Introduction
The impacts of any form of compensation have become one of the major issues within the organization, whether in policy formulation, human resource management and decision-making process. Most importantly, compensation procedures are critical in determining employees’ performance and job satisfaction.
The main reason why compensation concepts mainly performance-based is essential to the organizations’ human resources managers is that they want to find out the impacts of the notion on the organizations’ performances as well as the employees’ commitments, attitudes and behaviors (Amuedo-Dorantes and Mach 678). In addition, studies indicate that performance-based pay has both positive and negative influences on the employees’ behaviors, mindsets, and commitments to a given task.
Performance-based pay is one of the modes of compensation applied by organizations to enhance performances of workers as well as ensure that the organizations’ goals are attained.
Moreover, not only have the performance-based compensations used in reward planning, but also in developing the resources as well as helping in shaping personal actions of employees (Chang and Hahn 398). In the context of job satisfaction, the performance-based pay plays the role of employees’ attitudes development, responses to given tasks as well as in organizations’ decision-making processes.
Practically, performance-based pay is purposely used by organizations to distinguish their employees’ performances as well as establish the strengths and weaknesses of employees regarding job commitments and satisfactions. Moreover, organizations use performance-based pay to assess and put into operations the reward management systems that would ensure employees satisfaction as well as in decision-making processes.
The intentions of this study are to examine theoretically the influences of performance-based pay on the employees’ job satisfactions. Much of the earlier studies have focused on the impacts of performance-based pay on job commitments, employees’ attitudes, and decision-making as well as on the job outcomes (Chang and Hahn 398). However, there are limited studies on the relationship between performance-based pay and job satisfaction.
Moreover, few studies that have been conducted have found little correlation between the two variables. The findings indicate that there are many factors determining job satisfaction among employees. Compensations do not necessarily determine job satisfaction rather a contributing factor. Before examining the relationships existing between the two variables, it is critical to understand the concepts of performance-based pay and job satisfaction.
Performance-based pay
The performance-related pay covers various forms of employees’ compensations that take into consideration the output of individual workers. In other words, workers are compensated according to performances. The performance-based pay is applied in the circumstances where workers can easily show discrepancies in their productivity, depending on the individual endeavor.
In such situations, performance-based pay is believed to have higher chances of increasing workers performances (Ismail 925). Moreover, in terms of influencing individual employees’ job satisfaction, performance-based pay is also believed to play a significant role.
There are various forms of performance-based pay. However, the most commonly practiced include the piecework pay, where compensations are based on each unit of output. Piecework pay is majorly applied in public institutions. The advantage of piecework compensation is that it prevents public wastage and less costly in terms of financial management (Ismail 928).
The greater disadvantage with this form of performance-based compensation is that it does not motivate workers, particularly in the situations where output cannot be measured. Under such circumstances, performance-based pay cannot have direct influence on employees’ job satisfaction.
The other form of commonly used performance-based pay is the result-oriented pay. In this form, workers are compensated according to the quantity of output or measured value. The compensation augments with increases in the results. The result-oriented pay is related to merit pay where compensation is pegged on individual contribution in the general performance (Amuedo-Dorantes and Mach 678).
Profit related pay is another form of performance-based payment where the organizations reimburse their employees depending on the level of profits or gains made by the organization. The forms of performance-based pay do not have direct relationship with job satisfaction. Job satisfaction results from employees attitudes towards assigned tasks. However, the forms of performance-based pay do not have direct influence on job attitude. As such, the direct influence on job satisfaction is lacking.
One of the major advantages with all these forms of payment is that the employees are motivated to attain the greater output. The forms of compensation also enhance the performance culture among the employees and within the organization. However, these forms of compensation can hardly be determined without appropriate measurement procedure (Amuedo-Dorantes and Mach 678).
In the circumstances where output cannot be measured, performance-based compensations have increased limiting factors. Essentially, performance-based pay system is aimed at increasing the employees’ output rather than influencing their behaviors.
