Pay and Performance: A Skewed Ratio?
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.
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