Performance-related pay (PRP) is a system of providing salary to an employee or a team based on their work performance. The performance criteria may differ for every situation, including pulling better projects that will benefit sales commission, bonuses for reaching targets, or financial profit sharing. An individual’s performance criteria may include specific skills, experience, and knowledge needed to perform tasks. As such, this pay criteria has some advantages and disadvantages.
Advantages
Performance-related pay will directly support the business structure of an organization.
Goal setting
For obvious reasons, every organization is likely to have set goals and emphasize the team to meet deadlines. When this is the case, it applies to all the employees and encourages them to follow the rules. It will improve an individual’s passion for the task at hand and yield better overall productivity.
Hard work and determination are required when meeting targets that boost performance. When performance is up to standards, managers can tap into the efficiency of an employee and develop a framework for payroll, including bonuses, cash rewards, or even promotions from one role to another.
Boosts the performance
When goals are defined, then the focus of employees is focused on achieving them since it will directly contribute toward their pay. A good PRP system will spot the best performers and reward them for their hard work. It will also help retain employees longer in their current position, producing quality work. If someone becomes demotivated, it will directly influence their performance. Similarly, if someone performs poorly, then PRP can serve in dealing with poor performance through positive motivation.
Limits work strain
When an employee reaches achievable goals and meets reward criteria, he feels less strained and is more motivated to produce accordingly. Employees take it as an incentive to show their skills and performance as they will be directly rewarded for it.
Disadvantages
There are certain disadvantages that result from performance-related pay.
Too much to achieve
At times, the targets set for a team can strain workers. They continue to compete with others on a team and can become fatigued to believe the goal is an uphill task and beyond capabilities. Even in these cases, if someone is assigned more tasks and begins out-performing his colleagues, it is probable that harsh feelings toward one another will be created. Conversely, if teammates are under-performing, negative feelings of jealousy or inadequacy can develop, creating a hostile work environment.
When targets seem unachievable, losing hope is inevitable, and employees no longer intend to achieve them. It will negatively affect the work process and result in poor task management.
Fear of judgment
When employees start fearing that every action will be judged and jeopardize the achievement process, they become strained mentally. They will continue to work in an environment that can have adverse effects on their physical and mental health. If not operated fairly, the company is liable to bear the expense of losing efficient and otherwise productive employees.
The development process is limited
Individual performance is restricted to performance instead of development when everything is based on performance. The team will lose spirit in helping each other learn and grow, and it will focus on personal aims and achievements. At the end of the day, teamwork will decrease since each teammate will try to complete tasks and targets based on personal interests. There is a danger that no cooperation in assisting each other will result, and valuable assets or professional development and growth will be lost. When non-intrinsic rewards are linked to motivation, employees will indulge in greed. Professional development is then limited since core benefits like cooperation, learning, and growth are not a primary focus of performance goals and are replaced with performance-based pay.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
