Individual-based pay underscores a payment system whereby workers are remunerated according to their performance. One of the most outstanding advantages of individual-based pay is that it motivates employees to increase their performance (Rynes, Gerhart & Parks 2005). Increased employee performance translates into improved organizational operations, which then leads to good returns. Besides, individual-based pay is the best avenue to rewarding hardworking employees.
In the organizational setting, some employees are sluggish, while others are industrious, and thus remunerating them uniformly amounts to unfairness to the hardworking individuals. Moreover, this form of remuneration increases competition. If workers are to be paid based on their performance, then it follows that they will become competitive in a bid to earn extra money. This form of competition amongst employees implies that the organization that they work for becomes competitive too. In the long term, the organization becomes competitive in its industry of operation, thus increasing its returns.
Conventionally, the essence of doing business is to make profits, and employees’ competitiveness results in increased returns, thus fulfilling an organization’s objectives. Additionally, individual-based pay offers an equitable distribution of compensation. As aforementioned, it amounts to injustice and unfairness to remunerate employees uniformly irrespective of their performance. Therefore, paying employees according to their performance restores justice and fairness, hence the equitable distribution of compensation. Finally, individual-based pay is suitable for a capitalistic and individualistic culture. Individualism and capitalism hold that individuals should earn what they get, and thus individual-based pay underscores the best way through which companies can accomplish this philosophy in any workplace setting.
Nevertheless, irrespective of the many advantages associated with individual-based pay, the system attracts several demerits. Employees can resort to unethical competition in a bid to earn extra pay (Rose 2011). For instance, employees can start fighting over clients, thus tainting the reputation of an organization. Also, employees might resort to sabotage in a bid to hinder their colleagues’ performance.
These unethical practices affect the overall organisational performance, which leads to poor returns. In such working environment, employees are normally demotivated as they view each other as enemies, and thus they do not look forward to going to work. A demotivated workforce translates into poor or mediocre organisational performance, which can lead to bankruptcy or closure of a company due to non-performance.
Moreover, individual-based pay can breed mistrust between workers and the management. Conventionally, trust should be the defining factor between employees and employers’ relationships. Mutual understanding should complement the trust developed between the two parties. However, in individual-based pay, employees are seen as moneymaking machines, which should operate optimally to benefit the company.
Such a perception is demoralizing to the workers as they have personal ambitions and self-worth, which transcends making money. Finally, individual-based pay may force motivated employees to withhold information from those who need it like trainees. This aspect affects an organization’s posterity as the incoming employees lack the requisite skills and experience, which can only be achieved via workplace mentorship. Therefore, if the experienced workers retire, the company might close due to a lack of a skilled workforce.
References
Rose, A 2011, Performance Related Pay Merit Based Pay Systems Employee Compensation. Web.
Rynes, S, Gerhart, B & Parks, L 2005, ‘Personnel psychology: performance evaluation and pay for performance’, Annual Reviews in Psychology, vol.56, pp. 571-600.