Disadvantages Of Pay For Performance

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Companies today are faced with tough decisions to increase organizational productivity and grow the business. In the past, top executives have been known to receive lucrative pay, bonuses, and stock share benefits. However, times are changing, to increase productivity and meet company goals of growth. Therefore, the idea of paying for performance has made its way onto the scene not only for employees but at the top executive level.
Most pay for performance plans, are effective and has its benefits for both the company and its employees. However, with any plan there also comes disadvantages as well. To justify an increase in pay, executives must meet certain criteria which are based on the company goals overall. This is conducted by giving
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For example, the sales representatives are required to meet a twelve-thousand dollar sales per month. If representatives did not reach ten sales, they were rated below average and did not meet the goal. Therefore, their pay raises would not be awarded. In contrast, if the goals were met or exceeded they would receive a pay increase and possibly other monetary incentives. To be able to carry out such a plan, leaders must initiate structure and be considerate of employee input to help implement and assure acceptance of the plan. As Williams (2017) stated, “team management style exhibits a high concern for people and a high concern for production” (p. 293). Having employees be part of the decision creates buy in. In addition, the plan objectives must be followed and communicated properly so that it is understood leaving little chance for failure. For example, if goals are not clearly defined and put into writing, employees may not get the message of the expectations resulting in failure of the employee and plan which can ultimately affect the company. Incentives offer motivation to get employees to work harder and more consistently to gain their rewards. However, those executives that lose motivation or …show more content…
The same concept of pay for performance is employed against top ranked executives with the reduced incentives being much more substantial. In using the normative theory decision rules organizations should use the “commitment requirement rule to get top executives to accept the terms of the goal plan” (Williams, 2017, p. 303). This allows them to have a voice in the process, making them motivated to reach goals and accept them as the standard to which their performance is compared against. For example, stakeholders would discuss the goals with the CEO to reach a quality decision and his acceptance of the decisions made. Higher pay and lucrative incentives are necessary for people in top executive positions as they are valuable assets to a company. For example, they are considered the cream of the crop in business decisions and have gained notoriety on past successes. In addition, they dedicate their lives to the company, working twenty-four hours, seven days a week sacrificing personal and family time. Consequently, companies feel a significant salary and incentives keep their CEO consistent in driving for results. Furthermore, the reputation of the CEO can serve as an advertisement to attract high potential recruitments to join the company. Finally, the

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