Is Pay for Performance Plan a Curse or a Boon?


Performance Management

Pay for performance plan is a popular form of compensation where employees are given salaries and other benefits depending upon their level of performance.

Three decades before, people used to believe in the concept of life-time job. They would work in an organization for their entire life span. Building loyalty, trust and good relations was all that the employee and the employer counted. Employers never thought of linking employee’s performance with their compensation. Ah..! That surely was a golden period.

Today’s business approach narrates a different story of compensation and performance. Employers believe in taking them parallel. An employer is happy with an employee till the time it gets good business results. On the other hand, the employees are happy working with an employer till they receive handsome compensation. One bad appraisal and the story takes a twist. Both the parties show disinterest in working with each other.

However, we accept the fact that linking pay to performance has two sides of the coin. Let’s have a quick look at them.

Brighter Face – Advantages of Pay for Performance Plan and Linking Compensation to Performance

High Employee Satisfaction

It simply means the better you perform, the better you are paid. The employees are paid for what they really deserve. The employees are rewarded for their professional achievements in form of improved remuneration. Each employee receives well-deserved monetary praise without any discrimination.

Fair Compensation

The employees are paid fairly for their improved work performance, regardless of their experience, skills and seniority. This motivates the workforce and people who are really willing to achieve more milestones in the organization. The fair pay acts as a driving force to work more and more with utmost sincerity.

Aligned Business Goals

Employer appreciates the efforts of employees in achieving strategic business goals. The concept of pay for performance aligns organizational objectives and employees are paid well if they are achieved successfully.

Darker Face – Disadvantages of Pay for Performance Plan

Increase in Company Budgets

As pay-for-performance allows employees to increase their earnings flexibly, they work hard to give extra productivity and make extra money for their pockets. Sometimes, employers are financially affected by increase in sudden variation of company pay budgets.

Employee Contention

When a business focuses more on linking pay to performance, there are high chances of employee disputes. An employee might feel, at any point of time, that his/ her manager is doing favors to other team members by helping them make increased bonus and compensation. Such situations may lead to hostile work environment where productivity suffers due to rising levels of contention and jealousy.

Fear of Missing Employee Input

In such competitive work environments, every move is counted as good or bad performance transformation. As it has everything to do with the individual’s compensation, employees may not share their valuable inputs to their immediate supervisors thinking about reduction in their own earnings. At the end, this causes loss to the organization where employee inputs are highly appreciated and implemented for business planning.


Over the long course of time, professionals have realized that wealth creation and relationship development are different things and they should not be measured parallel. However, the brilliant concept of pay for performance plan should be revised to get more number of benefits and eliminate downsides. After all, employees and employers work to reach the success gateways!

TAGS: HR, HR Technology, Human Resources, Motivation, Performance Management

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