Pay-for-Performance: Does Compensation Motivate Behavior?

Abstract

Organizations have been increasingly using monetary incentives to find solutions that can effectively motivate employees regarding behavior and performance. It is upon the particular company to control the performance by knowing what best motivates its employees to produce the best results. In the modern business environment, organizations have prioritized compensation as one of the critical concerns playing a critical role in the objectives and goals achievement. Through the motivation, companies have preferred compensation. This includes; pay for performance, rewards, incentives, and positions to ensure that the management expectations of the employees are met. Thus, the effort exerted by an employee dramatically depends on the motivation. This essay examines in detail the concept of pay for performance in reflection to the compensation plans adopted by management of most organizations. This has given a long time belief to the fact that financial incentives best motivate the organizational performance. The discussion on the pay for performance in this essay brings out how it drives behavior in the organization.

Pay-for-Performance: Does Compensation Motivate Behavior

Since the industrial revolution began, the primary concern of organizations has been using monetary incentives to find the solutions that can effectively motivate employees. It is upon the management of the particular company to control the performance by knowing what best motivates its employees to produce the best results. In the modern business environment, top organizational managements have prioritized compensation as one of the critical concerns playing a critical role in the objectives and goals achievement. Through the motivation, companies have preferred compensation. This includes; pay for performance, rewards, incentives, and positions to ensure that the management expectations of the employees are met (Hamel, Roland, & Campbell, 2014). Thus, the effort exerted by an employee dramatically depends on the motivation. The concept of pay for performance reflects the compensation by management that is commensurable with the value that the employees can deliver to the customers. This has given a long time belief to the fact that financial incentives best motivate the organizational performance. The discussion on the pay-for-performance in this essay brings out how it drives behavior in the organization.

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Research by economists and other experts claims that any good management must have the pay-for-performance as an essential element. As it is a general belief among the managers that employees who are motivated and productive are the primary engine behind the success of the organization. The success though does not consider the size of the company, the corporate strategy, and the industry. However, very fundamental questions arise on the determination of the kind of performance to receive the pay and how the compensation motivates the employees. This requires the crucial roles of the management in the organization. Pay-for-performance can either be the bonuses paid to the individuals after assessing their performance or rewards for organizational-wide incentives. With this support, many are content that pay-for-performance has the most substantial influence not only on the performance of the employees but it also motivates their behavior.

There is a general belief that employees get motivated to improve their working to enhance performance when they get something they want in return. This then considers the application of the motivation theory to understand how the pay-for-performance plan has the impact on the employee’s behavior and the subsequent performance (Park, 2008). The fact that employees look forward to getting something for the extra effort they commit to their working, it is possible to say that the particular thing is what motivates them. This can best be explained from the perspective of the expectancy theory. This perspective explains how the performance-based pay impacts the employees’ perception improvements about their expectancies and instrumentalities. With the performance-based compensation, the employees should see the  likelihood that they will ultimately achieve the value reward if they put extra effort into their work (Park, 2008). From the theory of expectancy, it is the desirability of the pay increase that would determine the performance of the employee as well as the likelihood ahead of the employee. The employee having such perspectives in mind would often do something different with the intention of achieving what he/she expects based on the pay-for-performance.

When employees are exposed to the to the pay-for-performance compensation plan, the future state of cognition of the interest to designers of this plan is created in the minds of the employees. This is accompanied by the emotions and feelings that are attached to this potential future state of the employee (Gilbreath, & Harris, 2002). The employees develop that vision about the future state that they have, with the additional positive emotions and feelings that come unto them upon contemplating upon it. This situation the employees find themselves in would be a significant boost to the effect of the performance-based-pay that the management of the organization may be hoping to achieve. Ultimately, the employees will find themselves in a particular line of working or when carrying out their duties in a way that they are affected by the emotion and the feeling of the potential future state of the pay-for-performance (Gilbreath, & Harris, 2002). As this system gets adopted in the organization, employees will tend to behave this way throughout their stay in the organization making it part and parcel of their behaviors.

