In the process of recruitment, the interviewing group requests interviewees to state their anticipated wage or monthly pay. The logic behind posing this question is pegged on the claim that it is likely that the job may be unsatisfying when the pay offered to a successful candidate is too low from his or her anticipations.
On the other hand, when the salary offered is too high in relation to the candidate’s expected pay, a general interpretation is that the candidate is not sure of the job requirements. The amount of anticipated pay is crucial to the employee. It determines their buying power.
It is also equally important to employers. According to Chaudhry and Sabir, “while running a business, salary can also be viewed as the cost of gaining human resources for running systems and operations, and they are designated at different positions, with employers bearing personnel disbursement or salary expense” (325). In every organisation, the perspective of salary or wage level is incorporated in the motivational programs.
One of the noble roles of the human resource arm of an organisation is to develop salaries and reward systems. This suggests that payment satisfaction is mandatory for employees’ satisfaction with their jobs. This study investigates the interrogative of whether reimbursement is a significant factor affecting job contentment. This aim is accomplished through examination of the relationship between performance-based pay and job satisfaction.
Performance-based Pay System
Performance-based pay is a system of payment in which an employer rewards an employee based on how well he or she works or paid equivalent to the amount of work output.
The system is most suitable for enterprises that depend on a high level of performance and skills, and in which the cost of labour represents somewhat small share of total costs, unlike in labor-intensive industries. In addition, according to Glisson and Durick, performance –rated pay schemes are not only, mostly applied in manufacturing firms but also in service industries (81).
Whether public or private manufacturing or service industry, an employer negotiates the system with employers and seeks a management or pay expert to analyse pay structure in order to ascertain its feasibility, corporate or business objectives as well as human resource management objectives (Chaudhry and Sabir 355).
This consultative and negotiated principle helps to guard against possible pitfalls and outlines the terms and conditions of such payments. Conversely, as Green and Heywood assert, the principles are vital in establishing and in ascertaining different structures that are best suited to particular businesses and tasks. Several tasks are closely associated with performance-based pay system.
One example of this mechanism of payment is the payment of salespeople, in the service industry, on a commission basis depending on the number of sales made.
In sales, based on the claim that people work with determination and extra effort to earn optimally, some employers base their remuneration programs on work performance. In the case of sales personnel, “they receive more pay for selling more, and low performers do not earn enough to make keeping the job worthwhile even if they manage to keep the job” (Green and Heywood 726).
Another example is the production line workers in the manufacturing industry. In the production line, the employer pays on an hourly basis or rewards workers for overtime work for maintaining inventory, preparing shipping products, lifting, loading and unloading products as well as assembling and testing pre-manufactured components (Glisson and Durick 80). Apart from the sales and production jobs, the concept of performance-related pay applies to other professions.
In the education sector, education systems, which perform exemplarily well, consider paying their teachers more as an essential component of strategies for keeping high-performance trend. Such systems also place emphasis on the teaching quality as opposed to any other factor, for instance, the sizes of the classes.
Unfortunately, economic climate in some nations does not permit the government to pay teachers more money every time they claim they are dissatisfied with the prevailing pay rate (OECD 3). This makes many countries target high pay rates for teachers in institutions teaching children with special needs and/ or where supply of teachers is low due to factors such as environmental hardships.
In some countries, the level of reimbursement is considered an essential aspect for measuring the productivity of teachers. Hence, they have developed programs in which the pay rate is determined by individual performance. This approach raises the query of whether rewarding together with recognition of the performance of teachers and other professionals from the basis of performance-based pay is an imperative and effective mechanism of leveraging improvement in job performance.
The application of performance-based pay system in both public and private manufacture and service industries depends on the business and human resource objectives. Organisations employ the system to appraise workers and to set their remunerations and benefits. It gives workers some form of job security and prospects for advanced wages.
