Pay-for-Performance Plan Characteristics


The paper estimates the influence of embracing a pay-for-performance compensation system, in the contemporary job market environment. The aim of the study is to sustain a complex evaluation of the model efficiency by employing the issue from various perspectives. Specifically, the paper analyzes the challenges, which arise in pay-for-performance management, both for employers and employees. The investigation of the question assists in devising improvement recommendations for the compensation system. Moreover, the work dwells on the measurement of pay-for-performance planning, which helps to draw the model of successful compensation handling. Consequently, the investigation provides a full account of pay-for-performance characteristics and may be used in the elaboration of the existing compensation systems.

Measuring the Effectiveness of Pay-for-Performance Plans

The study refers to the estimation of the workers compensation system, which prioritizes paying for the completed work. Within the system, the main task for the employees is to reach the goals, which are previously established by the organization. However, the efficient functioning of the compensation model is sustainable only if the employers manage to link the objectives of the organization to the performed work as well as to the motivation of the workers for the productive work. Primarily, the establishment of a pay-for-performance system requires the optimal investment of time and effort. Specifically, an organization must consider overtaking a distinct model of performance levels’ distinguishing as well as a clear determination of payment bonuses.

Thus, the standards of work appraisal, in the system of pay-for-performance compensation, predetermine both the income of the business and the employees. Secondly, the assessment of the compensation effectiveness relies on the selection of the managerial workforce. In other words, the work of supervisors is critical in pay-for-performance organizational functioning since it does not only concern the coordination of the work tasks but to the motivation of the employees and the establishment of resonating rewards as well. Thirdly, the verification of pay-for-performance functioning is dependent on the frequency of performance measurement and imposing reward modifications. In this way, the employees feel constant guidance and support and may rely on the accommodation of the compensation system to their real-life needs (McPhie & Sapin, 2006).

The Disadvantages of Pay-for-Performance System for Employees

Despite its relevant efficiency and international popularity, the system of pay-for-performance compensation has some consistent disadvantages. If one refers to the position of an employee, in the analyzed model, it can be concluded that they often face difficulties with the overtaking of the performance-based tasks. The first employee disadvantage of pay-for-performance compensation is the lack of opportunities to realize one’s potential in teamwork.

Thus, since the workers are often encouraged to boost their own accomplishment rates, they rarely engage in interaction with their colleagues, which provokes cross-organizational misunderstandings. Furthermore, the system gives birth to internal competitiveness, which often affects the human psychological and emotional state as well as reduces the level of general performance. Secondly, the workers, who do not have positive supervision, often lack the motivation to contribute to the improvement of the company performance.

Indeed, if the management is not able to demonstrate the importance of reaching not only personal benefit but the company goals as well, the organization may face losses, due to the indifference of the employees to its success. Finally, the system predetermines the wide use of accomplishment-based bonuses, which means that employers, constantly, prioritize one’s performance over the others, which may create prejudiced or biased opinions (Rosenthal & Franks, 2012). In other words, some workers are persuaded that pay-for-performance compensation operates a subjective agenda and may often result in unfairness.

The Disadvantages of Pay-for-Performance System for Employees

The employment of the pay-for-performance system is not always beneficial for the employers, according to such factors as quality inefficiency, emotional instability, and lack of consistency in incentive programs. Thus, primarily, it is claimed that prioritization of monetary rewards, in a works domain, turns money into the primary production goal. In other words, the employees, who are told that their financial stability is dependent on the amount of work, which they perform, are likely to focus on the quantity of the performed tasks rather than on quality.

Accordingly, employers may face the problem of work efficiency downfall or a gradual decadence of production. The issue, however, may be solved if employers succeed in establishing a smart correlation between the production goals and financial bonuses. For instance, it is often offered to pay the employees for the actual realization of accomplishment results rather than on the amount of work, which they perform. Secondly, the work teams, which are engaged in a pay-for-performance system, are hard to manage for the employers.

Due to the internal competitiveness, the employees prefer completing tasks individually so that to boost their own results and receive monetary awards. In contrast to it, they lack proficiency in achieving group work aims, which endangers corporation success as well as promotes a stressful atmosphere at work. Finally, the last challenge for employers is to connect the workers to the appropriate incentive programs. Specifically, the managers claim that, according to employee diversity, it is almost impossible to device standard incentives, which could motivate the workers for achieving company goals rather than targeting money rewards (Hays, 2009).


Hays, S. (2009). Pros & cons of pay-for-performance [Press release]. Web.

McPhie, N., & Sapin, B. (2006). Designing an effective pay for performance compensation system. Web.

Rosenthal, M., & Franks, R. (2012). Early experience with pay-for-performance: From concept to practice. Journal of American Medical Association, 294(14), 1788-1794.