Reference no: EM132266538

According to legal definition, pay-for-performance ties an employee's pay to their performance on the job. Proponents of pay-for-performance programs believe they will attract and retain better employees and offer incentives to motivate and reward improved performance. Pay-for-performance plans are a method of compensation where workers are paid based on productivity, as opposed to hours spent on the job or at a set salary. They are often used in fields such as sales, where workers rely on commissions and/or bonuses for their income. While this can result in less of a sense of financial security for the employee, there are several advantages for both the employee and employer. A talented salesperson who works strictly on commission may be able to earn more money than a salaried salesperson since he is paid based on the volume of sales. Since employees are compensated based on performance, they may be more likely to work harder and longer in order to reach income goals. productivity may increase due to the employee's desire to earn a high income. The result can be greater productivity from fewer workers, reducing the employer's labor cost and transferring the financial risk from the employer to the employee. The cons are: employees can be de-motivated if the goals set are too hard to achieve, too much of the process relies on the quality of judgement made by a manager, it reduces pay equity and can make a company liable to costly equal pay challenges if not operated fairly, the performance appraisal process can be affected detrimentally because of the focus on financial reward rather than developmental needs, as reward is made for a short-term quantifiable goal, it can be too narrowly focused.