The employers employ performance-based pay system in order to achieve maximum competitiveness and production. Critically, today, the ability to innovate and develop necessitates worker motivation and skill development for comparative advantage, which are significant objectives of performance-based pay system. Chaudhry and Sabir posit, “Such comparative advantage depends on an individual’s work attitude, literacy standards, motivations, and value systems” (346).
Paying people based on their performance implies that rewarding schemes are based on other things, as opposed to the credentials possessed by an individual and/or the experience gained in a given profession. Indeed, in the teaching profession, credentials and experience levels are not directly associated with the effectiveness of teachers (OECD 5).
The proponents of performance-related pay hold that the approach is better and a fair mechanism of reward, as opposed to payment of people equally, especially by noting that people report different performance levels for similar job elements. In the teaching field, supporters of performance-based pay argue that the approach is essential in enhancing the motivation of teachers. In particular, OECD notes, “clearer connection between spending on schools and outcomes builds public support” (7).
In addition to motivation of higher performance behaviour, performance-related pay eliminates the incidences of favouritism in terms of salary and wage increments.
The more the output or hard and more work are unquestionably rewarded according to the terms and conditions of the job. The proponents argue that the employer gets what is worth and equivalent to the amount of energy spent reducing favouritism, which would otherwise affect the output and the relationship between the workers and their employers (Glisson and Durick 64).
The rewarded behaviour, performance-based method provides a blueprint for employers’ expectations and standards under which employers evaluate employees hence minimises reduce fears of favouritism (Chaudhry and Sabir 351). For example, a private employer in an education sector sets a minimum score or mark in mathematics of fifty per cent for class seven pupils, and reallocate or replace, without favour, teachers who cannot enable pupils to achieve the pass mark.
As such, teachers would be more secure in realising that their performances were evaluated objectively based on the standard of their achievement rather than being favoured by the supervisors. In the education sector, for instance, performance-based pay system not only eradicates nepotism during recruitment but also ensures that teachers are rewarded based on merit and achievements in term of quality of grades produced.
Moreover, performance-related pay ensures job satisfaction. Employers do not compel workers, who voluntarily get a job done according to the well-stipulated terms and conditions of such tasks. Nevertheless, for employees, motivation is inevitable as it helps them have maximum control over the planning, organisation and execution of their work.
For instance, in sales, the commission motivates and satisfy the salesperson, making them continue to strive to make more money in order to increase their earnings. Therefore, the proponents assert that the slightly higher pay levels, continuous work and training, satisfaction, and broadening of skills, tend to reduce staff turnover and enhances productivity and quality through better use of human resources (Chaudhry and Sabir 335).
There is the possibility that the performance pay can improve the company’s target orientation. Since the target objectives are evident to the employees, they highly accept them. This further increases communication and systematic discussion between the employer and the employees.
The establishment of performance-related wage is of the assumption “that incentives, rewards, and bonuses are suitable to increase employees’ efficiency and to tighten the bond between employees and the organisation” (Glisson and Durick 74). Whereas target arrangements endeavour to raise the intrinsic motivation of the employees, there are various opinions about this in empirical discourse.
The significant criticisms on performance-based pay are based on platforms of performance measurement. Fundamentally, the performance of a simple task may be assumed complex or very simple due to inadequate procedures and criteria for determining the complexity or simplicity of such a task.
Just as “telephone call centre helpline judges the quality of an employee based upon the average length of a call with a customer” (Judge et al. 379), teaching is judged by quality of candidates produced for the job market irrespective of the challenges and problems during the educational process (Judge et al. 379).
Therefore, accurate evaluation of performance poses challenges since the determination of performance from an objective approach and enhancement of cooperation amongst various teaching staff are dependent on the deployed criteria.
In some jobs, critics of the performance-related pay system argue that it presents demerits of poor service delivery. For example, in a client call centre, work may be measured objectively through standard period that a call centre worker utilises with clients. Although higher averages may reflect the performance of an employee, the quality of the service offered is not reflected in such a measure.
