Linking Performance to Pay a Simple System Using Pay Band

31st August 2022 1 By indiafreenotes

A performance appraisal system is often the link between rewards which the employees hope to receive & their productivity. The linkage can be thought of as follows:

Productivity: Performance appraisal: Rewards

Performance-based compensation affirms the idea that there will be rise in pay for performance accomplishments rather than for seniority.

Variable pay

Pay for performance linked with normal compensation is also known as variable performance-linked to pay or contingent pay where a performance-oriented philosophy is followed.

The organizations do not guarantee additional or increased compensation simply for completing another year of organizational service instead, pay and incentives reflect performance differences among employees. The employees who perform will receive a larger compensation increase but those who do not perform satisfactorily see little or no increase in compensation.

Thus, there are employees who perform satisfactorily, advance in relation to market compensation levels, whereas poor or marginal performers may fall behind. Along with this, the bonuses are determined on the basis of individual, group, and/or organizational performance. There are few organizations follow totally performance-oriented compensation practices.

However, in the midst of organizational restructuring occurring throughout many industries, organizations look for compensation systems that break the entitlement mode and even in the public sector, some organizations have recognized the need to shift toward more performance-oriented reorganized compensation practices.

Implications of Performance Linked Reward System

The set of four main questions in relation to reward system are coming to existence which are as follows:

  • Who should be rewarded?
  • What rewards should be given?
  • How should assessment be done for deciding the rewards?
  • How rewards should be given?

It is obvious and proved that rewards are meant to reinforce desirable behaviour, high performance, values etc. It is about whatever the organization wants to be strengthened and promoted further and some of the following aspects can be rewarded; some of them are:

Performance: Employees performance needs to be rewarded; both of individuals and teams and the criteria of performance excellence and their weightage may be already determined.

Organizational level: At the end of every year the organization have to declare profit, market share, customer satisfaction, employee satisfaction, achievement index of one thrust area. They should also celebrate exceptional events like new product launches, export awards, crossing a significant milestone etc.

Unit/Department level: They should declare in advance the internal customer satisfaction, innovations leading to efficiency, achievement-index-of one thrust area, quality, culture building, team work, creativity, internal customer service, cost reduction, strategic initiatives, etc. Any of these could also become annual thrust areas or some other thrust areas could be declared by the organization or the unit/department.

Speed and efficiency: Ericsson Falcon Award is given for Speed and efficiency. The purpose of this award is to promote a fast, urgent work pace with speed and efficiency. The Qualifiers are: increase in efficiency; cost savings for the company; earnings/rewards for the company. The demonstrated behaviours for the award are:

  • Exceeds timelines consistently
  • Completes projects in record time
  • Always withstands pressures
  • Does not wait for assignments, decides what is needed to be done
  • Respond promptly to sudden/unexpected problems in own unit/department

Loyalty: When employees of Hughes Software complete their first year, they are presented a watch; when they complete five year, they (and their families) are given a company paid holiday. Ernst & young also reward people who stay in the company in considerable time.