Performance Pay Inequality

It can be argued that performance pay rather than motivating people may demotivate and create inequality among employees. A research from the National Bureau of Economic Research (2007) showed that "wage inequality is generally greater in performance-pay jobs than in other jobs, and that inequality has risen faster in performance-pay jobs than in other jobs during the 1980s". Inequality in the workplace is one of the common problems and causes of employees demotivation and dissatisfaction. According to the Equity Theory put forward by Stacey Adams at General Electric Co in 1963, individuals are constantly comparing their ratio of input, their contribution to the job such as personal efforts and skills , to their output, the rewards that they

Some employees may make claims to their manager and demand for the reward they think they deserve and some can reduce their contribution and productivity or someone can even seek for an alternative, more equal job and quit. Due to the subjectivity of fairness, it is really difficult for a manager to implement a performance pay system which doesn’t create inequality. Some employees in fact may value their input in a different way, some may expect a more extensive education to be an input deserving more pay, whereas others might consider seniority to be more important or at the same time the output "A person making $70,000 per year might feel good about that amount in comparison with someone earning only $20,000 annually, for example, and yet the same person might have an unfavorable reaction if the comparison were to someone earning $200,000 annually." As employees stay motivated when they feel that they have been treated fairly, to other people managers need to communicate why and how specific inputs and outcomes are important to the organization's functioning as well as understanding the needs and expectations of their

The Performance pay system by motivating employees to be more productive and allowing them to increase their pay "rewards employees for their work and diligence" rather than for their luck, opportunities that they have, such as being born in a rich family, or other factors such as gender and race. Giving rewards to performance increases the economic opportunity to eliminate unfair inequalities caused by discrimination to convert them in an indisputably fair inequality based on the hard work, time and efforts that workers put in their job. Diligent and productive workers, receiving rewards according to their performances rather than other unfair aspects, will become more motivated because they will see the ratio of their input