An Aspect of Making Pay-for-Performance Plans

Pay for performance is a compensation model where a part of the employee compensation is directly linked to his performance at the workplace. Pay for performance has always remained a topic of debate in the corporate world. Though a school of thought supports this kind of pay and finds it completely just and rational, the criticism against pay for performance also cannot be ignored. In spite of criticism, pay for performance is widely practised across the globe. However, most organisations face challenges in designing and implementing an effective pay-for-performance plan. Further, pay for performance cannot be discussed in isolation. Differentiation and performance management system come along with pay-for-performance plans. This paper describes the various criteria that a performance management system should consider to effectively measure performance and design a proper pay-for-performance plan that would be able to gain employee trust and buy-in. It also looks into the communication process of such schemes to the employees in a clear and transparent manner so that these schemes can be successfully implemented. Only then, a pay-for-performance plan will pay off. Else, it might lead to employee demotivation and lower levels of performance in the organisation.