Performance Based
Payments
Figure 1:(Source
: Anderson, 2015)
Performance-based pay (PBP)is a
method of managing pay that ties income advancement to an evaluation of
individual performance, which is usually measured against pre-determined goals.
Despite the widespread usage of PBP schemes, doubts about their effectiveness
remain. This extends beyond monetary compensation to include things like
praise, increased opportunity for training and development, and promotion. The
recognition that he or she is performing a fantastic job is frequently one of
the most sought after items by employees
What is Performance based Payment
Performance-based pay (PBP) is a
method of managing pay that ties income advancement to an evaluation of
individual performance, which is usually measured against pre-determined goals.
Individual PRP or merit pay is another name for it. Wage increases received
through PRP are usually consolidated into basic pay, while non-consolidated
cash lump payments are sometimes paid - see more on pay progression. This
strategy can be used to
persuade employees to put in the optimum level of effort.
Employees are compensated based on
their performance in this type of remuneration. In some circumstances, this is
also referred to as a compensatory pay structure. Other arrangements involving
basic pay and performance-based incentives could be considered
performance-based pay.
Employers looked for ways to improve
performance by tying employee pay to the achievement of company goals. However,
in other cases, PBP has proven to be a crude tool, and the theory and practice,
PBP have been challenged cause of many practical issues.
Figure 2(Source: Synergita, 2015)
Performance Based Payments Benefits
Performance pay comes with a slew of
perks. One of the most significant benefits of performance-based compensation
is that it motivates people to work more and achieve higher levels of
performance. When an employee realizes that he can earn more money by putting
in more time and effort, he is more likely to do so. When you're paid on a
salary, you can only be motivated for so long by that amount of money.
Employees work harder as a result of performance-based competition, and the
organization benefits as well
Performance Based Payments Drawbacks
There are a few disadvantages to this
type of remuneration. It may be more difficult to work well when the business
fails due to factors outside the employee's control. Sales may be difficult to
come by, resulting in lesser remuneration for employees. This type of
compensation also contributes to societal income disparities. Performance-based
pay has risen in recent years, but the wealth gap between rich and poor has
widened.
In some temporary disability of
employees won’t be able to perform as usual and consequently failed to earn.
This will adversely affect psychological situation to certain employees.
There could be disagreements
regarding how performance is judged and whether or not an employee has done
enough to get a reward.
All and all the payment method have
both merit and demerit in terms of organizational view. Majority of Sri Lankans
have neutral or negative mind of their job and as a result performance is
declined, this could be widely found in government organizations when compared
to private sector because all are treated equally even if perform well or not. The emphasis on excellent
performance is one of the most noticeable disparities between the commercial
and public sectors. Companies place a strong emphasis on recognizing and
rewarding top performers. They have poor performance by definition, but those
issues are dealt with quietly and confidentially. The policy has a
significantly more positive meaning because of the emphasis on great
performance
References
Anderson, C., 2015. www.tlnt.com. [Online]
Available at: https://www.tlnt.com/digging-into-executive-pay-is-it-really-out-of-control/
[Accessed 26 November 2021].
Risher, H.,
2012. How Well Are Government Employees Paid?. SAGE, 44(2), pp. 73-79.
Synergita,
2015. www.synergita.com. [Online]
Available at: https://www.synergita.com/blog/kissing-good-bye-to-bell-curve-based-performance-assessment-what-does-it-really-mean/
[Accessed 27 11 2021].
The Human
Capital HUb, 2021. /www.thehumancapitalhub.com. [Online]
Available at: https://www.thehumancapitalhub.com/articles/Why-Performance-Based-Pay-Is-Important-For-Every-Organisation
[Accessed 26 November 2021].
www.mbaknol.com,
2021. www.mbaknol.com. [Online]
Available at: https://www.mbaknol.com/human-resource-management/performance-related-pay/
[Accessed 26 November 2021].
Very valuable topic and creative blog. Appreciate your effort. Well done brother.
ReplyDeletePerformance Based Payments are financing payments based upon the achievement of specific, measurable events or accomplishments that are defined and valued in advance by the parties to the contract. Here you have explain advantages and disadvantages of PBS. Good article.
ReplyDeleteThank you.
DeletePerformance based remuneration always challenges the traditional way of payments and creates a competitive environment. Article details pros and cons attached in it in detail. Good elastration. Thank you for sharing.
ReplyDeleteThank you.
DeletePBP is a good method but my question is whether this can apply anywhere we need? Are there any restrictions to apply this in some countries or some organizations?
ReplyDeleteThank you
ReplyDeletePerformance based payment is a method to make payments for employees based on the individual performances. It is supportive to measure and evaluate performances of employees and make the payments.
ReplyDeleteTimely topic with valuable points. Employees earn a traditional salary but performance-based compensation seeks to reward them for their high performance above their job requirements. good concept to practice in every organization. For employees, performance-based compensation is a reward for their hard work and acts as an acknowledgment of their contribution to the firm as well as functioning as an incentive to stay with the company. Most employee bonuses are performance-based compensation (Chen, 2021).
ReplyDeleteTimely, valid topic. By implementing a performance-based compensation system, your business can quickly identify the top-performing employees. You can also focus on workers who may not contribute much to the company. They provide a valuable opportunity to discuss individual performance with your employees and create a personalized development plan.
ReplyDeleteDear Waduge, as you have mentioned , the drawbacks of performance based remuneration states that external factors which are outside the control of the employee nor the employer should be researched and analyzed. The employee should not be penalized financially for such external restraints and I agree with the points that you have discussed here on the performance based systems.
ReplyDeleteThanks for sharing Waduge.