There have been different modes of payment and pay packages owing to the different genres of organizations and their way of functioning and performance. But irrespective of the industry or the company or organization type, it has been seen that the concept of performance pay has already made inroads in almost every type of organizational set-up, ranging from manufacturing to the service industry, and from hospitality to education industry. But despite the worldwide spread of the concept of performance pay, it has been observed that as a concept it is embedded with some merits and demerits and in some sectors, it is thoroughly difficult to appease the employees or enhance their performance through motivation by applying the pay for performance scheme. Hence, before implementing the strategy of pay for performance, an organization needs to measure the effectiveness of the plan and its short- and long-term effects.
Measuring the Effectiveness of Pay for Performance Plans
At the very onset, it has to be mentioned that it is quite an imperative for the management of an organization to measure and assess the effectiveness of introducing pay for performance plan before actually implementing the same in reality and practice. In this respect, it has to be noted that certain aspects have to be addressed and put emphasis on before introducing the employees to the pattern of remuneration called to pay for performance. The decision-makers and the policymakers should carefully measure the potential advantages and disadvantages of implementing a pay for performance plan in their organization (U.S. Merit Systems Protection Board, 2006). In this regard, the management of an organization, before actually implementing the pay for performance plan must be prepared to address certain specific topics like what kind of performance should be rewarded, how the employee has to be rewarded, and how to preserve the integrity of the pay for performance system or plan (U.S. Merit Systems Protection Board, 2006). Primarily, an organization must first strive to understand if the organizational structure and the operations performed by the functions align with any pay policy like pay for performance plan. For instance, in the education sector, it has been seen again and again that though the government has tried to implement a pay for performance plans in public schools, the same has failed consecutively owing to the apathy of the teachers towards such payment plans. It has been seen that the majority of teachers abided by the universal norms and conventions of teaching that do not go with the pay for performance philosophy. Hence, in the academic sector, to date, the pay for performance plan has not been successfully implemented. And learning from such failure it should be said that before implementing the pay for performance plan, the management of an organization must measure the efficacy of the plan based on the maxim that one size does not fit all, and hence, they must customize their compensation systems according to the need of the employees, the need of the workplace, and according to the need of the circumstances (U.S. Merit Systems Protection Board, 2006).
The Disadvantages of Using Pay for Performance Plan: The Context of the Employees
A good number of employees in any sector are not at all satisfied or happy with the introduction or implementation of a pay for performance plan. This is because, for the employees, the plan is ingrained with certain flaws. For instance, not every employee is ready to embrace the pay for performance compensation increases because such increases are often outcomes of biased observation and decision-making on the part of the management (Petersen, 2019). There are several HR analysts and specialists who firmly believe that compensation plans like performance pay are disliked by employees due to flaws embedded in them. For instance, some analysts say that pay for performance does not motivate employees up to the mark and such a pay policy is not good for retaining talents (Petersen, 2019). For the majority of employees in different industries and sectors, the pay for performance plan is a biased and hence, ineffective and disadvantageous one. Employees consider that performance measurement in the case of performance pay is quite often subjective (Petersen, 2019). This means while people working in the marketing and sales department can get higher pay due to meeting sales figures and targets, the employees working in the administrative section, despite giving their hundred per cent are not at all considered viable for receiving a pay hike over the years (Petersen, 2019). This subjective point of view is a great disadvantage of the pay for performance plan from the employees’ perspective.
The Disadvantages of Using Pay for Performance Plan: The Context of the Employers
The primary disadvantage of implementing the pay for performance plan on the part of the employers is that; the employers find it difficult to obtain actual input from the employees who are, under such a system, afraid of giving their input for changes as they anticipate mostly that such input information may change affect the pay structure in the long-run (Johnson, 2020). It has been seen that employers are deprived of their right of judging the competence of an employee since due to the presence of the pay for performance plan, the majority of employees hold back their input despite knowing the fact that their ideas are good, and this is primarily because the employees are more concerned about a reduction in their earnings (Johnson, 2020). Another disadvantage of the objective of implementing a pay for performance plan on the part of the employer is that it agitates the employees and triggers resistance to change – a phenomenon which is very much disrupting in terms of maintaining the overall productivity of an organization (Johnson, 2020). Employees are often not ready to accept any change in their conventional pay policies, and hence, pay for performance can be disadvantageous for employers.
Pay for performance, though has made steady inroads in many industries and many sectors; it has been found that the compensation policy is ingrained with certain specific advantages and disadvantages. And it has usually been observed that the disadvantages mostly outweigh the advantages in the context of introducing the pay for performance plan. Hence, the concerned pay plan or policy may be considered disadvantageous for both the employee and the employer.