Performance-based compensation strategy on job satisfaction
The performance-based compensation system of an organization is established to accomplish several objectives, particularly on the management of employees’ job satisfaction (Amuedo-Dorantes and Mach 678). In other words, performance-based compensation system of an organization is set up to attract, retain and motivate employees.
To attain these major goals, the performance-based compensation system should comply with the regulations that govern the employees’ remunerations, which have a greater influence on the way employees perceive their assigned tasks. Moreover, performance-based compensation system should also simplify the administration of employees as well as be cost-effective.
Essentially, performance-based compensation system can only attract, retain and motivate employees when it is perceived to be satisfactory. Increased benefits employees get from an organization will attract employees with skills and needed competence.
Essentially, the strategic choice of performance-based compensation is to influence the attainment of business goals. Organizations should adopt strategic choices that enhance the employees’ development and growth. Moreover, the firm should adopt the strategy that upholds the culture of participation and empowerment within the workforce.
Also, organizations should adopt strategic compensation choices that develop the culture of protection and reliability of employees. Most importantly, compensation strategies should increase competitive advantage through sustaining business approaches to developing and improving employees’ capabilities (Amuedo-Dorantes and Mach 678). As such, performance-based compensation strategy will be perceived as self-satisfactory, which is critical in attaining required goals.
Impacts of performance-based pay on employees’ job satisfaction and commitment
Performance-based pay is one of the compensation methods that are applied widely by organizations. Due to increased competition within the international market and expectations of the organizations’ stakeholders, the performance-based pay concept is receiving more attention particularly in human resources management and the organizations’ decision-making process (Chang and Hahn 403).
The reason is that performance-based pay is critical in ensuring increased outcomes of the organization as well as decisions affecting employees’ outcomes.
Various organizations have put in place effective performance-based compensation strategies that aid in decision-making processes as well as making the workforce responsible for their performance domino effect (Chang and Hahn 403). For these reasons, it is critical to understand the effects of performance-based pay on the employees’ attitudes towards the undertaken assignments and ways through which the required satisfaction can be attained. In the contrary, many employees have perceived performance-based pay as negatively related to the satisfaction they get from their assigned tasks. Studies indicate that employees have perceived performance-based pay as threatening rather than enhancing their performance outcomes as well as job satisfaction. Therefore, many organizations tend to understand the concept of performance-based pay and the way it affects the employees’ outcomes and how it contributes to their job satisfaction. Such understandings are significant in coming up with appropriate tools for the performance-based pay implementations and the way it can contribute to the employees’ satisfaction.
Studies indicate indirect link between performance-based pay and employees’ job satisfaction. However, theories and models indicate different outcomes depending on the specific organizations. The general perception among employees is that job satisfaction depends on entire organization treatment and compensation is among those contributing factors (Ismail 928). Some organizations have used performance-based pay to influence employees’ job outcome, which have negative effect on their satisfaction to the given task.
In most cases, performance-based pay has been applied to increase the employees output with little attention on job satisfaction and commitment. However, in situations where performance-based pay is not directed only towards attaining positive outcome, employees’ satisfaction is achieved. In other words, performance-based pay should be directed towards attaining various outcomes, including employees’ job satisfaction and commitment.
While implementing performance-based pay system organizations have to evaluate its impact on employees’ attitudes towards assigned tasks and behavior. In addition, organizations have to determine various tools that can be applied in the implementation of the performance-based pay, particularly in the situations where job satisfaction is to be achieved.
Studies have indicated that there is positive correlation between performance-based pay and the employees’ job satisfaction, attitude, performance and commitment outcomes when appropriate implementation tools are applied (Ismail 930). However, much of these studies have concentrated on diverse organizations, cultures and compensation models.
As indicated, performance-based pay is one of the important reward systems human resources managers of organizations use in their compensation practices and influence the workers general performance and attitudes towards assigned tasks. In addition, performance-based pay is being applied by various organizations to motivate workers as well as influence their behaviors, attitudes and performance towards their jobs (Ismail 930).
However, the objective of performance-based pay towards attaining job satisfaction among employees has not been achieved by the implementing organizations. Studies indicate that workers have been dissatisfied with their job process due to failures by the organizations to put in place appropriate implementation tools to attain the employees’ job satisfaction goals of performance-based pay.
