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Managing Employee Performance Proof Reading Services
Individual performance related pay has grown significantly in the recent years more so in the manufacturing sector in a bid to improve performance of employees. It is monetary reward of employees whose performance has reached or surpassed a required standard. It is generally used in circumstances where employee performance cannot be reliably measured using other standards such as sales achieved. Employees are regularly reviewed against set standards and grouped into various performance categories which determine their level of compensation. IPRP is different from other incentive methods that are company or team based as it is performance and formula driven and payments are once off. This essay analyses the extent to which Individual performance related pay stimulates higher job performance among employees, the circumstances under which it works well and the ones in which it does not. In doing so, it takes into account various the contextual issues such as the standard income, individual differences, type of occupation among others.
Motivation involves activating or inducing job performance that is goal-oriented among employees. The management Is often faced with the challenge of satisfying employees as it has a significant impact on efficiency and productivity, it impacts on employees attitudes, behaviors and their willingness to perform tasks and attend to their responsibility, the extra effort they apply, and their efficiency in performing duties. Motivation towards work can be classified into intrinsic and extrinsic motivation. Intrinsic motivation revolves around the value obtained from the work itself while extrinsic motivation, is about the additional value not derived from the work. Intrinsic values are such as increased responsibility, recognition, advancement, excellent interpersonal relationship while bonuses and salaries are good examples of extrinsic values. If employees are satisfied with the reward system then the extrinsic variables may be different and independent of intrinsic variables.
Motivating employee relation is significant in achieving the overall objectives of the organization. Motivation may be viewed as psychological factors that determine an individual’s behavior in his/her organization, the amount of effort applied and the persistence level of an employee. Effort is a clear reflection of the amount of hard work put in by an employee. Persistence is achieved where employees work in tough conditions continuously without giving up. Employees view their salary as compensation for services rendered to the employer. They consider it as the value placed on them in their work places and in terms of their expertise and the level of training or education they have achieved. Managers, on the other hand, view salaries and wages from two angles: being significant expenses and as a way to impact on employees’ performance through reward based motivational schemes. This ability to influence employees’ behavior and attitudes as well as the efficiency and productivity of the organization, is the main reason leading many people to appreciate the motivational effect of performance related pay on employees.
Designing and Implementation of a reward strategy is among the significant investments made by an organization. Although an appropriate salary is the basis of the implied and contractual agreement between the employer and the employees, the general assumption is that money has the ability to influence attitudes and behavior. Majority of employers and company directors believe an increase in the employee’s salary increases their motivation, productivity and loyalty. The impact of compensation strategy is a significant factor in every organization and that job performance is a vital issue for many organizations, because they need to attract, motivate and retain the most appropriate talent pool for the organization to achieve its objectives.
Individual performance related pay that is well-designed can pull employees together and motivate them to move in the direction management wants them to perform. It has the ability of improving the decisions and choices made by individuals and hence enhances employee performance. A research of 84 subjects by Stone showed that performance related pay resulted to changes in attitudes, behavior and improved as well as informed decision making.
Individual performance related pay may work but only for some time and to some extent. In the early stages, employees are tempted to work towards the set standards so as to improve their pay but then once they realize that their performance and application of skills is being completely controlled by the management, their enthusiasm drops. The reason behind this is that people hate being controlled thus performance related pay is only successful in ensuring temporary compliance. Moreover, offering rewards ti individuals who are already intrinsically motivated undermines their intrinsic motivation. Employees are basically interested in their jobs and employ a certain level of expertise thus recognizing this expertise through including them in the decision making process is a better motivation tool. Performance related pay also reminds workers of the power gap in the organization. They are reminded that the management takes home huge amount of salaries compared to them hence a demotivating factor.
In addition, employees are well aware of the basis of their merit pay hence forget about all the other non-measurable aspects of the job such as innovation and creativity and focus all their energy on the measurable aspects on which their pay is based on. They work with a reward set mind and shift their focus from the task to the reward. They also may conceal any challenges they encounter in their work so as to prove their expertise to the supervisor. They also become averse to risk and resist from exploring new possibilities as they prefer simplicity and predictability hence creativity is significantly hindered. If employees are paid more than they deserve in terms of salaries, they will not have contributed to attainment of objectives and competitive advantage will be negatively impacted. There are often minimal variances in the set standards and actual performances. This trend of overrating employees is rampant in parts of Africa where it has negative impacts on motivation and efficiency. People will often be unwilling to assess others negatively in their workplaces more so in relation to compensation matters because they do not want to be accused as the reason behind low levels of wages in their divisions as opposed to other divisions where fellow employees might be earning huge salaries. The situation may lead to rivalry among divisions and conflicts among supervisors and employees.
Individual performance pay may not also impact motivation if it is not directed to the appropriate people. This kind of reward system may not motivate managers as such as it may motivate junior employees. This is in accordance to Milkovich and Wigdor’s research, which found out that, among other factors, that performance related pay schemes work best under jobs in which the responsibilities can be reliably measured and are concrete. Differentials in efficiency, however, should not be overstated. These findings are in contrary to existing beliefs that performance related pay strategies are more motivational and effective at higher levels of the organization .Nevertheless, employees ultimately consider the unfairness of the reward systems .The reason why employees have this perception are not clear, but may include low trust levels among departments and individuals, lack of transparency in the reward system, lack of trust in the integrity of management and lack of trust in the appraisal sysytems.