Higher averages do not also reflect whether the problem of the client is resolved or the customer was satisfied. Moreover, even though from the organisation’s perspective, low incentive sensitivity on the part of employees to the mechanisms of performance-based remuneration, low-performance level before the introduction of the system, is cost-effective, it may as well result into a reduction of service delivery rather than performance improvement (Glisson and Durick 77).
However, if there were high level of performance before the introduction of performance-related pay systems, it would pose a risk of subduing the intrinsic motivation of the workers. Such suppression of inherent motivation by external control systems and rewards is contrary to the professional code of ethics of some professions. It can only lead to a hostile work environment.
Green and Heywood suggest, “performance-related pay may also cause a hostile work attitude, as in times of low customer volume when multiple employees may compete for the attention of a single customer” (727). In a situation where clients acquire help from more than one person within the sales department, resentments are highly probable when persons are making the actual sales take the commission.
In addition, a payment-related scheme on individual comportment and decisions in the work areas, which requires teamwork for successful completion, may seem somewhat problematic. Although, for instance, organisations design performance-based pay to suit team-related remuneration and applied it in a team or group work, it enhances complexity in practice and compounds management problems and hostility in the workplace. It is, therefore, not suitable in profit-making organisations (Chaudhry and Sabir 362).
Also, a performance-based pay system strengthens management relations. According to Jones Douglas, the negative communicative relationship is problematic. Consequently, relying on enhancing performance of an organisation on performance-related pay systems is also likely to give rise to problems in times of economic downturns.
The opponents argue that the adoption of performance-based systems by governments and corporations poses serious opposition challenges to the workers. This claim is based on the belief that ill-conceived standards make employees work at unsafe speeds. Corporations do not consider all the factors. Such unlikely consequences are unfavourable for workers.
For instance, an organisation that pays or compensate its employees according to, for example, seniority, may likely experience objection from low-performing senior officials especially if they change to a system that compensates workers according to how much they do (Judge et al. 405).
However, highly motivated, industrious, and focussed employees, who are new in the organisation, may favour the new pay plan. Thus, pay systems that promote the dignity of humans, develop current and future skills, and/or obey the cultural dynamism of the workers are inevitable.
As such, the academic confirmation by economists, psychologists, and sociologists shows that performance-related pay result into undesirable “outcomes especially when it is applied to jobs that involve cognitive rather than physical skill” (Chaudhry and Sabir 341). As long as the work under consideration is physical, performance-based pay is inevitable. Nevertheless, if the work requires basic intellects and cognitive ability of the workers, the system often affects performance negatively.
The Concept of Job Satisfaction
A person is said to be satisfied with a job if he or she is comfortable and contented with that job. From the historical perspective, the principle of scientific management, job satisfaction is how well one does a task. Comparative, it is how constantly one can efficiently do a quality task by experience.
Researchers have done various studies and identified different model and theories on the concept of job satisfaction and dissatisfaction. For instance, motivation theory, a subset of Maslow’s hierarchy of needs theory, sets the fundamentals, values, and concepts of models of job satisfaction. According to this theory, an individual is satisfied with job on condition that the “physiological needs, safety needs, social needs, self-esteem needs, and self-actualisation” are met (Glisson and Durick 79).
The Maslow’s hierarchy model enabled early researchers to advance more theories on job satisfaction. In addition, job satisfaction cannot only be viewed narrowly in terms of contentedness but also a broader context of factors influencing a person’s quality of working life and experience. Therefore, in comprehending and analysing the concepts of job satisfaction, one should consider not only its relationship with terms and conditions of work but also external and internal stresses and interferences associated with it.
Due to the many facets associated with job satisfaction, it has become one of the most widely researched topics by scholars of organisational workforce management.
Myriads of mythologies are deployed to conduct a research on job satisfaction. Such techniques involve a study through primary data collection approaches such as consultation, surveys, and taking of notes. Research on job satisfaction provides amicable evidence that job satisfaction is not only crucial for employees but also organisations’ performance and success in terms of productivity.
