Analyzing Performance Pay worksheet

AnalyzingPerformance Pay worksheet

Benefitsof performance pay

Theperformance pay plan or the pay-for-performance is associated withfour major benefits. First, the plan motivates employees to workharder and improve their performance. This is because the performancepay plan gives individual employees control over their financialearning capacity (CNN, 2011).

Secondly,the performance-pay plan help organizations retain motivated andqualified employees. This is because the plan gives the organizationan opportunity to separate employees who work just to earn a livingfrom those who have a passion for their job. According to Merrell(2012) the non-performing employees leave the organization while themost performing ones demonstrate their loyalty to the organizationonce the pay for performance plan is adopted. This is because theperforming members of staff feel that their efforts and contributionsto the organization are recognized and compensated accordingly.

Third,the performance pay plan is associated with the ease of understandingand administration. The plan ensures that employees are motivated towork by their own performance goals, instead of being monitored bythe management (Merrell, 2012). The goals for each employee are setat the beginning of each financial or academic year in the case ofschools, and their performance is based on whether they achievedthose goals or not.

Drawbacksof performance pay plan

Theperformance pay plan has four major drawbacks. First, the plan hasbeen associated with a decline in the level of quality as employeestry to increase the quantity of their output (Joseph, 2014). This isa common occurrence in organizations where employees’ performanceis measured based on quantity.

Secondly,the performance pay tends to kill teamwork, especially when theperformance of each employee is measured individually. Each employeestrives to achieve personal goals since they are the ones that willdetermine the financial earnings and not the goals of the work teams.The organization ends-up losing the benefits (such as an increase ininnovative ideas) of teamwork.

Third,some employees may feel that the package provided under theperformance pay plan is not a sufficient motivation, which reducestheir morale. A group of employees who feel that the pay forperformance is not sufficient may end-up performing at the minimumlevel in order to retain their jobs since they perceive that applyingextra effort is a waste of time (Joseph, 2014).

Fourth,the process of measuring performance is quite difficult itchallenging to keep it objective. This implies that performancemeasurement could be time consuming and it requires the expertisethat is expensive to acquire.

Interpretationof performance pay

Performancepay is compensation package that allows employers to compensate theiremployees for their amount of work that they have done, instead ofpaying them for the amount of time they have spent at the workplace.This type of compensation plan works well in cases where employeeperformance can be measured objectively (Merrell, 2012). The primaryobjective of the performance pay is to help the employer get thevalue for the money invested in salary and wages by ensuring everydollar can be attached to a piece of work that has been accomplished.From a personal opinion, performance pay is an effective compensationplan. The current research has strengthened my opinion of theperformance pay plan. This is because the research indicates thatperformance pay motivate employees to work harder since theirfinancial earning capacity is only determined by their ownproductivity and not a fixed pay for the time spent at work. Althoughsince criticisms have been raised by opponents of the performance payplan, all the issues raised are challenges that can be addressed tomake the performance work. For example, the issue of difficulty ofmeasuring performance can be addressed by hiring an expert in humanresources to measure performance of each employee in an objectiveway.

Inconclusion performance pay is an effective plan that motivatesemployees to work hard. The aspect of motivation is attributed to thefact that the employees’ earning capacity is attached to theirproductivity. However, performance measurement should be doneobjectively.


CNN(2011). Link teacher pay to student performance? YouTube.Retrieved February 19, 2016, from

Joseph,C. (2014). Thedisadvantages of pay for performance.Santa Monica: Demand Media.

Merrell,M. (2012). Benefits of pay for performance plans. OKHR.Retrieved February 19, 2016, from