Pay For Performance Compensation Plans Essay

Pay For Performance Compensation Plans Essay

Length: 1025 words (2.9 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

Pay-for-performance compensation plans have been controversial for many years. In a pay-for-performance program or system, “employees and owners are clear about and understand the relationship between performance and the incentive” (Aquila & Rice, 2010, para. 4). There are proponents and opponents of this type of plan in a variety of industries. Although many companies have utilized pay-for-performance compensation plans, determining their effectiveness can be difficult. In addition, there are disadvantages in using these plans for both the employee and the employer. This paper will discuss how organizations can measure the effectiveness of their pay-for-performance plans as well as the disadvantages of these plans for both the employer and the employee.
Establishing an effective pay-for-performance compensation plan requires much thought and planning. Those involved in designing the plan must have a good understanding of the “company’s mission, business goals and strategic objectives” (Ryan, 2013, p. 26). In addition, successful pay-for-performance plans take into account the diversity in the workforce. For example, individuals from the baby boomer generation are motivated by monetary incentives, while younger employees are more interested in career-development opportunities (Yerre, 2012, para. 10). In many organizations, talent management is an important factor in developing pay-for-performance plans since attracting and retaining top performers is significant to its long-term success. Furthermore, according to Jim Kochanski, senior vice president at Sibson Consulting, “real pay for performance rewards top-performing staff differentially and can be extremely meaningful for an organization if done right” (as cited by Mi...


... middle of paper ...


... Furthermore, in today’s economy, determining what must be done in the future accurately enough for a pay-for-performance plan to work well is impossible (Frey & Osterloh, 2012, para. 4).
Overall, pay-for-performance compensation plans sound like a great way to motivate and pay employees fairly. However, most companies fail to take the time to understand how to properly implement such a plan. Furthermore, although there are metrics that companies can utilize to measure the effectiveness of plans, organizations rarely take the time to do so. Consequently, both companies and employees find that there are several disadvantages of pay-for-performance plans. Ironically, many of these problems are the same for both the employer and the employee. As a result, pay-for-performance compensation plans are seldom the best choice for an organization’s compensation plan.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Compensation Philosophy : Employee Compensation Essay

- Compensation philosophy is basically official statement recording the organization position about employee compensation. This explains the “why” of employee pay and produces a framework for stability. Employers can benefit from this if open about their compensation philosophy and having a proper pay strategy (SHRM, 2015). The executive team and the human resources department are the ones that usually develop the compensation philosophy’s. The compensation plan is based on different factors, for example, the organizations financial position, the salary information, the size of the company, and the level complexity in discovering qualified people based on the economy....   [tags: Employment, Employment compensation, Insurance]

Better Essays
782 words (2.2 pages)

Essay about Performance Plan For Performance Plans

- Pay for performance plans can be very effective depending on how well you design your plan within your company. Every company is different even if they follow the same design plan. Some companies believe that all of the employees should be involved in everything and others do not feel that way. At the end of the day it all comes down to the type of management that you have and what are their values, beliefs, and goals for the company. Once the pay for performance plan is good to go there are successes that can make the plan effective....   [tags: Management, Strategy, Thought, Plan]

Better Essays
1010 words (2.9 pages)

Compensation Pl Perfect Pay For Performance Essay

- PP4P compensation plan Before describing perfect pay for performance, objectives of performance pay must be clarified. Objectives include incentives for value creation for shareholders, provide reasonable pay when there is crisis and minimize remuneration cost without sacrificing the above two conditions. The author listed two traditional performance pay method before World WarⅡ, Carnegie and Sloan. Carnegie performance pay method gives management the right to buy shares at book value and pay future dividend....   [tags: Stock market, Investment, Stock, Rate of return]

Better Essays
717 words (2 pages)

