Employee performance has been a major factor of organization’s progress. It is a problem that requires an organization to mechanize models of motivating employees to do more every day. However, different levels of abilities have been attributed to skills while some theories have attributed it to monetary motivation given to employees. The objective of this research will be examine the performance based pay as a method of motivating employees and subsequently achieving organization’s goals. The study used both quantitative and qualitative analysis. It will involve an analysis of a case study company from Ghana where 60 non-managerial and 20 managerial staffs will be sampled. The research gathers data using a questionnaire as research instrument. Statistical method such as ANOVA will be used to test the main hypothesis.
Rewarding employees based on their performance has gained popularity currently. Performance related scheme is based on the idea that when two people have been hired to perform a similar task, when one outperforms the other or have a superior contribution should be rewarded financially than the other. The performance related pay system was designed to encourage employee to work more and increase productivity. The employees are also motivated to work more, thus it works towards sustaining good employees. The model was reflected by the influence of giving incentives. It was mainly influenced by the private sector culture.
According to (Sarwar, et al. 2014), the two components on the conventional salary and teachers performance increased student achievements. The uniform salary was first introduced in 1920s to balance salararies between male and female from the same level. However, some concepts such as performance measurements had not been incorporated.
Linking performance with pay something employers seek to achieve. Organizations with performance related pay method of remuneration has showed to attract workers with greater effort (Boachie-Mensah, 2011). The introduction of performance related pay (PRP) is introduced to improve employee perception about the job as well as motivating then to work more to earn more. However, there are mixed reactions towards PRP.
Employees consider compensation as a pay they get from services they render to the organization. They often view it as a reflection of personal worth in terms of abilities and skills, their education and training they have acquired before or after starting working. However, on the manager’s perspective, compensation is a major expense and a method of influencing employee attitudes through a method such as the performance related pay. The possibility to influence employees to change their attitudes and behavior, and eventually change the productivity and effectiveness in service delivery. Direct rewards given to employees include basic wages, either including performance based pay and living adjustments.
However, there has been a concern about the impact of fixed incremental system of payment on organizational goals by various professionals. This is so where increments are given to employees according to unrelated and prerogative to the performance assessment. In most cases, employees are given automatic promotions with their financial implications, as they work in a given time or services they provide. Employee motivation to perform better and productivity is one way of achieving advantages such as competitiveness in the business environment.
The payment related payment system has been introduced for three main advantages; (i) promote change of management culture, more specifically in the way staff think about the company or project objectives and cost constraint, (ii) motivating employees to perform better rather than length of service by making annual salary increment, (iii) lastly by introducing better elements of pay-cost flexibility and discretion on performance instead of smaller units (Marsden & French, 2004).
Various studies have been conducted about PRP method on human resources management, but little research has been conducted in all sectors. This research was meant to evaluate the impact of performance based pay method in attaining company goals and motivating employees. The main question asked is whether time-based payments method is superior to performance based payment method.
2.0. Literature Review
2.1. Performance-Based Pay
Incentive compensation programs are designed by an organization to improve productivity and efficiency of the organization, additionally, organizations may also use them to enhance employee engagement, recruitment, employer branding and employee retention (SHRM, 2018). Performance related pay acts as an example of incentive compensation program that was derived from the theory that rewards drive behavior. In the corporate setting, the model enables organizations to produce targeted results through rewarding employees that are in charge of the results obtained in an organization.
In a research conducted by (Brooks, 2017), workers that received performance based pay showed more willingness to work harder. Performance based method links employees performance to pay. It can be explained as a method of remuneration that increases salary based on mainly their merit or appraisal. It is also defined as a comprehensive process of providing financial reward to an employee mainly because of the organization’s performance. It should also be noted that the remuneration is not mainly limited to financial rewards, it may also constitute of pay for performance.
PBP can be isolated into two fundamental classifications: merit pay and motivator pay. The legitimacy pay relates remuneration to the board’s appraisal of the individual representative’s exhibition; the augmentation earned (PBP) and the all-out turns into the worker’s new essential compensation. Motivating force pay, then again, relates remuneration more to execution criteria, for example, quantifiable profit, volume of merchandise created or sold, gaining or share. While basically one kind of legitimacy pay exists, there are a wide assortment of motivation pay plans. It is likewise arranged impetus pay frameworks into three: singular extra plans; aggregate extra plans; and aggregate extra plans dependent on benefit created. The spotlight in this investigation is on merit pay, the impact of which is inspected straightaway.
