One of the innovative byproducts, if you like, of the recent economic slowdown has been the pay-for-performance system of rewarding employees. This phrase is quite self-explanatory, and implies that the employee will be rewarded for accomplishment of set targets and goals, rather than getting a fixed sum or rate of raise.
Important component of the pay-for-performance system
The most important aspect of the pay-for-performance system is the variable pay that is a component of the pay. The pay-for-performance package is attached to the variable pay, which means that theperks and rewards are given proportionate to the variable pay. That is, the reward or punishment in relation to achieving the organization’s set goals is given for the variable pay. The ratio of variable pay to the fixed pay varies from one organization to another and on the nature of the job. For instance, it will be a less important component for someone like a copy righter than for a salesman.
Why is it necessary to have a pay-for-performance system?
The rationale for the pay-for-performance system is sometimes difficult to pin down to a few parameters. It is usually done to act as a reward-giving tool while also saving money for the organization. Its rationale is to make employees come out of their comfort zone of a fixed pay and stretch themselves for that extra dollar.
In what situations does the system work?
The pay-for-performance model is not to be applied on the ‘one-size-fits-all’ principle. As we saw, it works in some areas of work and doesn’t in some others. It has the potential to even put employees off work totally at times, and hence can work only in some scenarios, such as an economic slowdown. It is important for the management to be transparent and communicate clearly and openly without rousing ill-will if it wants to put such a system in place.
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