Having isolatedly discussed pay
for performance here we are going to discuss other elements of the pay for
performance. There are many ways through which employers use to capture the
loyalty of their employees, some of these ways are: Merit Pay Plan, Pay for
knowledge and skill, Fringe benefits, etc; all these are known as incentives,
because they are different from the base pay or salary.
According to Heneman III et:al
(1998: 186):
Incentive pay systems are primarily adopted to enhance employees motivation to
perform whereas
most merit pay attempt to motivate by relating periodic pay increase more or
less closely to employees performance ratings, most incentive pay plans tie
day-day earnings orperiodic bonuses directly and automatically to relative
objective indexed of individual, groupor sometimes organizational performance.
An incentive plan is a part on
the back of employees for a brilliant performance in the cause of carrying out
their official function. Mathis and Jackson(1994:389,390), echoed to this, when
they posited that:
The main purpose of incentive is to tie
employee reward closely to their output. Thus an incentive is a compensation
that rewards an employee for efforts beyond normal performance expectation.
They went further to assert that:
Different variety systems are available for
use in an organization. Stating that: incentive plan can be in individual, group, or organization. They
further revealed that: individual plans work well to tie pay to performance
when productivity is being directly measured.
However, incentive pay does not
encourage cooperation among employees, as each employee tries as much as
possible to excel and exceed the other person’s performance.
Jennifer et:al (1991) recommended
that: “incentive system should be tied as much as possible to the desired performance.
Employees must see a direct relationship between their efforts and their
rewards”. They further noted that both employees and managers must see the
rewards as equitable and desirable, as expectancy theory indicates that
incentives are most effective when employees can see clearly that their efforts
lead to increase in performance and desirable rewards.
Peck(1993) in his contribution
affirms that: “incentive pay, or variable pay reward employees for partially or
completely attaining a predetermined work objective”. They defined incentive or
variable pay as “compensation, other than base wages or salaries, which
fluctuates according to employee’s attainment of some standard such as a pre
established formular, individual or group goals or company earning”.
This view agrees with the views
of Heneman III et:al: (1998) as expressed above.
Much like seniority pay approach,
incentive pay augment employee’s base pay, but it
appears as one-time payment.
Incentives encourage and energize people to do more and to do better in the
future by offering the employee the opportunity to earn additional financial
and non-financial rewards.
Bowey (1992) stressed the need to
assess the objectives of pay schemes from different behavioural perspectives.
The variation in prevalence results from differences in the type of work
performed, as well as from differences in attitude of both management and
labour organization in the specific segment. Incentives system automatically
recognizes differences
in ability and motivation. They
vary from simple piece rate to sophisticated arrangements that adjust wages
according to time saved or level of output either by individual or by groups of
employees.
It is worthy of note here that
all incentives plans are pay for performance (Bureau of National Affairs 1996,
1997, and Abosch, 1999). However, besides all the advantages so far stated
about incentive pay plans, one of its major disadvantage is that where the
incentive pay is substantial, it tends to develop a narrow focus to employees
work. They concentrate on those aspects which they believe will initiate
payments while neglecting other parts of their job.
Aswathappa (2002) opined that
“the primary advantage of incentive is the inducement and motivation of workers
for higher efficiency and greater output.
Obringer (2004) alluded to this,
when he revealed that incentive based pay is becoming much common because of
the emphasis on performance and competition for talent, and it helps to
motivate employees to higher performance.
Appleby (1994) stated that: “in
most incentive payment schemes, performance above a level taken as standard for
job evaluation will receive a reward”.
A Public Service Commission
Report observe that: “there has been clear moves in the public sector towards
performance based reward, with individual performance measured being tied to
corporate goals, (Dell, 1997 and Public Service Commission, 1992).
In agreement with the above,
Mathis and Jackson (1994) posit that: “the main purpose of incentives is to tie
employee’s rewards closely to their output, thus an incentive is a compensation
that rewards an employee for efforts beyond normal performance expectations,
(NPE).
Further, in agreement to the
earlier views, George et:al: (1991) expressed that “incentive systems should be
tied as much as possible to the desired performance”.
According to Mathis and Jackson,
1994, Abosch 1998, George et:al;1991, Carrel (1998): Individual incentives
include the following:
- Piece rate
- Pay for experience
- Pay for performance
- Pay for qualification (Knowledge/skills)
- Seniority pay
- Pay for long service
- Overtime pay