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Pay compensation plans is most likely concerned by every one, no matter working in the sectors of civil service, non-government organization or private business sectors. The main functions of compensation schemes are to attract, motivate and retain staff members in human resources management aspect. In traditional, pay is related in fixed benefits in job hierarchies and time seniority. On the contrary, the strategic pay is more related to the business objectives, in which incentive is more aligned with business strategies that give reward to motivate the staff in correlation with their contribution. Pay for performance is one kind of strategic pay scheme that is linked the pay related to employee's performance. Though performance related pay seems a better platform to indicate what the employee gained based on their performance, is it applied on all kinds of job or is it in really equal for pay distribution?
B. What is pay for performance?
Pay-for-performance systems were that employees should be paid based on their contributions; the pay increased was the rewards on the basis of performance rather than the need, seniority and equality. ( Henemand, 1992)
Performance-based pay was that the pay the employees gained in the same job description was different from one another. The difference was based on the systematic assessment of employee's performance. (Susan Moore,1984)
Performance-related pay related a spectrum of pay systems which are based on the measures of individual or group performance with supplementary of appraisal system. ( Frank Burchill, 2008)
Whatever the definitions defined, no matter the term of pay-for performance, performance-based pay or performance-related pay, all means that the pay is linked with the employee's performance.
From views of organization, pay for performance has its importance and functions.
To motivate employees better performance and cultivate the belief that gaining rewards as a result of their effort paid and it will lead to add positive value for their individual (Kellough and Lu,1993)
Improving individual performance can lead the organization success
Introducing pay for performance is to create collective culture of increasing accountability as well as performance culture in the organization
To increase the commitment and focuses of employees in line of the objectives of organizations
To improve recruitment as well as to retain the high quality staff.
When viewing the pay for performance, some common pay performance plans are found in individual and team or group level.
In individual level
Merit pay plan
It is related to individual performance measurement and base on the employee's contribution instead of seniority. The compensation is accumulated to the base pay and increase in annual.
It is not accumulated in the base pay. The additional income is counted for a fixed piece rate for one unit produced in a time period or one project conducted.
It is not accumulated in the base pay. The additional income is based on a percentage of the revenues that the employees made, that would be thought usually larger than the pay of merit and even made more frequent than once of merit plan in a year.
It is not accumulated in the base pay. The extra pay is given base on whether good performance gained in the organization. The employees do not know whether the bonus be given or not, or what the amount of bonus until they are really awarded.
In team or group level
It is a compensation pay program and it is not accumulated in the base pay. The program is that the additional compensation is divided into divided into different teams or department based on the pre-negotiated percentages of financial gains that is resulted from individual team or department's contribution and hard work. The productivity of the team or department will be increased through this program.
It is a compensation pay program and it is not accumulated in the base pay also but it is different from gain sharing, The program is not linked to the team or department performance. The profits gains in the company is divided into team or department based on the predetermined formula and focuses the team works of overall company.
The same discussion is mentioned in the above section of "in individual level item 4".
C. Case studies in pay for performance
In Hong Kong, many companies or organizations, including social welfare sector of non-government originations, adopt the pay scheme of pay for performance. However, it is found the scheme of pay for performance could not be suitable for all nature of jobs. Even though some organizations use performance based pay for their pay compensation scheme, some disadvantages are found. Below are the cases used to view writer's points in two mainly sectors 1. Non-profit service sector 2. Profit making business sector
1 Non-profit service sector
1-1 Occupation of teachers
The pay for teachers working in primary or secondary schools subvented by Government is linked with fixed pay under Master Pay Scale. It means the pay increased yearly by one point in accordance with the time the teachers served. Currently, the pay system for the teachers is not the pay for performance, though most of teachers recognize the reward will be fair based on individual's contribution.
It is agreed that the fixed pay salary increased could not encourage all teachers' motivation but in the mean time, it is found difficulty to evaluate the teachers' performance which leads why pay for performance not be developed in the field of professional working teachers. The main problem is how to measure teachers' performance. Is it related to the "achievement of students" ? How to the teacher be defined " good"?
In view of "achievement of students", test scoring is mainly indicators to show the students achievement. However, it is not a great evidence to measure the teachers' performance because the reasons as the follow:
Though the students gain some achievement in a particular level, like primary class 3, the achievement the student gained cannot reflect the actual effort performed by a particular teacher in class 3 because the cause of result may be the accumulated effort made by different teachers in past years.
The achievement of students may be the outcome from the support of the family effort and private tutor as well, so that it cannot reflect the outcome result coming from the teachers' performance directly.
If the component of class students is not bright enough or not self-motivated, when outcome results of these students is found poor when compared with that of elite students in another class. Is it represented the teachers' performance be poor?
How to define a "good teacher" is another difficult topic for linking teacher performance is "good teacher" related to the achievement of students mentioned above? Is "good teacher' defined by students, who find to get happier gathering with the particular teacher? Is "good teacher" defined by the parents, who find the teachers having good social skill?
In a school, except the individual subjects, team work and collaboration among the teachers is important. Through co-operation among the teachers, same student intervention management is introduced to handle problematic students, in order to improve their learning attitude. Furthermore, to create good learning atmosphere as well as to develop students multiple intelligence, such as spot, art, etc, are needed with teachers' collaboration. All of these cannot be separated into account for individual teacher's performance. Therefore, under this circumstance, the mode of pay for performance is not applied in this working categorizes.
