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Annual raises that are not based on performance usually breed the feeling of entitlement in employees. Employees don’t feel motivated to be more productive because they know that they will get their raises no matter what. However, many employers grow increasingly unwilling to give raises based on the number of years served, as they want to see that an employee actually contributes to the growth and profitability of an organization. As a result, the concept of “pay for performance” becomes more and more popular among employers nowadays. According to research, employees usually have positive attitudes toward performance-based programs because they are frequently perceived as being fair. If implemented correctly, this program can significantly increase productivity and give employees a feeling of shared responsibility. In addition, merit pay programs help to differentiate between high and low performers and reward those who really earned it. This approach will help the company to retain top-notch employees and ensure that they will continue their extraordinary performance. Knowing that average or below- average employees have received the same pay increase has a profound negative effect on the motivation of top performers. The merit pay should also be of a significant value to employees in order for it to have any motivational effect. Some studies show that an effective merit increase should be at least 7 percent.
However, performance-based pay programs do not always produce positive results. Sometimes the performance of employees may suffer because of factors that are out of their control, for example delivery of necessary parts. Additionally, merit-based incentives may motivate employees to focus on achieving rewards by any means possible, rather than on what is good for a company. That is exactly what happened at Hewlett-Packard. When its pay for performance program was established, teams often refused to admit employees who were perceived as less knowledgeable and qualified. This led to bigger and bigger differences among the teams, and the transfer of knowledge and learning across the teams was significantly reduced.
Performance based incentives can lead to increased productivity and motivation of employees; however, they should be implemented very carefully in order to avoid potentially negative situations.
Olga,
ReplyDeleteI feel that pay performance is the way to go. As you stated, a lot of employees seem lackadaisical just because they know regardless of their performance they will be rewarded. Implementing a pay performance plan is great because it not only motivates employees to do their best, but it also raises their productivity and boost their morale.