In addition, lack of training on the performance-based pay compensation criteria on the side of management has also contributed to the gap between the results of performance-based pay on employees’ satisfaction and the implementation process (Ismail 930).
Moreover, there is also lack of information regarding employees’ reactions to the performance-based compensation processes. Practical examination of the workforce’s conduct, particularly on their assigned tasks due to the performance-based compensation process forms the basis of space existing in theoretical models.
Linking job satisfaction and performance-based compensation
Studies that have been conducted on the relationship between job satisfaction and performance-based compensation indicate that many firms are applying performance-based compensation to enhance their employees’ attitudes towards assigned tasks. The main argument for the adoption of performance-based compensation is that these organizations need to influence their workforce’s conduct as well as approaches towards their jobs (Ismail 931).
Consequently, organizations’ human resources managements are capable of monitoring their workers job performance through the application of performance-based pay practices, note down the areas that need adjustments as well as ones that require back up. Through the application of performance-based compensation practices initiatives, organizations become aware of employees who need assistance on their job performance as well as the ones who need strengthening of their satisfaction (Ismail 933).
The attainments of positive results on job satisfaction and performance directly depend on the quality of performance-based compensation evaluations undertaken by these organizations. For instance, conducting a quality performance-based pay evaluation on job satisfaction leads to decline of disparities in the process.
As a result, higher levels of uniformity are achieved. Further, the results of most investigations indicate that for the organizations to gain higher competitive benefits, the labor force must be highly motivated towards their jobs which result in high productivity. As such, any method that would result in increased employees’ motivation towards jobs is significant for these organizations.
According to Chang and Hahn, the workers’ job satisfaction through their own valuations is significant in productivity. The organization’s administration should judge the personnel job satisfaction based on their performance while deciding on whom to promote as well as the members of staff who should be given the most suitable jobs 396. In other words, a highly satisfied worker with the best job description will always have greater output.
Essentially, the relationship between job satisfaction and overall employees output is direct. In addition, the employees’ job satisfaction should also be evaluated through the overall performance output.
Even though there are various variables where output is used as the measure, job satisfaction remains significant. Therefore, human resources management has the responsibility of studying personnel’s job satisfaction through a practice of yields monitoring. The process of supervision is used informally by most of the organizations.
The performance-based compensation entails evaluating the workers’ output based on the decisions and views of subordinates and peers. Further, performance-based compensation also considers the views of other supervisors and even the employees themselves. Realization of organizational goals involves a lot of emphasis on the performance-based compensation. The pursuit of accurate performance-based compensation depends on the managers’ responsibilities and the level of belief that the personnel has in their assigned tasks.
Discussions concerning pay based on performance and rankings involve ratings that are designed for expansion purpose as well as those that determine the remuneration results (Amuedo-Dorantes and Mach 677). Over the recent years, weight has been put on the employees’ response to performance-based pay evaluations, particularly the effect such evaluations have on their job satisfaction and commitment.
Moreover, backgrounds under which performance-based compensation assessments are considered fundamental to the employees’ job satisfaction and commitment are also highly considered. For instance, appropriate establishment of performance-based compensation effectiveness and evaluation system on employees’ job satisfaction and performance.
Precedent hypothetical studies propose that appraisals of staff output and job satisfaction based on payment criteria are critical in the determination of output resolutions as well as educing high efforts among employees to move them forward (Amuedo-Dorantes and Mach 677).
Therefore, it is possible for one to determine the tools that can be applied in the implementation of the performance-based compensation appraisal on employees’ satisfaction on the given tasks. In other words, job satisfaction is achieved in the situations where performance-based compensation breeds gains due to the fundamental roles of employees.
In addition, through such functions, one is able to justify the expenses involved in operations of such structures. Performance-based compensation appraisals are also vital in the determination of employees’ term of service for the rationale of shaping the capability and task obligation. However, little efforts have been made to identify how the performance-based compensation variable and its consequences on staff’s satisfaction results are affected.
