Pay for Performance Doesn’t Always Pay off, Article Review Example

This article was written by professor Michael Beer of the Harvard Business School.  He argues that more often than not, many organizations usually motivate their people to work harder and efficiently to achieve specific set out targets by offering them more monetary incentives. He argues that even though this idea might seem perfect theoretically, it is very different and tricky when it comes to the practical application of this model in the present day organization.

Beer uses the example of technology giant Hewlett-Packard to illustrate his argument.  Different units of HP had introduced pay-for-performance plans in the early nineties in order to increase productivity and efficiency, but all of them dropped the plans within three years.  Although many other organizations in the US and the rest of the world have tried to come up with these schemes, there clearly appear some faults in the way they are conceptualized, designed and implemented at different management levels. There are several reasons as to why managers opt for these kinds of schemes.  First of all, they expect that more skilled employees will be attracted and have the motivation to work for them (Cannon, 1999). They also want to shield themselves against businesses risks that might occur as a result of the markets performing poorly. Majority of employees are also in favor of pay-for-performance schemes key reason that it makes their current pay system to be more fair. Nevertheless, this system is faulted in that as incentive, it works too well. They motivate workers to put too much emphasis on a particular task to be rewarded at the expense of other important activities in the organization.

In the case of HP, the system was well embraced by majority in the first 6 months because the payout was greater than expected. However, this led to an upward adjustment by management of goals to be achieved. This led to complains and frustrations. Workers concentrating on achieving higher payments and became frustrated when it became apparent that they could not achieve it on a consistent level. Managers on the other hand felt that too much time was being spent on modifying the pay system. They therefore concluded that they system had become a disincentive to working hard, and more so, learning. It was also apparent that it was becoming difficult to sustain the system over a long period of time.

In my opinion performance based payments have several demerits, one being that it increases the inequalities in terms of wages among employees in an organization.  Foremost, employees who do jobs with performance pay tend to earn more than those without. Even though I appreciate that payment for performance tends to increase the productivity of workers and hence increased wages, it only tends to perpetuate the wage inequality as compared to other works. With this kind of model in an economic sector, a person’s background in terms of race, family background or socio economic status doesn’t matter; what matters is the ability of an individual to work. Hence this gives an undue to disadvantage to those who are at a lower level in terms of economic, social and political status.

Furthermore payment for performance could have adverse effect on the team dynamics in organizations.  With increasing complexity of modern organizations, there is need to put more emphasis on team contribution in order to solve different problems. However, this is a big challenge because payment for performance recognizes and rewards individual performance as opposed to team contribution. They may end up encouraging unhealthy competition instead of co-operation among workers which bring about unnecessary conflicts in an organization.

Reference

Cannon, D. (1999). Promise and Peril in Implementing Pay-for-Performance: New York: Bantam Books