Professional organizations link pay with
performance. The higher the performance, greater is the pay. Performance
related pay include:
1.
Piece Rate:
- Employees get piece rate based on the output of production. The output may be
per hour or per day. Higher the output, higher would the rate pay. This
motivates the employees to speed up their production rate.
2.
Commission:
-Employees, especially in the sales department get commission on the basis of
sales turnover. The commission may be at a flat rate or at an incremental rate.
Flat rate implies that the rate of commission is in proportion to the units
sold. Under incremental rate, the rate of commission increases with the
increase in sales turnover.
3.
Bonus:
- Employees may be paid bonus for producing or selling certain number of units
during a certain period. The bonus may increase if the established limit of
production or sales is increased.
4.
Profit Sharing:
-Profit sharing is a system that distributes to employees some portion of the
profits of business either immediately or deferred until later profit sharing
is based on the mutual interest of both employee and employer. Here the
employee becomes interested in the economic success of the company because he
stands to gain from it. This fosters team-work.
5.
Gain Sharing:
-A gain sharing plan establishes a historical base period of organizational
performance, measures improvements and shares the gains with employees on the
basis of some formula. The company focuses on areas like inventory levels,
labour hours per unit of product, usage of materials and supplies and quality
of finished goods
Advantages: -
Performance related pay generates certain
advantages to the organization and to the employees.
1.
Job Satisfaction:- Those who performs well, receive higher pay. When
employees receive performance related pay, there is greater commitment, which
leads to greater effort and therefore, higher is the performance and job
satisfaction.
2.
Equity in pay:
-Performance related pay generates equity in payment. Employees perceive the
payment as equitable to their efforts. This may induce under-performers to perk
up their efforts in line with high performers.
3.
Objective Method: - Performance related pay is objective. It is
based on certain criteria such as quality of work, quantity of work, and output
per hour and so on. Compared to superior’s subjective performance ratings, the
objective approach tends to have higher acceptance by employees.
4.
Increase in Employees Commitment: - Performance based pay makes the employees
interested in the economic success of the organization. This is because; the
Performance or economic successes is directly linked with their pay. Therefore
the productivity of the organization improves.
5.
Team Work:
- Performance related pay is normally provided on the basis of group
performance. Therefore, greater teamwork tends to develop in the organization.
The high performance may pep (energy) up with the performance of low performers
through assistance and guidance.