Performance-based compensation is a system that has gained a lot of credit concerning the improvement of the output as well as building workers behavior and organizational obligation.
In addition, performance-based pay is very essential as an assessment and ranking exercise carried by a firm on its workforce sporadically or per annum on the gains achieved from the workforce based on the work specifications and individual conduct (Ismail 943). The descriptions are very apparent in debating the rationale for performance-based compensation evaluations on job satisfaction by firms.
As a result, several researchers have offered categorization of purposes for performance-based compensation in firms comprising attainment of organizations goals, response by workers on assignments as well as individual employees’ choices on job assignments. For instance, Amuedo-Dorantes and Mach categorized the effects performance-based compensation have on employees’ job satisfaction based on the creation of attitude that inspires workers to build up themselves and advance their performances 675.
In addition, the deliveries of information to the human resources management on job satisfaction and commitment as well as on the output of subordinates form the basis for categorization. Moreover, the provision of systematic manner of deciding on remuneration adjustments, elevation of workers and relocations also form a basis for classification.
Performance-based pay system is very critical as a supervisory practice that connects corporate objectives to the output standards as determined by the employees’ attitudes and satisfaction on their assigned tasks. In this framework, performance-based pay is fundamental in command, behavioral growth, as well as job satisfaction (Ismail 943).
The command responsibilities include recruitment, compensation along with remuneration. On the other hand, behavioral growth relates to the identification, attitude, job satisfaction and expansion of prospective output. Further, the communication function aids in the conveyance of messages and responses to the staff concerning their output and prospective behaviors. However, other studies argue that a firm may apply the performance-based pay to protect against cases of unlawful behaviors.
Though the study by Chang and Hahn was limited to the employees’ output dependent variables, the studies indirectly add more information on how performance-based pay affects employees’ job satisfaction 398. Also, the studies provide a framework through which the influence of performance-based pay on employees’ job satisfaction can be explored.
Job Satisfaction, performance-based pay and cultural dimensions
Within any organization, cultures play a critical role in shaping the individual behavior. Therefore, cultural aspects are significant, while appraising employees’ job satisfaction and performance. Studies indicate that most workers feel dissatisfied with their jobs because managers do not take into consideration their culture while evaluating performance (Ismail 950). The reason is most organizations adopt models that emphasize performance-based pay appraisals that do not recognize employees’ cultures.
Culture remains fundamental consideration in the employees work attitudes and management processes. Organizations have taken little cognizance of cultural dimensions in their employees performance-based pay systems, particularly in the domain of behavioral aspects. While performance-based pay remains critical in influencing employees’ attitude, satisfaction and output, cultural aspects are similarly important in raising motivation and satisfaction on job performances.
Performance-based pay and employees perception
Further studies indicate that in organizations where performance-based pay procedure is considered just, then the personnel self-esteem, as well as satisfaction, is boosted (Amuedo-Dorantes and Mach 677). Thus, the achievement of an effective performance-based pay depends on the acceptability that it is fair.
On the contrary, in organizations where the performance-based pay is deemed unjust, the result is behavioral dysfunction and job dissatisfaction. Also, workers’ optimistic analysis of performance-based pay results in improved inspiration and output in general.
In terms of job satisfaction, performance-based pay involves grading and attributes ranking (Amuedo-Dorantes and Mach 677). Further, performance-based pay also involves the technique of behaviorally attached balances. Evaluation regarding job satisfaction occurs through employees’ self-evaluation, peer grouping conversations and responses from management (Amuedo-Dorantes and Mach 683).
Involvement of other workers in evaluation of employees’ job satisfaction is also very significant in the realization of the pragmatic goals that organization intends to achieve through the application of performance-based pay. The result is possible due to improved probability of response being worked on.
Moreover, putting a lot of emphasis on the continuous preparation of a company’s personnel on the processes involved in the performance-based pay is essential to the realization of highest levels of effectiveness on their assigned tasks (Amuedo-Dorantes and Mach 689).
The empirical studies on performance-based compensation and job satisfaction
Studies that have been conducted in the area of performance-based compensation and job satisfaction indicate a direct correlation between the two variables.
