Performance Related Pay Essay

Performance-based Compensation - Pay for Performance Essay

2559 Words11 Pages

Performance-based Compensation - Pay for Performance

Corporations are looking for new ways to improve employee performance as well as remain competitive. Pay for performance is one method some businesses are utilizing to improve employee performance. Performance-based compensation exists when compensation is tied directly to that portion of an individual’s performance that can be effectively measured. There are a number of ways in which this may be accomplished and a number of examples as well how it is applied. One of the oldest examples is taken from the ancient Egyptians, where slaves working in the pyramids were given bread for superior performance. Payment of commission for sales production is one of the methods used today.

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The concept and practical approach for setting up a variable pay program is goal setting, performance threshold and. maximum pay out. Effectively goal-setting a program means closely aligning the needs of the business with the employee’s interest. Present an understandable performance contract between the organization and the employees, tie in contribution and rewards, motivate the employees and enable the company to meet planning budgeting requirements. Set performance goals for each measurement period based on SMART principles. Setting the Performance Threshold – most variable pay programs use a performance threshold, the minimum level an employee must reach in order to qualify for variable pay. The threshold takes into consideration compensation costs which is covered by minimally acceptable outcomes before a company incurs any additional costs. Maximum Pay out- it is a fact that most companies do not calculate their pay-out to performance ratio. The basic formula is calculating the pay-out to performance ratio of the target to the threshold and the maximum to the target utilizing percents of the target. Dependent on what the outcome reveals, it may be advantageous for the manager to meet the target rather than exceed it. There is not a particular formula for assessing the appropriate pay for performance ration. The correction partnership will be a formula that works for one’s organization and is aligned with

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Performance Based Compensation Pay For Performance

Performance-based Compensation - Pay for Performance

Corporations are looking for new ways to improve employee performance as well as remain competitive. Pay for performance is one method some businesses are utilizing to improve employee performance. Performance-based compensation exists when compensation is tied directly to that portion of an individual’s performance that can be effectively measured. There are a number of ways in which this may be accomplished and a number of examples as well how it is applied. One of the oldest examples is taken from the ancient Egyptians, where slaves working in the pyramids were given bread for superior performance. Payment of commission for sales production is one of the methods used today.

Most will agree that knowledge is the ‘key’ resource in this post-industrial economy. The challenge for many companies is developing an organization that creates and cultivates knowledge and learning. Pay plays a significant role in shaping workplace behavior. Most of the traditional pay systems reward the job the individual performs rather than the skills he/she brings to the job. The system is not being able to reward the things the company needs and this presents a barrier. The trend has moved away from pay for the value of the job, service and seniority. It is being replaced with paying for skills, knowledge, competency, performance and productivity, all which can be delivered through different invitations, from changes to base pay to introducing gainsharing.

HOW DOES PAY FOR PERFORMANCE WORK?

If part or all of the one’s salary is contingent on how well you actually perform your job, one will go the extra mile. The individual will attack his/her work with vigor and revel in the rewards. And if the employee and enough of his/her co-workers get this kind of incentive, one might even deliver the service that could turn a floundering company around.

The concept and practical approach for setting up a variable pay program is goal setting, performance threshold and. maximum pay out. Effectively goal-setting a program means closely aligning the needs of the business with the employee’s interest. Present an understandable performance contract between the organization and the employees, tie in contribution and rewards, motivate the employees and enable the company to meet planning budgeting requirements. Set performance goals for each measurement period based on SMART principles. Setting the Performance Threshold – most variable pay programs use a performance threshold, the minimum level an employee must reach in order to qualify for variable pay. The threshold takes into consideration compensation costs which is covered by minimally acceptable outcomes before a company incurs any additional costs. Maximum Pay out- it is a fact that most companies do not calculate their pay-out to performance ratio. The basic formula is calculating the pay-out to performance ratio of the target to the threshold and the maximum...

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