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Linking Pay to Performance

Human Resources is a field that builds itself of strategy. Strategy attracts more attention because it is directly involved with people both within and without the organization. Strategy is even more important in this world of moment-by-moment competition. Pay for performance is one such system that is most strategically placed system in an organization. Pay for performance system works on encouraging high performance by motivating the people in the right manner. This system though needs to have a good rationale to link salary and performance. Pay for performance is not a random phenomenon nonetheless, this system is implemented because of factors such as intense competition in the corporate world, re-regulation of various sectors such as transport and telecommunications such that emphasis lies on performance, as well as the involvement of shareholders in the business. Shareholders want to determine various news ways to increase their capital gain. There is a distinct advantage over competitors due to pay for performance system that focuses on performance priorities for all levels of people in the firm, knowledge of the problems associated with the attaining of the established performance standards, corrective measures to handle performance issues, appropriate rewards for performance and good foresight to predict the business variables.

Pay for performance systems have some common motifs:

• End-of-year appraisal plans that provide for the incentives as well as salary hike
• Incentives are based on individual performance as well as the effect of that performance on reaching the corporate goals
• Self-appraisal is encouraged where the manager can have a follow-up on the performance every 3 months or so

Pay and performance are linked based on the salary budget which comprises of a percentage of the total budget as well as knowing the various forms of hikes and incentives. Performance appraisal is done on all employees. The employees are ranked based on their performance and they receive their rewards based on the rank they obtain. The two approaches to ranking a person are individual and group. The individual approach takes account of factors such as performance evaluation, competency, skills and the rewards take the form of salary hike, recognition and promotion. The group approach takes into note factors such as employee involvement and the rewards involve gain sharing, and small group rewards. Performance evaluation takes into account six facets: communication skills, technical knowledge, team work, innovation, planning and organizing and supervisory skills.

What motivates an employee is the key question here. A survey comes out with the following findings:

Responsibility for work - 52%
Self-worth - 41%
Skill-oriented work - 40%
Recognition - 40%
Encouragement - 32%
Learning curve - 30%
Amicable work relationships - 29%
Performance based compensation - 29%

Individual incentives are known to increase productivity, achieving strategic goals, and fostering competition. Gainsharing helps in communicating business objectives, reducing costs of operation, rewarding participation, fostering team work and boosting the morale of the team. Pay based on skills helps augment the turnover of even the lowest paid employee in the firm also encouraging the learning curve and acquisition of new skills, creating staffing flexibility, improving employee satisfaction, and clarifying career objectives.

Comments Listing
Posted: 12/05/2013 07:20:22

Looks interesting

Posted: 12/05/2013 07:01:42

I have to read it to comment seriously. At first glance it looks interesting.

Posted: 17/03/2013 08:09:46

`We are going to introduce annual increment

linked with performance for non executive workers in place of fixed increment slab as is vogue in govt. and public sector cos.
Can any body let me know one effective procedure for evaluating the performance of the skilled/semi-skilled/unskilled workers for
determining their annual increment.
With Regards,

Posted: 27/01/2012 00:49:11

Awesome article...

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