However, the studies show mixed results. In some cases, majority of employees feel satisfied with their jobs in relation to the type of compensation based on their performance (Chang and Hahn 403). Conversely, some studies indicate approximately fifty percent of employees feel satisfied with the task provided in relation to the performance-based pay the firm applies as a method of rewarding workers.
The causes of the differences in the findings remain puzzling to the human resources management researchers. The general assumption is that the relationship between performance-based pay and job satisfaction among employees is direct. In other words, the compensations based on employees’ performances directly affect their job satisfaction.
Further, the studies indicate that employees feel satisfied with their compensation method under the circumstances that the rewards procedures applied by the organization are fair. In situations where compensation practices are perceived by employees to be fair, employees are more satisfied.
In other words, performance-based pay is one of the compensation practices that firms utilize to motivate workers (Ismail 950). Most studies indicate that over ninety percent of employees consider fairness in compensation method practiced by the organization. The meaning of the findings is that fairness is a critical attribute of compensation practices that ensure job satisfaction among employees.
In other words, in order to achieve the motivational objective, the compensation-based pay must be perceived as being fair by the employees. In this case, fairness implies that employees perceive the overall compensation policy as reasonably representing their contributions to the goals of the organization. Essentially, job satisfaction is a perception among employees, particularly where the general organization practices are perceived to be fair.
In addition, the communications by the organization to the employees regarding compensation practices remain critical to the general satisfaction employees derive from their assigned tasks. In other words, what the organization communicates using their compensation practices directly affect the satisfaction employees get from their jobs, which in effect influence the general attainment of the organization goals. Studies indicate that most organizations do not communicate the applied method of compensation to their employees.
Besides, similar studies indicate that most employees do not understand the method of compensation being practiced by their organizations (Ismail 952).
While studies further indicate that satisfaction of employees on their jobs are not only being influenced by the compensation practices but also other factors, unfair performance-based pay, as well as other compensation policies and practices, have increased possibilities of making employees become dissatisfied. In other words, compensation policies that are perceived by employees to be unfair have increased likelihood of demoralizing employees.
However, most organizations have adopted performance-based compensation policies that are logical and sound in relation to the assigned tasks. However, most employees do not understand these policies and often relate their pay with other employees from various firms in the same industry.
In an effort to explain the compensation practices and policies to the employees and present the salary survey comparing the organization’s performance-based pay with that of industry, employers can clearly be understood by their workers, which in effect increase their satisfaction (Amuedo-Dorantes and Mach 689).
In essence, communications concerning the compensations based on performance remain critical regarding employees’ satisfaction to their jobs. Employees are likely to be more satisfied with their jobs in the situations where they understood their performance-based pay practices. As such, organizations must make every effort to ensure that employees not only comprehend performance-based pay practices but also other reparation actions in order to increase their satisfaction on their jobs.
Performance-based pay, workers satisfaction and motivation
Researches that have been conducted indicate that job satisfaction is primarily derived from the motivation.
Further, studies indicate that highly motivated workers are more satisfied on their jobs than employees who are not motivated. Therefore, performance-based pay practices aimed at increasing workers motivation also result in increased satisfaction (Ismail 952). Most organizations tend to use compensations policies to motivate their workforce.
Performance –based pay is the most commonly applied method of compensation that is used by employees to motivate their workforce. In the situations where the performance-based pay has ensured workers have been motivated, their satisfaction will also increase. In essence, the satisfaction of workforce is directly related to the motivation they derive from the organization practices. As such, any factors affecting the motivation of workers also affect their job satisfaction.
In fact, the compensation system of an organization is established to accomplish several objectives, particularly on the management of employees’ satisfaction and motivation (Amuedo-Dorantes and Mach 689). Essentially, the compensations systems, particularly performance-based pay of an organization is set up to attract and retain as well as motivate employees.
To attain these major goals of the organization, the performance-based compensation system should comply with the regulations that govern the employees’ remunerations. Moreover, to attain the objective of motivating employees, the compensation system based on performance should also simplify the administration of employees as well as be cost-effective.