2.2. Effects of Merit Pay
Legitimacy pay and feature three territories of significance: as an apparatus for accomplishing upper hand; as an impression of the standard of distributive equity and as a training in accordance with representative persuasive speculations, (for example, hope hypothesis). The creators lament that regardless of the legitimate intrigue of legitimacy pay, it frequently brings about results definitely something contrary to the ideal ones. In their paper they inspect the issues related with merit pay just as significant attribution mistakes that constrict the adequacy of legitimacy pay lastly propose a gathering based other option. The five basic issues they recognize regarding PBP identify with: estimation troubles; input and acknowledgment (of appraisal results by staff); restricted allure of legitimacy reward; framework clamor (factors which darken the exertion reward linkage, for example, long time slip by among execution and reward, and clashing utilization of money related and non-monetary prizes. At last, it tends to the issue of proposed outcomes, outstandingly task in adaptability and decrease of inborn inspiration. Subsequent to looking at the conventional arrangements typically progressed for these issues, the creators reason that they are lacking and leave a fundamental issue uncertain, in particular the issue of attribution.
2.3. Context of Motivation and Performance Pay
Motivation employees is the biggest challenge in the human resource department. Humans are dynamic thus what would make an employee to stay in an organization may change the following day. It is thus important for organizations to mechanize effective methods of retaining best employees for easier sustainability. Motivating employees is usually a psychological factor that determine the direction of a person’s behavior. The behavior affects performance in that an employee will be willing to work or go an extra hour to finish up a task or be innovative in how they work thus affecting how they work on a daily basis. The effort put by employee measures how hard an employee is willing to work. Since any industry is faced with new challenges that require persistence, a motivated employee will be willing to face the problem rather than give up.
Theories such as expectancy theory predict that the belief of an individual is exert of effort they expect to get and when they believe that the results will be as a result of their efforts. In the concept of performance related pay, employees will work harder expecting monetary rewards (Lunenburg, 2013). They will also believe that the results from their efforts will be rewarded changes their behavior in the workplace. The reinforcement theory states a direct relation between performance (through target behavior and its consequence in this case pay. The theory therefore suggest that the pay can be used to influence behavior of employees towards by creating a consequence for desired behavior such as high performance by reinforcing the behaviors.
However, the theories cannot be used as they are since they might not be applicable in some cases. For instance, an employee may be retained in an organization due to environmental conditions, organization characteristics or job characteristics. Other characteristics such as pay designs, job characteristics, perceived pay system. Motivation theories suggests that an employee is influenced by relative rewards as well as absolute rewards. For instance the unfairness or inequity in administration of compensation due to unfair compensation or performance measurement may affect the absolute performance. Thus, unless the absolute compensation package is equitable internally and competitive in the market, good employees are likely to quite the job even with a performance-related pay.
Several implications of the theory that employees will be motivated by the mode of payment or salary only cannot be substantiated. The discussion in the paper looks at a case study of an organization to show the influence of performance-based pay with regard to motivating employees.
2.4. Perception of Performance-based Pay Mode of Permanent by employees
To understand the research, the perception of employees to the method of payment had to be reviewed. Pervious research has considered effects on intermediate outcomes, more specifically on employee perception (Suciu, Mortan, & Lzar, 2013). The research has focused on the importance of pay programs in employee satisfaction and influencing behavior to work towards organizational goals. With regard to employee perceptions about the variables such as instrumentality, expectancy and valance, various researchers have found different reactions towards performance based payment method.
The intention of employee motivation through performance related pay may also be affected by perception of employees. It may also change to them thinking that their worth in an organization is monetary oriented rather than the individual in the employee. In an article (Brooks, 2017), the paper suggested that the payment method may also lead to high levels of stress to employees due to pressure that comes with increasing amount of income. The article also states that employees that know how much they take home every year are more satisfied with their jobs and feel that they are being encouraged to work harder. The pressure that comes with gaining and productivity in which the pay structure is designed to produce also increases employee stress thus not comfortable with the job they are doing.
