Performance Based Pay on Organization Effectiveness

Student Name
INSTITUTIONAL AFFILIATION(S)
THE EFFECT OF
PERFORMANCE-BASED
PAY ON ORGANIZATION
EFFECTIVENESS

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The effect of Performance-based pay on Organization effectiveness
Introduction
Performance-based pay is the term which demonstrates a tendency which indulges
organizations to seek new ways that can strengthen the bridge between employee's
performance and the receivable pay. Pay based performance can also be taken as a notion that
rewards individual performance in a way to impact organizational performance positively and
henceforth, stems from the base level to increased competitive experiences in the firms
(Aljumah, 2015). Organizational literature, on the other hand, emphasises more on a wider
range of theories that explain human work and motivation behind it. For instance,
reinforcement theory states that employee's behaviour can get motivated through appraisals
and rewards and when these are experienced constantly, they tend to behave in a positive way
(Bajorek & Bevan, 2015). With this believe that rewards based on employee performance
can lead employee’s morale to work effectively for their firm, it can be said that
organizations effectiveness will also get boosted from potentially high-performing
individuals.
Critical Discussions
Organizations usually employ various kinds of performance-based pay systems with
the combination of the group-based and individual-based rewards such as lump-sum bonuses,
profit sharing and individual incentives. Every reward given consist of certain characteristics
and specific forms. Performance-based pay can be further categorised as a merit-based
reward, one-time payments and long-term incentives. The merit-based reward is the most
commonly used performance-based plans and is used to rewards individuals' salaries based
on their performance. One-time payments can be determined on special performances made

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and do not increase base salaries whereas long term incentives involve pay in the form of
stock options and stock grants (Park, 2018). Rewards and bonuses not only impact
employee’s efficiency values but also increases performance metrics., job-satisfaction and
organizational productivity. “Organization pay directly influences on employee voluntary
turnover and compare their pay with other organization” (Nagaraju & J, 2017). Therefore,
if employees feel that their organizations make good effort to value their performance, they
tend to perform effectively and in turn, overall work quality and quantity increases.
In organizations, employee performance is measured regularly to see that every
individual contributes to the organizations success. Performance is the ultimate result of job
execution, both material and non-material ones. It can be said that performance is directly
related to individual ability and motivation to complete a work out of willingness. Based on
such assumptions, it can be said that individual can be motivated to work more if their pay is
calculated according to the efforts made rather than ranking experiences only. Taylor's theory
states that individuals work for compensation. According to his theory, people will work
harder than ones who do not receive the desired compensations and increase in their pay
( Siramiati, Surachman, Hadiwidjojo, & Rohman, 2016). Domino's is a firm which
runs on high-performance policies based on pay and incentives for their senior leaders' team
as well as employees working for the firm. The firm initiated 'Domino's Way' in the year
2017 which manages people performance and maintain core skills. This tool not only helps
the firm in determining employee performance and that culture is maintained throughout the
organization but also talented skills are retained within the organization (Domino's, n.d.). It
can be noted that performance-based compensation plays a very significant role in the firm’s
reward management plans as it helps in maintaining and developing employee motivation,
attracting and retaining talented employees along with inspiring employees to work
effectively.