As indicated, the compensation system based on performance can only attract, retain and motivate employees when it is perceived to be satisfactory (Ismail 950). Even though increased compensation of an organization will attract employees with skills and needed competence, it does not necessarily mean that such employees are satisfied.
However, most of the human resources management will assume that employees will be within the organization because they are satisfied. Studies indicate that job satisfaction is a perception by employees that the organization is fair on their reward system. As a result, employees are retained and motivated towards attaining the desired goals of the organization when they feel satisfied with their jobs (Amuedo-Dorantes and Mach 689).
Essentially, while planning for the compensation policies, the workers’ satisfactions have to be considered. In fact, the tactical choice of type of compensation will have greater influences on the general attainment of the goals of the business, which is hugely determined by the workers attitude towards their jobs (Amuedo-Dorantes and Mach 689).
The consideration of the attitude of workers towards the assigned tasks explains the reason why organizations should adopt a strategic choice that enhances the employees’ development and growth. In most instances, employees will be satisfied when the compensation strategy adopted upholds the culture of participation and empowerment within the workforce.
In addition, employees will be highly motivated and satisfied when the compensation applied by the organization enhances a culture of reliability and protection. In other words, the compensation strategy should be reliable and provide financial security to the employees.
The performance-based compensation normally has the attributes that make workers feel satisfied with their jobs (Ismail 950). Therefore, organizations should adopt strategic choices on compensations based on employees’ performances that enhance the culture of protection and reliability in order to increase motivation and satisfaction.
Essentially, motivation and satisfaction of employees remains significant when strategic choices of performance-based rewards are made by the organization. Most importantly, the performance-based compensation strategy applied by the organization is considered to increase the competitive business advantage when it sustains the business approach to employees’ development and improvement, which are closely linked to motivation of workers (Amuedo-Dorantes and Mach 689).
Performance-based compensation practices that increases satisfaction
As indicated, performance-based compensation strategy that enhances the workers satisfaction attains the competitive advantage to the organization. One of the practices of compensation that ensure increased satisfaction of workers to their jobs is the incorporation performance-based actions within the business processes. The reason is that business process of the organization determines the level in which the company goals and objectives are attained (Chang and Hahn 403).
Essentially, to contribute to the enhanced satisfaction on the part of the workforce, the compensation design system should be within the businesses processes. Moreover, compensation practices based on the performance of employees should be one of the factors that are geared towards motivating employees, increase the performance of the organization and contribute to the increased competitive advantage.
The performance-based compensation should be designed in such a way that appropriate remunerations of workers increase the level of their participation that in effect increases their productivity (Amuedo-Dorantes and Mach 689). Further, the design should increase the employees’ level of participation on their job. As indicated, suitable levels of employees’ participation strengthen the principles and ideals of the organization.
The organization should set standards and values that should be enhanced by the compensation practices. Moreover, the standards set by the organization directly correlates to the value created by the practice of performance-based compensation. By creating standards, competitive advantage of the organization will be attained through the values established by the performance-based compensation practice.
The performance-based pay, employees’ satisfaction and organization’s performance
Studies indicate that modern organizations are continuously recognizing performance-based compensation as one of the significant practices than increases benefits to the organization. Moreover, studies indicate that the organizations practicing performance-based compensation have increased benefits.
In other words, in organizations where performance-based compensation are practiced, it is not only the employees that benefit but also the organizations (Amuedo-Dorantes and Mach 689). The reason is that performance-based compensation increases job satisfaction, which in effect enhances the organization performance. Generally, the relationship between performance-based compensation and the organization’s increased performance is direct.
On the other hand, organizations that have perceive performance-based compensations as being costly have hardly achieved their goals. The reason is that employees’ motivations, as well as job satisfaction, are reduced considerably. As indicated, performance-based compensation is not the only factor that determines employees motivation and job satisfaction but significantly influences the variables.
Critical analysis of the advantages of performance-based pay to the organization shows that the benefits of the compensation practice surpass the costs involved.
The employees’ job satisfaction and increased organization performance associated with the practice of rewarding employees based on their performances ensure continuous flow of qualified staff with required skills and technical competence to keep the business at the competitive edge.
