LINK BETWEEN PERFORMANCE MANAGEMENT AND PAY

Reasons for Introducing Contingent Pay (CP)

Performance management is more effective when rewards are tied to results
CP Plans force organizations to:
Clearly define effective performance
Determine what factors are necessary
Supervisors and employees are better able to understand what really matters
CP plans enhance employee motivation to accomplish goals that match organizational needs
CP plans help to recruit and retain top performers
CP plans project good corporate image

CP plans help improve motivation when:

Employees see clear link between their efforts and resulting performance (Expectancy)
Instrumentality)
Employees value the rewards available (Valence)
motivation = expectancy x instrumentality x valence
Employees see clear link between their performance level and rewards received (Possible

Problems Associated with CP

Poor performance management system
Rewarding counterproductive behavior (Rewarding A while hoping for B)
Rewards are not considered significant
Managers are not accountable (The reward becomes the driver)
Extrinsic vs. intrinsic motivation
Disproportionately large rewards for executives

APPROACHES TO CONTINGENCY PAY

A. CP systems for different organizational cultures:
Traditional organizations
Piece Rate
Sales commissions
Group incentives
Involvement organizations
Profit sharing
Skill-based pay
B. CP Plans to enhance Strategic Directions
Employee development
Skill-based pay
Customer service
Competency-based pay
Gainsharing
Overall profit
Executive pay
Profit or stock sharing
 Productivity
Individual
Piece rate
Sales commissions
Group
Gainsharing
Group incentives
Teamwork
Team sales commissions
Gainsharing
Competency based pay

RECONCILING PM AND PAY: PERFORMANCE RELATED PAY, COMPETENCE BASED PAY,

TEAM BASED PAY, CONTRIBUTION RELATED PAY

http://ebook.nscpolteksby.ac.id/files/Ebook/Business%20Administration/ARMSTRONGS%20HANDBOOK%20
OF%20HUMAN%20RESOURCE%20MANAGEMENT%20PRACTICE/50%20-%20Contingent%20Pay.pdf