Effectiveness of Pay for Performance Schemes in Employee Motivation

This essay argues that pay for performance schemes are more effective in motivating employees than equitable pay and meaningful work. It discusses the benefits of pay for performance schemes, including fair compensation, enhanced productivity, and improved organizational culture. The essay also explores the limitations of equitable pay and meaningful work as motivators, and highlights the importance of effective implementation of pay for performance schemes.

Managing people
ESSAY

Providing equitable pay and meaningful work is a more effective way to motivate
employees than pay for performance schemes
CEO of leading Software Company SAS once said “Treat employees like they make a difference
and they will”. Every great leader that there has ever been has always thrown light upon the
subject of employee motivation. Employee motivation is crucial for the success of any
organization (Kuvaas, Buch & Dysvik, 2018). A motivated employee not only works hard and
performs better but also encourages those around him to perform to the best of their abilities.
There are several strategies that organizations adopt in order to motivate their employees. Some
strategies are more effective than the other. The effectiveness of motivational strategies also
largely depend upon the efficiency of their implementation as well as the nature of job of
employee’s concerned (Shields et. al., 2015).
The essay topic suggests that providing equitable pay and meaningful work is a more effective
way of motivating employee than pay for performance schemes. First it is important to
understand what equitable pay is. Equitable pay or also known as fair pay means that all
employees are paid equally for equal work done (Salami & Ajitoni, 2016). Meaningful work may
have different meaning for different people but the idea behind the concept of meaningful work
is to offer work that the employees may deem meaningful. Pay for performance scheme on the
other hand refers to the practice of paying employees as per their performance (Harrison et. al.,
2014). This scheme offers a certain part of an employee’s income as fixed pay whereas the other
part remains variable and is disposed of based on the performance of the employee.
I disagree with the statement as I believe that pay for performance schemes is one of the most
effective employee motivation strategy adopted so far. This is because, through this policy,
employees are consistently motivated to put that extra effort and earn more incentives for
themselves. To be completely honest, money is definitely a major motivator for employees
because when an employee slogs for eight hours at work, the pay check received at the end of the
month becomes a priority. No doubt equal pay and meaningful work are strong motivators for
employees and can even be an impeccable strategy towards long term employee retention.
However, it is the pay for performance schemes that will continue to drive employees to work
hard on a month on month basis.

Herzberg’s theory of motivation also known as the motivation hygiene theory talks about several
elements and policies of the work place that fall under hygiene factors while certain elements are
motivating factors (Miner, 2015). The major difference between the two is that the absence of
hygiene factors can cause demotivation among employees while their presence does not play a
significant role in motivating them (Sanjeev & Surya, 2016). Equitable pay or equal pay for
equal work in my opinion is one such hygiene factor. The presence of equitable pay can do little
towards keeping employees motivated.
Meaningful work is definitely a strong motivating factor for employees. A lot of employees are
continue to work at jobs that are not essentially meaningful. They may do it because of their
responsibilities. However, there are few people who would take up a meaningful job by
accepting a pay cut. Offering meaningful jobs to employees is surely an optimal strategy to
motivate employees but when weighed against paying people extra money for their performance,
it falls short.
Pay for performance schemes have been introduced in organizations in order to motivate
employees to perform better. These performance schemes are a way for showing employees that
their hard work and efforts are appreciated and respected in the firm. Rewards and recognition
have always been optimal strategies to motivate employees in the organization (Ahmad et. al.,
2014). These rewards make employees believe that every effort put by them is getting paid off.
This is why they feel all the way more motivated to put even more efforts. Pay for performance
schemes offer employees something above and beyond their salaries. The incentives earned
through this scheme are a clear reward for their hard work and efforts.
At the end of the day all organizations are running businesses. Businesses make money through
the efforts of their employees and pay a certain percentage of this money to their employees in
order to compensate for their work in the form of salaries. Senior management employees get
paid more than middle level employees and middle level management is better compensated than
beginner level employees. This parity in pay is defined simply because the efforts put by
someone in the top management as well as the responsibilities bestowed upon such an employee
are a lot more than that of a fresher. Hence it can be clearly noticed that the businesses try to
quantify the efforts of its employees and compensates them accordingly. Pay for performance

scheme fits perfectly well in this picture. The extra efforts put by employees are quantified and
they are fairly compensated based on that. Therefore not only is the scheme a strong motivating
factor but also a very fair performance evaluation and compensation strategy.
It is important to note that in every organization, certain targets or minimum expectations are
shared with employees at the time of joining. These are the benchmarks that an employee needs
to achieve irrespective of other factors. Sales employees have revenue targets, CRM employees
have customer targets and similar such practices are there in all other jobs. If an employee
working with an organization fulfils its goals and achieves its target then that employee is
fulfilling his or her role in the system. In this entire process, there is a strong possibility that for
some employees these targets are easy to achieve. They may have more talent, ability or the
required skills set to do a lot more than this. Their extra efforts are sure to benefit the
organization as well. But it is also important that such employees are given some motivation in
order to perform more than the target assigned to them (Gopal & Chowdhury, 2014). Pay for
performance schemes offers exactly that motivation for employees. This scheme gives
employees a concrete, specific, measurable and quantifiable reason to work hard after achieving
their targets and they do so because they know they will be fairly contributed. Had it not been for
these schemes, there would have been no quantifiable benefit offered to employees if they
achieved more than their targets and in the longer run it would lead to demotivation.
Another important contribution for the pay for performance scheme is the change in the
organizational culture that is brought about by a bunch of motivated employees who are over
achieving their targets (Engineer et. al., 2016). Incentives earned by one employee will not only
motivate that employee to continue putting extra efforts but will also encourage other employees
of the firm to increase their efforts in order to reap the benefits of the scheme. This will therefore
lead to enhanced productivity of the entire organization. Organizational culture has a significant
impact on the growth of the business as well as level of employee satisfaction (Hogan & Coote,
2014). This is why it is important that employee motivation strategies adopted by the business
are in line with organizational culture of the organization. Pay for performance scheme create a
culture of healthy competition. Competition because employees will work towards achieving
more than their targets and healthy because the incentives earned by one employee have no
impact on the incentives earned by other employees. This spirit of healthy competition in the

business can only be brought about by efficient motivation strategies such as pay for
performance.
Despite the several benefits of the pay for performance scheme, like every other scheme or
strategy, it is important that the strategy is implemented in an effective manner. The idea behind
pay for performance scheme must be to motivate employees to work hard. The performance of
other employees who exceed their targets owing to the scheme and earn incentives must not be
used as a new benchmark for all employees because this would be unfair and may lead to
employee demotivation. The idea behind the scheme is to offer a platform wherein talented
employees can put in that extra efforts and be fairly compensated for the same.
Pay for performance is a staunch motivating factor for employees working across different
industries. Pay equity is a hygiene factor that businesses must incorporate for ethical
sustainability of the firm. Pay for performance scheme motivates employees to work hard and
also rewards their hard work in a fair manner leading to improved organizational culture and
enhance productivity within the business. This is why I strongly believe that pay for performance
scheme is a more effective way to motivate employees than providing equitable pay and
meaningful work.

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