1-2 Social Work Service
Since Lump Sum Grant had been introduced in social service sector in 2000 in Hong Kong, many Non-Government Organizations detached the pay compensation system from fixed pay of Master Pay Scale and most of them changed the pay scheme to performance based pay mode of merit performance plan. Below ABC organization, is an example of Non government organization providing rehabilitation service.
In ABC organization, the salary increment, using by merit performance plan, is based on the yearly appraisal conducted by the line supervisors. There are two sets of appraisal system is developed to two groups of staff. One group is professional staff including social workers, occupational therapist as well as physiotherapist. The other group is frontline workers including workmen, rehabilitation workers. No matter which group of staff, a performance scoring rating from point 1 to point 5 is counted with different concerned areas shown in the below tables.
Table 1 ; Rating Description
- Performance has been exceptionally effective and far exceeded the required standard.
- Performance has exceeded the required standard.
- Performance has met the required standard. Some aspects of performance can be further improved.
2. Less Than Satisfactory
- Performance has been below the required standard. Significant improvement in performance is essential to meet the standard.
- Performance has been of an unacceptable standard.
Table 2 : Performance Concerned Area
Working knowledge and ability
Overall working attitude
Relationship and attitude with the colleagues
Individual working ability
Performance in routine work
The yearly increment raised is based on the rating score gained until the maximum point reached. Below tables shows the increment point increased base on the point the staff gained
Table 3: Professional staff
Average score gained 3.1 or below in Area 1 & Area 2 and average score gained 3.4 or below in Area 3
+ 1 point
Average score gained 3.1 in Area 1 & Area 2 and average score gained 3.4 in Area 3
+ 2 point
Average score gained 3.2 and 3.4 either in Area 1 or Area 2 , and average score gained 3.4 in Area 3
Table 4: Front-line staff
Average score gained 3.3 or below in Area 1 & Area 2, and/or average score gained 3.1 or below in Area 3 & Area 4
+ 1 point
Average score gained 3.4 in Area 1 & Area 2, and average score gained 3.4 in Area 3 & Area 4
+ 2 point
Average score gained 3.7 in Area 1 & Area 2, and average score gained 3.5 in Area 3 & Area 4
Though pay for performance scheme is used to rated the pay gained in accordance with the staff's performance and contribution, it is still found some disadvantages in the scheme and it cannot actually reflect the functions of the scheme.
The rating scores is given by line supervisors whose scoring will be subjective and it is easily in personal views that will be thought in unfair by staff.
The actual differentness momentary pay gained is too small when compared that of Master Pay Scale: social worker gained about HK$ 500 in one point difference when compared about HK $1000 in Master Pay Scale, welfare workers gained about HK$ 350 in one point difference when compared about HK$ 980 in Master Pay Scale. Therefore, the actual pay gained is too small to enhance staff's motivation. In social service setting, it is found there is no great resources support from Government to develop the pay for performance system because the origin aim of Lump Sum Grant is to reduce overall the production cost.
2. Profit making business sector
2.1 Sales industry
a. Sales representatives in sport wears
Table 5: Pay for performance scheme in sports appeal and supplies
Sales/ excessive sales commission
b. Sales representative in electrical appliances
Table 6: Pay for performance scheme in electrical & electronic products
c. Sales representatives in real estate properties companies
When viewing the sales representatives working in properties companies, the pay performance plans mainly are sales commission in individual performance and gain sharing in group performance with different branches.
From above sales working categorizes, it is found most of them use the pay performance plans of bonus, sales commission and gain sharing in order to give the pay return according to the staff's hard effort and contribution. The plans used has its advantages as well as disadvantage.
In making profit business, to gain the great profit and great return by using selling greater volume is the most important performance indicators. The pay for performance plans mentioned can lead the employees to work towards company objectives clearly and directly
Through the plans mentioned, it can provide direct momentary incentive to maximize selling volume.
The selling sales indicator can motivate the poor staff performers to do better.
Since the pay return is based on the employee performance on the selling products, it is uncontrollable that which product having great brand-name or not for the sales representative to introduce to customers. It is sure that the sales volume of high brand name products is larger than that of low brand-name product. Therefore, it is not accurate to reflect the really performance of employee.
The pay for performance plans mentioned are focused on the sales volume of business. However, when making consideration of overall performance based, it is found that other factors will be ignored in this occasions.
Financial instability is found due to not getting know how much business be done from month to month that will induce working tension and anxiety.
Except form basic salary for the employees working in Chinese restaurant in Hong Kong, the profit sharing is one kind of pay for performance used in Chinese restaurant, in which profit gained in terms of tips will be divided to all employees, no matter working in which division, is based on the per-determined formula. The pay scheme used can create team work especially kindly and polite attitudes towards the customers, in order to strive for the same objective for gaining greater profit.
D. Conclusion and Recommendation
According to the discussion above, it is found that the scheme of pay for performance is more effective used in the profit making business in terms of quantities measurement based, that induces greater staff working motivation as well as more clear matching up with the company objectives. However, in the non-profit service sector, the effective of the scheme of pay for performance is less successfully due to the working environment in quality measurement based, that is resulted from subjective staff appraisal system and there is no great financial resource backup to develop the pay performance system.
In order to improve the pay performance scheme in existing practices, two recommendations are made.
To reduce subjective views in performance appraisal systems in social work service sector, 360 degree performance appraisal is recommended
To reduce the bad effect of brand-name product in sales companies, sales representatives will be arranged to take turns to introduce different products.