From an organisational paradigm, in the quest to retain the most talented people within an organisation, organisations are overly interested in the most pragmatic strategies of employee retention. Job satisfaction is one of such plans that have attracted immense interest in organisational management theory. As such, scholars argue that an individual can get job satisfaction through evaluation, affectionate and/or cognitive.
Evaluative component encompasses dislike or likes for a particular job. In most cases, people evaluate their organisations in terms of terms and conditions of work, interpersonal at workplace, physical work environment, among other factors (Drago 532). These factors, therefore, often form the basis whether an individual will be satisfied with his job or not.
For instance, the quick response by people if they are asked to rate their job depends absolutely on the assessment and evaluation of their organisation. Unlike a well-organised and structured company with excellent terms and conditions of the job, an organisation with unfavourable terms and conditions of work will be evaluated as poor. Therefore, it does not satisfy the physiological, affective, social, security, and esteem needs employees.
In the affective component, the organisation evokes either unpleasant or pleasant feelings on an individual. This component characterises the emotional feeling an individual has about a job or how the relationship of an individual with the organisation makes him or her have feelings of joy, anger, stress, security, assertion or overthrown (Glisson and Durick 67). While a negative effect arises from undermining circumstances, positive impact comes from conditions, which reinforces an individual’s dignity and self-concept.
Moreover, when an organisation accepts the values, principles, worth and competencies of an employee, such an individual are likely to be in the state of positive effect, thereby tend to assess the organisation positively hence have maximum job satisfaction. Otherwise, job dissatisfaction. In any organisation, affective component of an individual is prompted by several stimulus systems.
First, reward stimulus system influences on one’s emotional connection to the organisation by the manner to which he or she pays. As such, “the organisational position certifies his or her self-worth and status” (Drago, 540).
Second, managerial stimulus system occurs when a high-ranking official of the organisation or a boss affirms, through his or her words or actions, an employee’s worth. This can change the emotional response of the employee towards his or her boss hence job satisfaction. Third, task stimulus system is created due to intrinsic motivation of an individual towards his or her job.
The drive comes not only from job competencies, emotional pleasures and from values but also from circumstances where a person feels his or her contributions successfully enable the organisation to achieve its objectives and projects. Lastly, social stimulus system depends on the interpersonal relationships, how the workers relate with one another at the workplace. Consequently, unconditional acceptance at the workplace is the blueprint for high job satisfaction.
In cognitive component, encompasses one’s “perceptions, opinion, beliefs and expectations about an organisation” (Chaudhry and Sabir 333). Cognitive job satisfaction measures the extent to which a person perceives his or her job in terms of pay, retirement benefits, pension schemes, working hours and working environment, and other aspects of his or her job in comparison to the set objectives. It does not evaluate the extent of preferences or contentment, which are associated with a particular job.
Whereas cognitive job satisfaction enhances affective job satisfaction, the two, cognitive and affective are different, not even directly interrelated, and have unlike backgrounds and values (Drago 534). However, just like affective component, cognitive component has stimulus systems.
First, reward stimulus system is where a person develops anticipations based on their rewards or pay through negotiations and agreements, appraisals to others, and promises made. The achievement of these pay expectations increases the likelihood of job satisfaction to the level that an individual develops a schedule for advancement.
The achievement of these schedules affects a person’s cognitive assessments. Second, managerial stimulus system is a positive response to and satisfaction with one’s boss. The pleasure is absolutely based on how he or she is able to meet the mental requirements and demands boss.
The mental perception of the boss affirms whether or not the employer will be satisfied with the job. Third, task stimulus system arises on condition that an individual is given tasks or duties that meet the role expectations.
Therefore, a job that leads to autonomy and more responsibility and that test on essential skills and competencies creates high levels of satisfaction to the worker because he or she experiences challenges, which when met, boost morale by validating the skills (Drago 500).