Given the fact that the qualified staffs with required skills and technical competence are critical in the attainment of goals and objectives as well as the key driver for their growth and development of the organization, competitive advantage is achieved (Chang and Hahn 403).
The current competitive environment requires organizations to keep highly qualified staff with necessary skills and competencies within their workforce. One of the ways through which the organization can keep such qualified staff is through appropriate remunerations that ensure satisfaction. To remain relevant, organizations must be flexible when it comes to the management of employees’ compensations and benefits in order to ensure their satisfaction.
On the part of employees, performance-based compensation and benefits ensure augmented productivity due to the satisfaction they receive from such benefits (Ismail 950). Augmented productivity on the part of employees results in the increased performance of the organization.
As indicated, performance-based compensation should ensure security and wellness to the employees. In other words, well-compensated employees feel protected from social ills that may distract the work processes, which in turn may result in decreased satisfaction and performance. Moreover, performance-based compensation practices that take into consideration needs of workers are critical in the motivation, satisfaction and general output of the employees.
According to Chang and Hahn, there is direct correlation between appropriate performance-based compensation and increased employees job satisfaction and performance 404. Essentially, performance-based compensation has a direct impact on the employees’ satisfaction on the assigned tasks, which by extension influences their performances as well as that of the organization.
One of the most significant benefits of performance-based compensation to the organization is that the employees are motivated to attain the greater output. Remunerations based on performances increase the worker’s motivation and job commitment that are translated into large organization’s performances.
In addition, the forms of compensation practice also enhance the performance culture among the employees and within the organization. However, researches indicate that job satisfaction derived from performance-based compensation can hardly be quantitatively determined (Amuedo-Dorantes and Mach 689).
In other words, no appropriate quantitative measurements have been developed to determine with conviction the job satisfaction employees derive from performance-based pay. However, increased output due to increased compensation can easily be observed (Ismail 950). As such, whether job satisfaction due to performance-based pay should be based on some form of measurable outputs has remained debatable among researchers.
The relationship between Performance-based pay and increased efficiency
Increased efficiency among the workforce may result from various factors, including job satisfaction. Job satisfaction has often led to increased effectiveness among employees. Moreover, increased effectiveness cannot be divorced from high performance and attainment of the organization goals.
As indicated, to achieve job satisfaction among employees, appropriate compensation policy has to be adopted by the firm. Performance-based compensation practices have proved the most effective in enhancing the job satisfaction among employees. As such, performance-based compensation directly influences performance among workers. In fact, the increased performances result from augmented motivation workers gain from appropriate compensation (Ismail 950).
Essentially, the motivation workers derive from the performance-based compensation practiced by the organization will enhance effectiveness and efficiency among workers that contributes to improved performance. As already mentioned, the effects of such practices are the increased productivity and attainment of overall goals of the organization.
Generally, one of the major influence appropriate performance-based compensation design system has on the organization are the increased performance due to effectiveness derived from motivation and job satisfaction, productivity within the workforce and the general attainment of the organization’s goals (Chang and Hahn 403). Efficiency and effectiveness attained because of job satisfaction play a significant role in the achievement of the organization goals.
As mentioned previously, performance-based compensation practices impacts on the employees’ perception regarding culture and performance of the organization (Amuedo-Dorantes and Mach 689).
In other words, the performance-based compensation design system of an organization communicates particular aspects that directly relate to the performance-culture, which in effect have direct influence on job satisfaction. In particular, the level in which the performance-based compensation practices of organization can create motivation, efficiency, and effectiveness among workers.
One of the performance-based practices that create efficiency and effectiveness is where the compensation applied reflects the employees’ talents, skillfulness, capability, and understanding of the work processes. Also, the performance-based compensation practices should reflect the reparation levels of other organizations. Essentially, the organization’s success mirrors the extent in which the talent and skills of the workforce within the organization are efficiently and effectively utilized (Chang and Hahn 403).
