Pay For Performance Essay

1) What is "pay for performance"?

Pay for performance is commonly known as an incentive or variable pay that will help the company and workforce be motivated and work harder. It is a term used to describe any type of monetary incentive that associates some fragment of an employee’s pay directly to results or accomplishments. The Business Dictionary defines paid performance as “a financial reward system for employees where some or all their monetary compensation is related to how their performance is assessed relative to stated criteria”. Such form of payment can be used as a result to how an individual, team, or the entire company performs during a specific and given time frame. The most basic form of pay for performance is the traditional piece-rate plan where employees are paid a specific amount of money for each unit of work.

Taylor from payscale.com suggested that there are three most common forms of “pay-for-performance” that companies may use. The first one is known as employee bonus which is distributed if the employee reaches a predetermined goal in a given time given as an addition to an employee’s regular wage. The second type is performance-based pay increase, which are integrated into the employee’s wage and are typically adjusted only upwards. The last and most common form of pay-for-performance is known as a combination or control points which is the most common form that integrates both bonuses and performance-based pay increase to keep employee satisfaction at a high level. Combination plan gives the employers flexibility and the ability to limit the downsides of bonuses and straight pay increases. Nevertheless, all the pay-for-performance strategies can be positive if the company has the ability to communicate and manage it at employee