Some research also state that performance related pay sounds exploitative and management strategy increases both earnings and workload of the employee. Some employees may prefer the method of payment to fixed payments, while some feel that they are working for money thus affecting production.
To understand how performance based pay affects performance in an organize, this paper uses a secondary source. The research used was developed from a case study company comprised of 80 respondents with 60 as non-managerial and 20 as management staff. The research used the questions ‘how’ and ‘why’. The investigator in this research had no control of events. To have a holistic assessment, departmental representation was conducted. The data was collected, coded and analyzed using a statistical software (SPSS). The significance level chosen was 0.05 (5%) where p value less than the significant level will be accepted.
4.0. Results and Discussion
4.1. Assessment of Corporate Performance before and after Performance Related Pay
The study aimed at finding out whether there was a difference between when the method was implemented and before. It was aimed at finding out whether the method improved performance. The observation was done between 1994 to 2004. Table 1 bellow shows the ROCE of the company aver given time. The result shows a change in the company performance after introduction of the method in 1999. The result was also presented in form of graph (figure 1) to show the trend.
Table 1: Company performance 1994 to 2004
Figure 1: ROCE over 1994 to 2004
4.2. Effects of Performance Related Pay on Teamwork
The question was meant to show how the method affected teamwork in an organization. 56.7% of the respondents stated that they were motivated to work as a team, 25% were demotivated while 18.7% were not sure what kind of effect it had about working as a team.
Table 2: PRP Motivates or De-motivates to work in teams
On the question whether respondents would choose the system of payment, 15% of them opted for individual system, 25% preferred group-based method while 60% preferred both methods.
Figure 2: PRP Scheme Preference
4.3. Hypothesis Testing
The hypothesis was tested using regression calculation where if the P-value was less than 0.05, then the null hypothesis would be rejected. Alternatively, if the is smaller, the hypothesis will be accepted.
H0: Performance-related pay is not correlated to a high employee and company performance
H1: Performance-related pay is positively correlated to employee and company performance.
The analysis results shown in table 3 shows a -0.132 between the relationship between PRP and company performance. Additionally, the result shows no significances where p=0.42, p=n.s in company performance. Thus, the null hypothesis should be accepted indicating that performance related pay is not related to high employee and organizational performance.
Table 4: Correlation between performance-related pay and Organizational Performance
H0: There is no difference in company performance before and after introduction of performance related pay.
H1: There is a significant difference in organization performance before than in the introduction of PRP
The confidence level was set at 95% to test the relationship between performance of the company and introduction of PRP. The result was presented in table 5 below. The Result shows a significant difference in (p(149.2)= 0.008, where p<0.05, p=s). this indicate that the perception of employees that performance was better before implementing performance-related pay than after. Thus, the hypothesis (H1) was confirmed by the results.
Table 5: Regression analysis results
Company performance is based on how well employees are motivated to work hard towards the success of the company. Organizations implement various projects to improve employee perception about their work. While performance-related pay can be seen to motivate employees to perform better. It is not a direct measure of employee performance. The result of the study showed performance-based pay method had a minimal effect on their performance. The study also established that PRP was underpinned by employee appraisal.
The study also established that merit pay (PRP) method supports the meritocratic philosophy of compensation. It thus means that individual performance is important and should be reflected in individual compensation package. However, it should not be taken as the main cause for increased performance. It takes just a small percentage in how an employee behaves towards performing better. The performance based pay has been blunted by various common errors associated with performance appraisal methods in an organization. The method may also subject employees to conflicts since most of employees may not be effectively be regulated based on their performance. Employee-management conflicts that arise due to some employees being predisposed to taking credit of good performance. The ROCE also confirmed that performance of the company was better before introduction of the model. Hence, we can conclude that performance based pay does not necessary mean that the company will perform better. The managers should critically analyze and implement a combination of policies that improve employee behavior.
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Brooks, C. (2017, January 25). Performance-Based Pay Won’t Motivate Employees As Much As You Think. Business Newss, pp. Retrieved from: https://www.businessnewsdaily.com/9712-performance-based-pay.html.
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