Pay for performance sounds right. It aligns managers and investors. It has been the gold standard for compensation at least since proponents of agency theory 25 years ago began advocating the use of stock options in compensation packages. Its use is a source of praise in the evaluation of governance by rating agencies that provide guidance to shareholders in proxy voting.
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[This article was provided with permission from Harvard Business School Working Knowledge.]
Performance based compensation may be good for a short period for a particular project not for long term employment. Fixed salary with performance based annual increase and appreciations/commendations for excellence/exceptionally outstanding performances will keep the employee morale high.
on Dec 25, 2012Pay for performance is always the best method, because If you want to improve the development of the Concern, each and every clients needs first quality and then quantity. Without performance of each and every employee a concern cannot give continuous development to achieve like six sigma ( The unofficial organization of Dubbawala of Mumbai doing with the quality standards of six sigma daily). I am always on the side of the pay for performance.
on Dec 4, 2012Absolutely. Variable pay based on individual performance was never the right way of motivating people. But what is new here? This concept and is at least 30 years old!
on Dec 4, 2012The performance pay is a form of Outsourcing. True. Except for full responsibility of actions of employees' including their security care rests with the company, whereas in case of outsourcing, these responsibilities lie with the entity given the outsourced job. The next issue is, What is performance of contribution of Manager. Nor the loss or gains in cyclic industry like metals, Neither result of unforeseen events, like war, typhoon, climate change...can be attributed to performance parameter. To neutralise these factors, the performance baseline need to be taken as average of similar type of entities. The parameters of performance need to take into consideration the immediate gains, like percentage gain over the industry average, visible in net worth, comparative increase in profit , customer bas (qualitative and quantitative) product quality, brand value, middle and long term estimates. Above factors may smoothen the performance monitoring and take decision about managers retain ability and compensation package.
on Nov 30, 2012Yes , it should be replaced by other motivators otherwise efficiency bar compensation allegedly would leave negative feeling on other employees which consequentially affect productivity either improving or adversely.
on Nov 30, 2012