Pay-for-Performance Plan and its Disadvantages

Pay-for-PerformancePlan and its Disadvantages

Pay-for-PerformancePlan and its Disadvantages

Thepay for performance system has been gaining popularity amongemployers in the contemporary world. Essentially, the systemencourages the compensation or rewarding of employees on the basis oftheir performance or the outcome in their respective roles within theorganization (Damberg, 2014). The outcome can be measured for a teamor group of employees of for an individual employees, which impliesthat the pay-for-performance can be implemented in team-based tasksas well as the roles accomplished by individual employees. The basicprinciples of pay-for-performance counters the principles ofseniority payment system where people are compensated depending onranks they occupy in the organization. This paper will focus the waysin which organizations can measure the effectiveness of thepay-for-performance system and its disadvantages from the perspectiveof employees and employers.

Measuringthe effectiveness of pay-for-performance system

Thefirm can measure the effectiveness of the pay-for-performance usingindividual team or group drivers. At the individual level, theorganization should focus on the change in the employees’performance prior to and after the implementation of the system. Thisapproach of the measuring effectiveness is applicable whenorganization assigns orders or tasks to individual employees asopposed to teams. Individual metrics can be classified as hard orsoft measures. The organization can assess the capacity of anemployee to complete a given order within a given period before andafter the implementation of the pay-for-performance system. Forexample, a school can determine the time an educator takes tocomplete the syllabus in a given subject before and after theimplementation of the pay-for-performance system. A reduction in thetime that the employee takes to complete the same project may be anindicator of the system`s effectiveness (Sulliva, 2014).

Organizationsthat assign tasks to teams should use team-based drivers to measurethe effectiveness of the pay-for-performance system. Similar to theindividual metrics, the organization should determine the performanceof the team before and after the implementation of the system, wherethe difference acts the indicator of the effectiveness ofineffectiveness. For example, an organization can determine thecapacity of a given team educators to satisfy the learners before theimplementation of the system after it has been implemented.

Disadvantageof the pay-for-performance system from employee’s perspective

Althoughsome scholars believe that the pay-for-performance system isadvantageous to employees, there are three major drawbacks of thesystem that affect employees directly. First, the weak performers inthe organization are at a risk of losing their jobs. This is becausesome organizations use the pay-for-performance system weed outemployees who are perceived to be weak performers (Insite InformationSystems Corporation, 2014).

Secondly,any change (such as the use of new technology) in a way thatemployees are expected to deliver services might result inunderperformance, which translates to less payment. An occurrenceliking the change in technology reduces employee performance duringthe first days of implementation because the employee has to learnhow it operates (IFSC, 2014). In such a case, the motivation ofemployees is likely to reduce any time when change is announced bythe organization.

Third,the pay-for-performance system forces employees to work underpressure. This is because the system creates a perception that anyadditional performance will lead to an increase in earnings (IFSC,2014). This can force employees to overwork themselves at the expenseof their health.

Disadvantageof the pay-for-performance system from employer’s perspective

Someemployers believe that the pay-for-performance plan increase employeeperformance, which is an advantage on their part. However, this planis associated with three major disadvantages. First, thepay-for-performance plan tends to kill the spirit of teamwork(Joseph, 2014). This is because the employee focuses on theirpersonal performance in order to increase their respective earnings.This is common in organizations that assign tasks to individualemployees. In addition, the plan reduces the willingness of employeesto help the struggling employees because such a help will consumetheir time and reduce their performance. In essence, an employerloses the teamwork spirit, which might in turn reduce the overallperformance of the organization.

Secondly,organizations that pay employees for an increase in the quantity areat a risk of quality deterioration. This is because thepay-for-performance plan motivates employees to produce more at theexpense of quality (Joseph, 2014). For example, a school thatcompensates teachers depending on their ability to deliver the entirecourse content at a given time might result in a decline the qualityof teaching for teachers will be targeting at the completion of thecourse content.

Third,measuring performance can be a difficult exercise on the part ofemployers. This means that the pay-for-performance plan can only workwhen metrics of performance can be measured objectively (Joseph,2014). This makes the implementation of the pay-for-performance anexpensive and time-consuming plan to implement.

Inconclusion, the pay-for-performance system requires the use ofobjective measures in order to ensure its successful implementation.Although the system is generally perceived to be advantageous, it hasdisadvantages from the perspectives of both the employer and theemployee. From the perspective of the employees, the plan forces themto work under pressure and earn less in case some change has beenadopted by the organization. The plan subject employers to the riskof a decline in the product or service`s quality, lack of teamwork,and time required to measure the performance of each employee orteams.


Damberg,L. (2014). Pay-for-performance. CurrentIssues,33 (12), 1-26.

InsiteInformation Systems Corporation (2014). Benefits of performance basedcompensation. InsiteInformation Systems Corporation.Retrieved January 4, 2014, from

Joseph,C. (2014). Thedisadvantages of pay for performance.Santa Monica: Demand Media.

Sulliva,D. (2014). Selecting the right performance measures for yourincentive plan. KnowledgeCenter.Retrieved January 4, 2015, from