Linking Pay to Performance – Critical Issues to Consider
Kalén, Laura (2017)
Kalén, Laura
Haaga-Helia ammattikorkeakoulu
2017
All rights reserved
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2017060111896
https://urn.fi/URN:NBN:fi:amk-2017060111896
Tiivistelmä
The purpose of this study was to understand the underlying theories behind performance-based compensation, its possible motivational effects and the critical issues to consider when designing and implementing pay-for-performance compensation. This study also aimed to understand the critique around pay-for-performance systems and the possible challenges of using performance-based pay.
The theoretical framework of the study consists of motivational and economic theories on employee motivation and pay-for-performance. The theoretical part of the study is a litera-ture review of existing studies and articles on the aforementioned theories, employee moti-vation, pay-for-performance systems and different compensation elements. The empirical part of the study is a qualitative research and semi-structured interviews were used for data collection. Six highly experienced professionals working with HR and/or compensation & benefits related tasks were interviewed during March-April 2017. The interview data was analyzed by building a matrix of key issues identified in the interviews and word cloud ap-proach was used in addition to the matrix to further illustrate the interview results. The re-sults of the empirical study were then compared to the findings of the literature review which revealed multiple consistencies.
The results of this study show that a well-functioning pay-for-performance system can influ-ence the efforts and choices of employees who already have basic level of motivation, by steering their focus and attention on activities that create value to the company. If used properly, performance-based pay can even increase collaboration among employees. However, based on the research results, financial rewards could undermine a company's ability to build trust and commitment in case management and employees lack in commu-nication, honesty and understanding of the overall purpose of the pay-for-performance sys-tem. Thus, organizations should consider the key psychological and emotional realities to ensure successful implementation and execution of performance-based pay.
The theoretical framework of the study consists of motivational and economic theories on employee motivation and pay-for-performance. The theoretical part of the study is a litera-ture review of existing studies and articles on the aforementioned theories, employee moti-vation, pay-for-performance systems and different compensation elements. The empirical part of the study is a qualitative research and semi-structured interviews were used for data collection. Six highly experienced professionals working with HR and/or compensation & benefits related tasks were interviewed during March-April 2017. The interview data was analyzed by building a matrix of key issues identified in the interviews and word cloud ap-proach was used in addition to the matrix to further illustrate the interview results. The re-sults of the empirical study were then compared to the findings of the literature review which revealed multiple consistencies.
The results of this study show that a well-functioning pay-for-performance system can influ-ence the efforts and choices of employees who already have basic level of motivation, by steering their focus and attention on activities that create value to the company. If used properly, performance-based pay can even increase collaboration among employees. However, based on the research results, financial rewards could undermine a company's ability to build trust and commitment in case management and employees lack in commu-nication, honesty and understanding of the overall purpose of the pay-for-performance sys-tem. Thus, organizations should consider the key psychological and emotional realities to ensure successful implementation and execution of performance-based pay.