What are the components of pay for performance schemes and what are the risks of implementing a...

Question:

What are the components of pay for performance schemes and what are the risks of implementing a plan?

Compensation Methods:

The pay-for-performance approach to wages can help align an employee's interests with those of the company. Pay-for-performance links the wages of an employee to their performance at their job and is tied to specific outcomes that the employee can meet.

Answer and Explanation:

There are five key components of pay-for-performance:

  • Measurability - The performance must be measurable by some objective measures.
  • Transparency - The ability to meet those goals need to be clear to the employee and the employer.
  • Communication- There needs to be a path for the employee to achieve high performance and a way to communicate that and provide clear feedback.

The risks of implementing pay-for-performance are that it can encourage an employee to take shortcuts to achieve their performance goals that may be harmful to the overall company's objectives or discourage work if objectives are unclear or arbitrary. If pay-for-performance is tied just to overall output (making 100 widgets an hour or more) the employee has an incentive to cut corners on quality to achieve that objective. Conversely, tying performance to quality can lead to a lower output of work from the employee.


Learn more about this topic:

Common Compensation Systems: Salary, Hourly, Contractor, Pay-For-Performance

from Business 106: Human Resource Management

Chapter 7 / Lesson 3
26K

Related to this Question

Explore our homework questions and answer library