Impact of Variable Pay and Performance Incentives: An HR Report

This report analyzes two key HR issues: variable pay programs and performance-based incentives. It argues that variable pay, which ties salary to individual performance, can decrease employee motivation, especially for those with lower performance levels. The report also discusses how performance-based incentives can create a competitive environment, potentially leading to decreased motivation among employees who do not meet the set criteria for bonuses. The report concludes that both variable pay and performance incentives can negatively affect motivation and productivity. The report is based on an assignment brief that required students to identify and explore HR issues from a given article, considering implications for recruitment, training, and performance management.

A bias for bonus : what it means for your
paycheck

Table of Contents
INTRODUCTION...........................................................................................................................1
ISSUE 1...........................................................................................................................................1
Variable pay program..................................................................................................................1
ISSUE 2...........................................................................................................................................1
Performance based incentive.......................................................................................................1
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

INTRODUCTION
In the modern era employees working within the organization are regarded as one of the
most valuable asset. Further, they are assigned various responsibilities within the workplace
which needs to be carried out. Moreover, while managing human resource management various
issues are faced by company and they sometime affects business productivity. In the present
report two HR issues have been considered which are variable pay and performance based
incentive (Frey and Osterloh, 2001). These issues directly influence organizational productivity
and in turn it becomes difficult for business to focus on its long term goals and objectives.
Businesses have started to consider the concept of variable program where staff members are
provided salary on the basis of work done by them. Every industry has adopted this concept
especially energy where variable pay components are strongly based on the performance of the
staff members and in turn it is fruitful for the business.
ISSUE 1
Variable pay program
Through the analysis it has been found that the variable pay program being considered by
the companies leads to decline in motivation level of the individuals being present within the
workplace. Further, variable pay totally relies on the work done or performance of individual in
the organization (The problem with Performance Related Pay., 2013). In case if staff member is
performing efficiently then more reward along with monetary benefits are provided by the
management and vice versa. Therefore, individual whose performance is quite high in the
workplace can be easily motivated but in case of individual with low performance motivation
level declines. Therefore, this is one of the major issue being faced by companies where
maintaining balance becomes difficult and it directly influences business productivity (Hanley
and Nguyen, 2005). Further, employees are not able to determine well in advance what kind of
pay they will receive from company and this affects the kind of operations being carried out by
them.
ISSUE 2
Performance based incentive
It is the another major HR issue being faced by companies where incentive and other type
of monetary benefits are delivered to the staff members on the basis of their performance.
Further, in case if performance of any individual in company is not up to the mark then it is not
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possible to take benefit of incentive scheme introduced by company (Boeri, Lucifora and
Murphy, 2013). Therefore, this also leads to decline in motivation level of the staff members and
they may not prefer to perform the key tasks assigned to them efficiently. In short, this creates
feeling of competition within staff members where they apply efforts in business operations to
contribute best within workplace.
CONCLUSION
From the entire study the two issues identified have supported in knowing that providing
incentive and reward on the basis of performance affects motivation level of the staff members.
Further, in case if any individual is unproductive within the workplace then it is not possible to
take benefit of the reward system. Apart from this, in case of variable pay program no fixed
salary is provided to the employee which also decreases the level of motivation within the
workplace and absence of bonus leads to decline in productivity.
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REFERENCES
Books and Journals
Boeri, T. Lucifora, C. and Murphy, J. K., 2013. Executive Remuneration and Employee
Performance-Related Pay: A Transatlantic Perspective. OUP Oxford.
Hanley, G. and Nguyen, L., 2005. Right on the money: What do Australian unions think of
performance‐related pay?, Employee Relations. 27(2) .pp.141 – 159.
Frey, S. B. and Osterloh, M., 2001. Successful Management by Motivation: Balancing Intrinsic
and Extrinsic Incentives. Springer Science & Business Media.
Online
The problem with Performance Related Pay., 2013. [Online]. Accessed through
http://www.businesszone.co.uk/community-voice/blogs/davidrjack1/the-problem-with-
performance-related-pay. [Accessed on 6th April 2016].
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