Moreover, in order to attain the effectiveness on employees’ performances, the performance-based compensation system should reflect the level in which the organization recognizes the contributions of individuals, teams as well as groups. In other words, the recognition of employees’ contributions to the organization success is one of the factors that result in increased job satisfaction.
Moreover, performance-based compensation practices such as offering bonuses to individuals with increased performances portray the cultural aspect of the organization that values individualistic ideals. In fact, such practices have been found to be directly linked to increased job satisfaction among employees.
Under the circumstances where the organization recognizes the individual ideals, employees with individualistic traits will be attracted to the firm. On the other hand, performance-based compensation that recognizes the teams’ contribution portrays the collective values of the organization. As such, individuals that value collective ideals will be attracted to the organization.
In general, the performance-based compensation system and design often communicate the values and beliefs of the organization regarding employees’ satisfaction on their jobs and efficiency with which the tasks are performance (Amuedo-Dorantes and Mach 689).
Whether the organization performance-based compensation policy portray individual or collective values, job satisfaction and performance remain critical. Effectiveness and efficiency the tasks of the organization are performed will depend on the level of satisfaction of employees.
Performance-based compensation has also been found to have direct influence on the general employees’ management procedures. Under such management procedures, the employees’ efficiency and effectiveness can be enhanced through the application of appropriate performance-based compensation (Ismail 950).
In this case, appropriate performance-based compensation implies that the remunerations should be based on the market rate. In other words, payment rates adopted by the organization should equal or above the rate of other firms within the industry. Moreover, suitable compensation that has increased effect on the workers attitude towards their jobs and motivation should be above the market rate.
Generally, effective performance-based compensation indicates the manner in which the organization values its workers as well as their needs. Workers will often feel satisfied with the given tasks when the organization values their contribution as well as needs. In addition, effective performance-based compensation practices increase workers motivation and job satisfaction that results in augmented productivity as well as the general performance of the organization.
Conclusion
Performance-based pay is one of the tools that are widely being applied to combine employees’ performances and organizations’ compensations policies. In addition, the performance-based pay is understood to be covering several compensation methods in which firms reimburse their employees based on each unit of output. Further, firms utilize compensation-based pay to develop and enhance the employees’ capabilities, performances and give out rewards.
In terms of job satisfaction, studies indicate indirect correlation between compensation particularly performance-based pay and job satisfaction. However, the findings are not always the same in all situations. In other words, compensation is not the only determinant of employees’ satisfaction. Many factors contribute to the satisfaction of employees on their job assignments. Primarily, performance-based pay systems are aimed at increasing the employees’ output rather than influencing their behaviors.
However, further studies indicate that in organizations where performance-based pay procedures are considered fair, personnel self-esteem, as well as job satisfaction, is boosted. Thus, the achievement of an effective performance-based pay on job satisfaction depends on the employees’ perception that the practice is fair and geared towards improving their welfare.
On the contrary, under the circumstances in which performance-based pay is deemed unjust, the result is behavioral dysfunction and job dissatisfaction. In addition, workers have optimistic analysis of performance-based pay results in improved inspiration and output in general. Moreover, performance-based pay involves grading and attributes ranking.
In general, various factors directly influence job satisfaction. The most important factor is the employees’ perceived notion that the basic needs are met by the organization. Essentially, motivating practices directly contribute to the satisfaction of employees towards assigned tasks.
Even though compensation is such motivating factors, performance-based pay do not have direct influences on employees’ motivation. Performance-based pay has to be combined with other motivating factors in order to have influences on employees’ motivation, which by extension results in job satisfaction.
Works Cited
Amuedo-Dorantes, Catalina and Tracy Mach. “Performance pay and fringe benefits. Work incentives or compensating wage differentials?” International Journal of Manpower, 24.6 (2003): 673-698. Print.
Chang, Eunmi and Juhee Hahn. “Does pay-for-performance enhance perceived distributive justice for collectivistics employees?” Personnel Review, 35.4 (2006): 397-412. Print.
Ismail, Azman. “Relationship between Performances based pay features and job satisfaction: Does interactional justice act as a mediating role?” Academy of Management Journal, 35.5 (2007): 921-955. Print.