Performance Appraisal And Pay For Performance Support It Essay example

- What is Performance Management and how can Performance Appraisal and Pay for Performance support it. Performance management (PM) is an organizational process in which managers and their employees engage is dialogue and collaboration to establish the goals and objectives of their positions, discuss performance and ways in which it can be improved, implement training plans, and reward and reinforce superior performance/behaviors (MSGExperts, n.d.). PM is not limited to one individual activity, such as counseling; PM is the sum total of all of all the actions taken to help guide and ensure that employees are exhibiting those individual behaviors (Milkovich, Newman, & Gerhart, 2016, p....   [tags: Performance appraisal, Human resource management]

Better Essays
1219 words (3.5 pages)

Pay-For-Performance and Productive Workforces Essay

- The company did not truly have a pay-for-performance process. In fact, what it did have was a pay-for-profitability process, commonly known as a profit sharing program. There is a substantial difference between pay-for-performance and profit sharing, both in terms of how the process is structured and how the payouts are determined. Profit sharing is a program based quite simply on how much profit the company makes, regardless of performance. In certain times, a company may not perform very well yet still make a profit....   [tags: business, compensation]

Better Essays
1167 words (3.3 pages)

Essay about Paying for Performance

- Table of Contents Executive Summary 3 1.0 Introduction 4 1.1 How different Accounting Theories relate to real world scenarios? 5 1.2 Bonus plan hypothesis and executive remuneration 6 2.0 Company overview with Remuneration plans 7 2.1 Telstra Corporation Limited 7 2.2 Harvey Norman Holdings Limited 7 2.3 Remuneration plan and the contracting cost 8 3.0 Corporate Amendments and “Say on Pay” 9 3.1 Global Developments of Cooperation Amendments 11 3.2 Pay on Performance link and “First Strike” 11 3.3 Pay on Performance link and “Second Strike” 11 4.0 Conclusion 12 Bibliography 13   Executive Summary This report is based on Pay and Performance links, and whether the respective components o...   [tags: Pay and Performance]

Better Essays
2440 words (7 pages)

Essay about A Brief Note On Fair And Equitable Compensation

- Fair and equitable compensation is an important concern for all employers. To attract and retain employees, organizations must have an adequate compensation and benefits program in place. Employers go to great lengths in developing a compensation program so employees feel appreciated in the work they are performing. Job analysis and market studies are conducted regularly to compare competitor’s compensation and benefits programs. These studies ensure equivalency in pay by the job being performed, as well as paying skilled employees adequately....   [tags: Employment, Employment compensation, Wage]

Better Essays
1156 words (3.3 pages)

Managing Compensation Systems Essay examples

- Managing Compensation Systems In our current business environment, there are several types of compensation programs for employers to choose from, and numerous combinations of these programs. Each plan is valid and valuable, but different companies, departments, and positions require different compensation plans. No matter what compensation program a company chooses, the program should balance internal equity and marketplace competitiveness. Before choosing a compensation program, a company should evaluate its culture and needs and perform a SWOT analysis before designing a roll out program....   [tags: Business Environment, Compensation Programs]

Better Essays
1006 words (2.9 pages)

Effective of Incentive Pay on Employee Work Performance Essay

- Introduction Today, competition between the organizations is extremely high thus organizations need to find the ways to be competitive. They need to prepare best market strategy to improve the company performance and the ways to keep their employees motivation on the highest level to perform well within the competition. At that time, several incentive pay programs play important role for every organization to perform well within the competition. Creating and implementing of incentive pay system supports to resolve organizational problems for to align the preferences of organization and employees....   [tags: Incentives, compensation, merit]

Better Essays
1070 words (3.1 pages)

Executive Compensation Essay

- For Sunan Pty Ltd to have a successful float, a detailed and well thought out compensation governance needs to be developed. The following recommendations have been built create a compensation package to help maximise shareholder interest for Sunan Pty Ltd. PRINCIPLES OF REMUNERATION Remuneration packages should be created to attract executives capable of motivating people, communicating a vision, and leading a company to success to achieving long-term shareholder value ***** Remuneration packages should reward success over short and long term periods with an emphasis on the long term ***** Remuneration packages should be fair to all stakeholders of the business REMUNERATION COMMITTEE T...   [tags: Business Compensation Payroll]

Free Essays
1211 words (3.5 pages)