firm. It is also called an incentive pay program. The ultimate goal is to inspire some type of positive action in each employee, such as manufacturing more products or selling more items in the same period of time as before.

Boost Motivation and Morale

One of the main benefits of pay for performance is that it helps increase motivation among workers. It may also boost morale, which is the overall sentiment of workers toward the company. Enacting this type of program indicates to employees that the company cares and wants to reward good behavior.

Productivity-Connected

Because a pay-for-performance initiative is directly connected to the productivity of employees, it is usually cost-efficient. The more the workers produce, the more money the company makes. Therefore the company management can rest assured that when they spend money on employees it directly benefits the firm. A pay-for-performance program can also help the company identify which employees are capable of the highest performance when given incentives.

Employee Deficiencies

The major downside of a pay-for-performance plan is that if employees don’t have the proper knowledge, training and experience to perform at higher levels, it may not work; you have to invest money in getting them the training and resources they need. In this case, starting a pay-for-performance program can become a cumbersome and expensive endeavor.

Hard to Change

Another downside of starting a pay-for-performance program is that it is difficult to change or end this program in the future. If employees start to get used to the program and enjoy the benefits, it can negatively affect morale if you start making changes. It is also hard to get the terms of an incentive pay program just right. You have to determine the amount of pay that will produce the maximum productivity from employees. Getting to that level may require many trial runs.

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