The Ratio of Pay to Performance: A Skewed Ratio?
Is
there any truth in the proverb: "As you sow, so you reap"? Managers are often
left muddling over their pay structures to see how they can get more productive
results from employees by tweaking their pay figures. Very often, companies
resort to more pay, more work strategy. But sometimes for some inexplicable
reason, this strategy fails.
An organizational survey was conducted for over 1000 employees to study the
effect of money over productivity. More than 65% of the people stated that money
was a secondary motivator. Other things like growth opportunities, perks, and
financial assistance mattered more. Of course, money was voted as number two. A
large number of employees however admitted that without money, other things
would have very little influence on productivity.
Money is also a personal measure for employees to assess their value to the
organization. The more the pay, the more they feel valued to the organization.
Money also works as a barometer to check the employees' competitive value in the
industry. If your pay scale is lower than that of your competitor, it becomes
your value score for your employees.
Another aspect about pay is that some organizations try to accommodate the
lifestyle of their employees. It is reasonable to offer compensation that is
commensurate with the acceptable living conditions of employees. But it would be
unreasonable to meet all of their personal pleasures and luxuries.
Money can be a carrot and also a moderator. Organizations have used pay to
enforce discipline and well-organized working climate. Organizations focus more
on other benefits like training and development, career growth opportunities,
comfortable and pleasant working conditions to make up for low pay scale.
Employees find it hard to leave a great working environment and future career
prospects for extra money.
Compensation experts have long argued about the ratio of pay to performance.
Companies do their best to encourage productivity and increase work outputs. But
the ratio of pay to performance gets skewed in favor of more pay. So what we now
have is more pay for lesser work.
Analysts have recommended that pay should be directly linked to performance.
They say that there should be transparent and clear relation established between
performance and pay. Performance and pay indicators should be clearly
established and well known to employees. People should be able to track their
performance levels and be motivated to increase their productivity.
This sounds like an egalitarian model where both parties benefit in equal
measure. But things are not so simple. Compensation does not just reflect
performance standards. It also takes the value that the person brings in to the
organization. For instance, an employee who enjoys a good reputation in the
industry brings goodwill to the organization. Also, when an employee is well
networked and helps generate business due to his presence also brings in more to
the office than just performance.
Designing a judicious compensation structure needs careful thought and
consideration. Managers need to keep the organizational objectives in
perspective. Compensation should include performance measures and also value
that the employee brings to the organization.
