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First and foremost, pay-for-performance plans are different to a set of salary. It is a method of compensation where the employees are paid based on their performance. Employers normally provide incentives to workers based on the work performance. The efficacy of pay-for-performance plan is it is able to be use to motivate employees. Although Kevin Sandler, 2010, had argued that sometimes the virtue of incentives plans are uncertainty, it is costly for company to implementing or unexpected problems may occurs. It will be time consumed and effort for company to search or design for suitable incentives plans. However, its contribution should not be neglect. There have several advantages of pay-for-performance plans and incentives plans for both employers and employees.
The foremost contribution of Pay-for-performance is it can increase the motivation of employee in their work performance. It motivates employees to put more effort because the extra compensation is given to those employees who perform above the expected standard. When an employee is compensated based on their performance, he will be more likely to work effectively in order to increase their income. In other words, the opportunity for employees to earn a desired income can stimulate employees do one's level best on their task.
Other than that, pay-for-performance plans provide unlimited compensation to the workers; especially it is beneficial to those talent salespersons that are works effectively. They may be able to earn a substantial income than those workers who are paid for a set of salary since they are paid based on the volume of sales. Not only that, it also able to increase the employee's productivity. Based the employer perspective, due to the desire of employees to achieve their income goal, they strive to increase their productivity. It might result in high productivity from fewer workers. This can beneficial to employers with reducing in employer's labor cost. It can also lead to better retention.
With the high-achieving in performance, those employees who satisfy their income as well as work environment will be more likely to maintain and stay in the company. Other than that, they can help company to attain a certain level of prestige and respect from their performance. Beside, by establishing group incentives plans can encourage team cooperation because the paid is based on the result that accomplishing by a team group. It is needed for them to work together to achieving the goals. (Mattchew, 2030)
In practice, pay-for-performance helps leads to a win-win situation. In other words, it means that the employers can enjoy the benefits of improved performance of their business as well as the employees can feast on the increased compensation as a result of their hard work. (Zimbelman. K, 1997) Pay for performance creates a clear concept that enables employees to priorities their task. So, workers can keep track on their work. Before paying management beyond a base amount, bonus pay ensures a minimum level of financial performance. Besides, this pay-for-performance plans enable the employer to share the rewards to those employees which most responsible for attaining the aim of results. It also helps employers to setting clear standards of performance and giving the authorities to the management to handle the details.
Base on the research of Rogan. P, 2009, there are three big benefits of implementing Pay for Performance System. This system helps managers to develop leadership skills by subjecting all the managers in different department to the roundtable process of objectively discussing employment performance. Secondly, Rogan had found that by using pay-for-performance system, employees are likely to drive the career pathing conversation with their managers. It helps in coincides the managers and employees of the variety of development ideas to ensure the employee reach mutually agreed upon career growth goals. Besides, this system gives a clear notion to employees that compensation will be linked to performance. It enables employees to understand that incentive is created for realistic goal setting, feedback requests and a formal performance discussion.
Pay-for-performance plan also provides the opportunity to develop employees who are underperforming. Employers should not use this plans only as a measuring tool for an employee's production, it can being used to take into consideration when an employee is misses out a simple attained incentives payment. It might be the employees are not qualified to perform the job or they are needed for better training. Thus, Root. G N, 2010, stated that manager should not think that the employee is not motivated, it may be involved other factors that is needed to be noticed on worker as well as company.
Incentives Strategy in Application
When a company want to motivate it employees by offering them compensation for excellent performance, it is called incentives plans. The course of implementing incentives system is to influence the behavior of employees as well as motivate pro-poor action in order to develop outcomes. It is critical for develop the capacity as it assisting the employees to do their best in performing their function. (UNDP, 2006)
Incentives for individual motivation
Salaries, intangible rewards, benefits, recognition are the common examples of incentives that being used to motivate employees to improve their performance. Normally, incentives are divided into two forms which are financial incentives or non-financial incentives. Financial incentives include salary, bonuses, pension, meal, clothes or housing is needed to make a distinction between a proper level of pay and special incentives. Whereas non-financial incentives can be comes in many different forms such as travel, gifts and some intangible incentives which also includes work flexibility, possibility of advancement and independence of work. It normally recognized as a function of psychological process.
On the other hands, there is also a distinction between formal and informal incentives. Salary scales and staff entitlements are the examples of formal incentives whereas informal incentives represent channels reaping personal benefits through corrupt practices or patronage. Motivators may be positive and/or negative. Rather than investing new incentives, it is more important in reducing perverse incentives that favor non-conducive behavior.
Incentives for organizational motivations
Incentive plans are essential in organizational motivation and it is also chief in assisting in analyze the understanding of the force that drive the organization. It is useful in analyzing how an organization treat its employees in rewarding and punishing him as well as the reason for staff to join an organization. A perfect organization incentives system is able to stimulate employees to be creative and innovative in improving their performance.
It is hard to deny that, incentives system can be encourage or discourage employee and the behavior of work group. Thus, organizational is needed to continually investigate the method to ensure their employees are committed to their task given. No matter it is based on perception or reality, organizational incentive systems have a real influence on the performance of employees that will directly affect organization overall performance.
Incentives for societal motivation
Suppose the pervasive structural incentives and motivators are located at the social level, the investment climate, and security, rule of law, civil service pay or legislation are conducive to civic engagement. The possibility to achieve its purpose is depends on the adequately resourced as well as the way it is resourced under prevailing rules.
The values of many of the above are directly derivate in the prevailing Governance systems. Firstly, it includes democracy and a rights-based approach to development. It is needed to have the rule of law and accurate legal system, if not there will be no incentive mechanisms or external interventions for capacity development bear results. A vibrant civil society able to deepen democracy, bolster support for the protection of human rights and further check the misuse of incentive mechanisms.
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