PAY FOR PERFORMANCE

BY
To : Prof. Sameer Pingle

Arpan Vora Nitika Agarwal Vivek Patel

Some Questions to begin with

What is performance ? Is there a need to define performance why? Is it possible to define performance ? How may performance be defined? Why should pay be related to performance to whose performance should it be related? What part of pay should be related? How much of pay should be related? Who decides who should get how much? Should employees know about this? At which stage should they be brought into the picture?

What is Pay for Performance ?

It is any type of financial reward that is provided only when certain specified performance results occur.

Objective of PFP
Motivation.
Increase the commitment. Reinforce cultures and values. Alignment with company performance. Discriminate equitably between employees based on performance

How do you select a PFP system?

In designing a PFP system three major questions should be asked. Who should be included in PFP system? How will performance be measured? Which incentives will be used?

Performance related pay falls broadly under two headings: Merit based The person being appraised will then be scored on their achievement over the year and this will correspond to a level of pay that they will be awarded. Unfortunately this system is not very efficient as the focus can be on recent achievement, not on the entire year.

 Goal based

The employee is then scored by whether they achieved this objective, and this score is then linked to a pay level. A possible downside to this approach is that the employee may focus solely on what he/she believes will allow them to achieve this goal, thus neglecting other areas of their work. One major benefit of goalbased of this method is that any organizational aims/goals will become the priority of the individual.

For pay for performance to be effective, agencies need to meet certain requirements.
A culture that supports pay for performance; A rigorous performance evaluation system; Effective and fair supervisors; Appropriate training for supervisors and employees; Adequate funding; Ongoing system evaluation

 When a pay for performance system functions properly: Outstanding performers will receive the greatest rewards, to acknowledge their superior contributions and to motivate them to continue high performance. Average performers will receive substantially smaller raises, which may encourage them to work harder to achieve larger raises in the future. Poor performers will receive no increase, which is intended to persuade them to improve their performance or leave.

Areas of Study
Does performance related pay really motivate people? Does it really affect individual performance? How does it contribute to organization performance

and effectiveness?
Can there be a single best system?

Some Definitions
Performance Pay financial or financially measurable reward linked directly to individual or organizational performance. Individual performance related pay pay directly linked to individual performance (mostly related to increase in basic pay). Performance Bonus/Variable Pay non-recurring cash lump sums related to performance achieved by the individual, team or organization.

Competency related pay pay related to increase in the demonstrated level of competency in doing the job Profit sharing schemes that share a proportion of the organization's profit with the employees (on common

basis)
Gain sharing schemes that share a set proportion of gain with the employees higher the gain, higher the

proportion

Some Research Studies.

What should determine pay increase Individual performance 96% Competitive market position 72% Position in salary range 67% External market rates of increase 59% Internal equity issues 53% External rate of inflation 42% Individual competency/skill demonstration 37% Timing and amount of last increase 30%

Moving to Practice ----

 Company : Kirti Telnet Pvt. Limited ( KTPL)

Kirti Telnet Pvt. Limited (KTPL),founded in 1987, in Ahmedabad Gujarat, is the only company dedicated to datacommunications solutions Segment : SME

Person contacted : Snehal Patel Designation : Director

Questions Addressed.
What do you mean by Pay for performance? How do you use this concept in your organization? Explain the rationale for using PFP.

Who decides the pay in your organization? HR? Line Manager? Top Management? All? How it is decided?
Are you using any Employee Recognition programme? Explain. What role employee recognition plays in motivating and retaining employees?