Introduction
In the modern business environment, different organizations establish compensation strategies as a way of motivating their employees. This is in lieu of the fact that an organization stands to achieve increased productivity when its employees feel motivated. There are various theories that underpin the concept of motivation.
In an exploratory case study on Ghanaian organizations, Boachie-Mensah & Ophelia (2011) investigate the concept of performance-based pay (PBP) and motivation. The article highlights various theories that accompany PBP in addition to the effects it has on employees.
This paper seeks to pinpoint the theories that are apparent in the article and their application in the business and organizational contexts. In addition, the paper will discuss some of the major findings of the article that relate to PBP.
Theories Discussed
In the article, Boachie-Mensah & Ophelia (2011) admit that motivating employees is a momentous challenge especially for employers and managers. They say that motivation relates closely to psychological and behavioral attributes of the employees (Boachie-Mensah & Ophelia, 2011). To that end, the article points out various theories of motivation that go together with PBP.
Performance based pay is related to extrinsic rewards that motivate employees to improve their productivity and propel an organization towards achieving its goals. The first theory that comes out clearly is the expectancy theory.
This theory of motivation refers to the notion that employees will be willing to put increased efforts into their performance if they expect the results to have a valuable outcome for them. For performance-based pay therefore, employees will improve their productivity if they value the financial rewards since they will tend to believe that the awards are solely because of their hard work.
Second, the article associates PBP to reinforcement theory of motivation. The theory is based on the belief that there exists a direct relationship between the organization’s desired behavior and the consequences (Thompson et al., 2007). In PBP, desired behavior of the employees is the improved performance while the consequence is the pay in terms of intrinsic and extrinsic rewards.
The theory posits that managers can use pay (salaries and wages) to determine the behavior of the employees especially in boosting performance (Belcher, 1999). When managers reward high performance, the behavior is reinforced amongst the employees.
In fact, the article shows that 80% of the respondents in the context of Ghanaian corporations asserted that the introduction of PBP helped the companies to post increased profits given their high rates of return on capital employed (ROCE).
Performance based pay has a theoretical framework that values group and teams. Indeed, PBP concept borrows from the idea that individuals will work extra hard in the context of a group if the group’s efforts receive rewards. The compensation strategy promotes teamwork in the context of groups. As such, it has become typical with many companies and organizations across the world (Thompson et al., 2007).
In fact, companies reward employees extrinsically on condition that the teams they belong to achieve the set corporate goals. In the article, Boachie-Mensah & Ophelia (2011) say that an average of 57% of the respondents believed that the compensation strategy motivates teamwork. Since PBP can be at individual and group levels, most respondents attested that they preferred PBP at the group level as opposed to individual compensation on performance.
Application of the Theories in business world
The theories above informed the introduction of performance-based pay in Ghanaian organizations. According to Belcher (1999), PBP compensation system is motivating and leads to a fair and equitable working environment. Reinforcement theory in particular augurs well with the performance-based pay and it leads to improved teamwork (Milkovich & Newman, 2011).
Using this theory, employers create an environment where employees are able to motivate themselves when working in the context of a group. The employees expect rewards when they increase their productivity and it may lead to reinforcement of such behavior.
It is important to note that various compensation systems offer intrinsic rewards as opposed to extrinsic rewards that typify the PBP systems. Although intrinsic rewards have shown stronger motivation than extrinsic rewards, the latter has yielded equal results as explained by the article.
The expectancy theory is also applicable in PBP. Milkovich & Newman (2011) articulate that organizations seek to encourage their employees to improve their productivity in hope that they will get some valuable rewards. When viewed in the light of PBP, this theory motivates employees as illustrated in the article. However, the introduction of PBP system suffers challenges and constraints.
In particular, Boachie-Mensah & Ophelia (2011) assert that employees become accustomed to the strategy and may continue to receive rewards despite the corporate performance pointing to the contrary. Overall, reinforcement and expectancy theories are the frameworks that drive performance-based pay system.
Conclusion
In essence, performance based pay is a compensation system that associates pay with performance. Employees receive extrinsic rewards such as money for high performance. According to Boachie-Mensah & Ophelia (2011), reinforcement and expectancy theories are key elements of the system. The theories relate to cognitive and behavioral attributes of the employees. As such, PBP is applicable to numerous businesses and organizations across the world.
References
Belcher, J. (1999). How to Design and Implement a Result-Based Variable Pay Plan. New York: McGraw Hill Publishers.
Boachie-Mensah, F. & Ophelia, D. (2011). Performance-based pay as a motivational tool for achieving Organizational performance: An exploratory case study. International Journal of Business and Management, 6(12), 270-285.
Milkovich, G. & Newman. J. (2011). Compensation. New York: Thompson-Wadsworth Publishers.
Thompson, A., Strickland, A. & Gamble, J. (2007). Crafting and executing Strategy the quest for competitive advantage concepts and cases. Irwin: McGraw-Hill.