HR7

7.- TOTAL REWARDS

PAY-FOR-PERFORMANCE: THE CHALLENGES

These programs also known as incentive programs, can improve productivity once it has figured out several challenges in design and implementation.

Individual performance is hard to measure, this happens because the employee may feel like the they control the factors affecting his or her output. Pay incentive systems can be perceived as an employee right and may be complicated to adapt or change according to the organization’s needs. Being so focused on merit may put employees under a great deal of stress and thus lead to job dissatisfaction. Finally, it has been suggested that merit pay may decrease employee motivation overall.

To avoid the problems usually present in pay-for-performance systems, managers can use these 7 tips:

• link pay and performance appropriately
• use pay for performance as a part of a broader HRM system
• build employee trust
• promote the belief that performance makes a difference
• use multiple layers of rewards
• increase employee involvement
• consider using non-financial incentives.

The participation of the employees in the creation of the plan can enhance its credibility and overall success.

TYPES OF FINANCIAL PAY-FOR-PERFORMANCE PLANS

There are four types of incentive programs.

1. Individual employee level: merit pay which becomes part of their base salary, and bonuses and awards.
2. Team-based plans: these reward the performance of the groups of employees who work together on joint projects. Usually bonuses and non-cash.
3. Plant or business unit level: here gainsharing is the most suitable program. It rewards employees based on cost savings mostly in the shape of a lump-sum bonus.
4. Organization (entire corporation): profit sharing and employee stock option plans (ESOPS) used to link the firm’s performance with the employee’s financial rewards. Both of these plans are used to fund retirement programs.

PLANS FOR EXECUTIVES AND SALESPEOPLE

There are two employee groups who are normally treated very differently than most other workers in pay-for-performance plans: Top executives and sales personnel. In their case incentives like short-term annual bonuses, long-term incentives and perks are used as motivators to make decisions that carry them all the way to the long-term goals. Because sales employees are revenue generators, their compensation system is normally used to reinforce productive behavior.

PAY-FOR-PERFORMANCE PLANS IN SMALL FIRMS

There are different challenges for small firms when designing pay-for-performance systems because its less likely that they have the development resources to create and administrate those plans. And it is very delicate because mistakes in allocating incentives can represent a big impact on a small business.

Because it is easier to have informal feedback on a small scale firm it is more convenient and beneficial to offer generous profit sharing and equity-based pay for employees.