Advantages and Disadvantages of Pay for Performance

What is Pay for Performance

Who has not heard of people who have been trying their best in their organization for a long time, and yet have a very low salary? And vice versa? Precisely to avoid this kind of injustice, remuneration models such as performance-based compensation gain strength.

Today, many companies are committed to this system with the objective of encouraging their employees to work harder, increase their performance and arouse personal commitment.

However, like everything else, this model also has its disadvantages and it is important that we know them first of all. Once we are aware of what it implies, we can decide if this type of compensation could fit into our organization.

Before delving into it, it should be clear that apart from the economic compensation there are many methods to increase the motivation and performance of a group of people.

Advantages of performance compensation systems

Boosts motivation and productivity

Many employees lose motivation because they have been rewarded in the same way for a long time and have no reason to drive them to improve their performance. However, we all know that a motivated employee can make a big difference in the success of any organization, and it is here that variable pay models play a very positive role.

Economic increases in terms of performance reward the most productive workers, so they are an excellent way to motivate your employees to do their best.

Align the work of the employee with the success of the company

In many organizations, employees only care about doing their job, without the company’s success is a motivating factor for them. In this sense, variable remuneration systems offer a great advantage since they are an excellent way to link the work of employees with business objectives.

What aspects of business do you need to improve? Productivity? Communication? Performance compensation methods will help you focus your employees’ attention on the company’s priorities and this will allow you to boost your business.

Help attract and retain talent

If the most talented and qualified employees are not recognized as they deserve, they are likely to leave your organization and go in search of another company where they are offered better opportunities and rewards. Thus, variable pay systems are an excellent way to retain your most qualified workers and attract the best talent.

Disadvantages of Pay for Performance

The rivalry between employees and lack of cooperation

Variable compensation systems can damage the work environment and create conflicts between co-workers.

Let’s see an example. Imagine that an employee considers that he has done a very good job and deserves to be rewarded for it. However, for one reason or another, your partner is who receives the increase, and not him. He will be resentful, which will generate a bad environment in the workplace that will harm the company’s well-being.

This compensation method can also compromise teamwork and create insane competition among workers. Everyone will want to do better than the rest to receive a greater increase, so it is possible for employees to become rivals, and collaboration between teams disappears.

Difficulties to measure performance objectively

Another drawback of this model is that it is difficult not to fall into subjectivity when measuring the performance of an employee. If you fail to draw up a performance compensation plan that evaluates your employees fairly and objectively, this method can be counterproductive for your organization.

Variable compensation may be perceived by employees as “favoritism” towards other employees, and they will feel they are being treated unfairly. If this happens, your workers are likely to stop trusting you and, as in the previous case, feel resentment towards employees with greater incentives.

Economic compensation can overshadow other important things

When getting a salary increase becomes the priority of the employee, he will only focus on the indicators that will evaluate his performance, useful to get a reward for his performance.

However, there are many other equally important elements in a good employee, but being more intangible and difficult to measure, workers could forget them.

If you see that a variable remuneration system does not fit the culture of your organization, do not forget that there are many other ways to incentive your employees, and they do not have to involve an economic payment.