In another way, the motivation of the pay-for-performance compensation plan towards the employee behavior can be viewed from the goal-setting perspective. It is possible for the employees to get themselves committed to achieving the performance goals if the performance-based pay is practical and appealing to them. As much the organizations have the general and broader goals that bind all the stakeholders, organizations may also want the employees to have their own specific purposes. This is beside the employees’ motivation to work hard. Research indicates that a considerable number of organizations already had the bonus reward system specifically for those employees who achieve some specific goals. Thus, from the perspective of the performance goal, the company will offer the contingent pay if the employees attain a particular purpose. This has been influenced by the belief that employees would commit themselves to achieve the specific goal in addition to their time and full attention. This will become a habit for the employees and a driving force towards their working and response in the workplace hence influencing their working behavior.

In a different view, employees themselves find the pay-for-performance a driving force towards them setting spontaneous and higher goals to achieve. There has been a general argument that when the pay-for-performance is considerably larger, employees find a necessary strength to set performance goals at a higher level that they never thought of in the first place (Herzberg, 2008). This will be a success story of the party of the management which had initiated the compensation plan for its organization. An explanation to it is that goals positively affect the performance of an organization. If there is something worthy that influences the best way that employees work then they are goals. By coming up with their own goals, employees get reminded of what they need to do, give them clear direction on how to do it, and show the employees the end of it all and the benefits (Herzberg, 2008). Although the phenomenon of the automatic goal setting is new and has not received enough research deserved, the area is up-and-coming. This is the cause because of the potential the phenomenon has towards influencing the excellent working by the employees in the organization. The same has been found on the effects that pay-for-performance has on the employees setting higher goals.  As a result, from this perspective, it can then be argued that the performance-based-pay to employees has a salient reaction on how employees perform. Employees could then get encouraged on how to plan, deliberate, and cognize thus becoming their habit.

Roles and responsibilities have also been crucial factors in the organizations that shape how the employees behave towards their work. Researchers have found a strong relationship between the role clarity and the organizational behavior. Subsequently, pay-for-performance has been found to play a role in improving the role clarity in the organization (Deckop, Mangel, & Cirka, 2011). This is possible since the pay-for-performance can clarify job responsibilities, measures, and standards. The accomplishment has been among the top benefits that performance-based pay manage within the organization. Once this has been achieved, every employee will get to understand the role to be handled by each making it easier for them to work. Ultimately this becomes a behavior among the employees since they know what they attend to on a daily basis hence motivation towards their behavior.

Therefore, in total, the pay-for-performance compensation system is vital especially when it comes to influencing the employees to have a perception that the work effort they are putting in will help them achieve the financial reward sometimes in future. This is true since the pay-for-performance system tends to increase the interest the employees have in pursuing a job till its final accomplishment. The pay-for-performance to achieve a particular performance that will have the significant impact on the behavior of employees depends on its success.  This is regarding giving direction to the employees towards maintaining their initial intention on the work as well as the required motivation to do the job effectively. Thus, the leadership and the management of the organizations need to put a lot of focus and interest on the pay for performance compensation plan due to its importance towards enhancing the employees’ behavior.

References

Deckop, J. R., Mangel, R., & Cirka, C. C. (2011). Getting more than you pay for: Organizational citizenship behavior and pay-for-performance plans. Academy of Management Journal, 42(4), 420-428.

Gilbreath, B., & Harris, M. M. (2002). Performance-based pay in the workplace: Magic potion or malevolent poison?. The Behavior Analyst Today, 3(3), 311.

Hamel, M. B., Roland, M., & Campbell, S. (2014). Successes and failures of pay for performance in the United Kingdom. The New England journal of medicine, 370(20), 1944.

Herzberg, F. (2015). One More Time: How Do You Motivate Employees? Retrieved September 3, 2018, from https://hbr.org/2003/01/one-more-time-how-do-you-motivate-employees

Park, S. (2008). The relative effects of pay-for-performance plans on future performance.