Finally, irrespective of management systemor work level, improving measurement of job performance and other appropriate actions that are not related to pay incentives may lead to improved performance through improvement in setting of goals. The benefits accrued from performance based pay seem not to originate from the pay itself but from the improvement in set standards. Performance standards is the most significant benefit accrued from performance related pay as shown by various studies. In most cases introducing pay into performance measurement leads to adverse changes in the performance of employees.
Circumstances under which IPRP tends to motivate employees:-
Where equity and efficiency is highly observed. The firm may purchase employee motivation and energy to pursue organization objectives by distributing financial rewards in an equitable and efficient manner. When equity is enhanced the employees feel that they are all valued at the same level by the organization hence they strive to achieve the set standards of performance. The gap between employees which is often a demotivation factor is also eliminated. The reward system must therefore be implemented and managed in an efficient manner taking into consideration the employee’s needs.
Where the financial rewards are visible. Many companies do not disclose the amount of compensation to employees but those that do have a greater potential in motivating employees through performance related pay. Disclosing the compensation will actually make the employees see the fairness of the system hence be motivated towards achieving certain standards because they are aware that a certain reward awaits them. Research shows that employees in companies where the rewards are not possible feel to be in a worse situation than the actual one hence demotivation. The non-monetary rewards should also be publicized so that they can be visible to all employees and increase on the fairness of the reward system.
Where compensation decisions are reversible. Reward systems should be structured in such a way that a reward decision can be reversed so as it does not have be that the same person is rewarded in a specific way severally. For example bonuses that are offered to a specific employee in a particular year could be offered to another employee the following year, performance being the basis. These changes will surely strike motivation in employees and encourage them to put in extra effort as it is not obvious that they receive a certain amount of salary.
Circumstances under which IPRP does not work so well:-
Where companies or organizations have small salary increase pools. Such organizations may consume a lot of time and resources in rating and ranking of employees which often leads to high expectations by employees hence disappointments eventually. In such a case performance related pay may be important but then it becomes insufficient such that it is inefficient. The reward size to be effected on employees is a major factor to consider before introducing a performance related pay system. Employees who put in a lot of effort but receive very minimal increases in pay may become demotivated and even quit in extreme circumstances.
Where the reward system is discriminatory based on level of staff. Companies often have reward systems that are different for managers and other staff. They may also vary according to the level of management where senior managers are evaluated and compensated differently from junior managers. This is done by organizations, and the reasons behind it may seem credible for instance to motivate new and junior employees to aspire to achieve greater heights in the organization so as to gain the attractive reward packages. However, restriction of eligibility may be inefficient and unproductive although it was seen as a good idea in the past years when there were many tiers in companies and individuals could aspire to achieve more, but in the modern world work environments the organizations are flatter in structure and employees are eager to unveil the reward system. as described by Kerr it similar to a lottery situation, where the winning chances are minimal yet the tickets are bought by thousands of people.
Where the economic situation is adverse and pay differentials seem huge. During seasons of minimal inflation as pay differences seem smaller, employees are not able to notice the gap in their salaries hence there is no much of an impact. In periods of high inflation however when pay differences seem huge they are able to notice the change in the value of their money and that they have received a significant rise in their salary. It is however challenging to create the differentials due to the low budgets on wages hence effective management is substituted for performance related pay. This issue arises when managers assume that the concept of effective management and performance related pay is the same.
Where the reward system is inefficient and does not reward the right people. In most reward systems, the high performers are burdened with more workload while the poor performers may easily get vacations and time off. This may discourage high performance and demotivation and the poor performance will be at a comfort zone as they have no reason or basis for improvement.
Where the duties of several employees are inter related or tied to one another. The challenge in this situation is the inability to distinguish the specific contributions made by each particular individual. Even if separation is possible, it may not be necessary and may consume a lot of time and resources as found out by some investigators. The reason for this is that employees are not in control of their outcome per se, because what they achieve in terms of output will depend on colleagues. From the aspect of employees, measuring their performance is a major factor for dissatisfaction and thus leading to demotivation. Employees will often perceive favoritism in the appraisal and assessment system. If the dissatisfaction is on a large number of employees it may negatively affect the total motivation of employees and thus inefficiency in the organization.
It is difficult to clearly state whether performance related pay ultimately affects employee motivation and their performance at large as motivation is only affected to some extent and the overall impact on organization success is not visible. There isn’t a particular reward system that guarantees success. There are several variables that determine the extent of motivation and thus it is hard to state that individual performance related pay is effective or not. Such factors include the industry type, cultural values, values in the workplace, core competencies, design type of employees, and implementation assignment of the strategy, communications among others. There are drawbacks associated with each reward system and hence finding the most appropriate system that best suits your organization is almost impossible. Individual performance is significant and it should ultimately reflect in the pay cheque.it may not have the ability to fully motivate employees but it surely focuses their energy on the organization’s goals and keeps them from being dissatisfied. Appraisal systems used by management are subject to errors which may be a barrier to the motivational effect of individual performance related pay.