Lastly, in social stimulus system, the interrelationship among fellow workers relative to organisation expectations of them, influences on job performance forms the basis for cognitive considerations. The social aspect, therefore, provides maximum job satisfaction as it enhances proper communication and interactions (Glisson and Durick 69).
Researchers and human supply proficient studies classify the precise cuts that exist between affective work contentment and cognitive career fulfilment. These studies highlight the similarities in their inducements systems. Therefore, anyone who does not have either affective or cognitive job satisfaction is deemed dissatisfied with his or her job.
Several factors contribute to job dissatisfaction. While motivating factors and good hygiene or working conditions provide positive satisfaction due to intrinsic work conditions, personal dissatisfaction arises from paltry compensations and pay, inadequate job security, autonomy, lack of recognitions and poor interpersonal relationships among the workers and between workers and supervisors among other reasons (Jones 78).
Workers often maximise their time at work (Chaudhry and Sabir 326). As such, poor working conditions can doubtlessly make them dissatisfied by destroying their morale and can result into physical injuries. It is, therefore, vital for organisations to optimise the requirements of work, in terms of ensuring that the working area is spacious and with adequate lighting systems, comfortable workstations and productivity tools that help workers finish tasks more proficiently as well as contributing to job satisfaction.
Every worker would feel dissatisfied with a job that does not provide opportunities for career development and promotions as well as provide more responsibility that result into higher compensation (Drago 527).
For an employee to feel satisfied, organisation not only encourages them to acquire more innovative skills, which increases their chances for job promotion but also meet the cost of training workers for maximum job satisfaction. Also, the employees’ conference, seminars, workshops and even annual performance review, provides a platform in which advanced their skills, track achievements and air their grievances affecting their satisfaction.
Too much workload often leads to more stress hence job dissatisfaction. Even to the most important and dedicated workers, setting unachievable deadlines can easily erode the relationships between them and the employers. Such deadlines set by “ineffective management and poor planning” only initiate conflicts and increases the stress level at the workplace (Drago 533).
The dissatisfaction is also fuelled by inadequate staff levels that provide little time for employees to accomplish their assigned tasks. Therefore, for organisational objectives to be achieved, and workers satisfied, the staff should assign the workers reasonable workload to be performed within a reasonable period.
Lack of respect amongst workers as well as that of human dignity contributes to job dissatisfaction. As indicated by social stimulus system, excellent communication and interpersonal relationship are remedies to job dissatisfaction. A hostile working condition associated with rude and unpleasant workers leads to lower job satisfaction.
For instance, a survey published in August (2011) by FoxBusiness.com, “fifty percent of despondence had personally experienced a high amount of workplace incivility” (Judge et al. 399). In order to boost job morale, managers not only need to mediate conflicts in time but also provide disciplinary action and remind workers of the required appropriate behaviour within the organisation.
There is however, complexity of measuring job satisfaction and dissatisfaction. The measurement depends on the affective and cognitive nature component. Several measuring methods that have been developed over the years are mainly self-reports and are interrelated and interconnected, however they distinct with respect to affective and cognitive job satisfaction (Drago 543).
The brief index validly measures overall affective job satisfaction for internal reliability, sequential stability and convergent validities. The measure also seeks to examine population invariance in terms of nationality and job type as well as job level (Chaudhry and Sabir 349). The job descriptive index concerns cognitive job satisfaction and measures conditions of work, in terms of supervision, opportunities for advancement, and workers’ interpersonal relationships.
Job satisfaction concerns within organisations have traditionally been approached from the theoretical paradigm that job satisfaction and performance are related. This implies that in case employees are happy about their working situations, they portray higher efficiency and effectiveness levels. In this context, Glisson and Durick inform, “over the years, many employers and employees alike have held to this belief, and placed a great deal of emphasis on making sure employees are satisfied with their jobs to trigger the desired outcome” (65).
Desired outcomes are dependent on the goals and objectives of an organisation. In the service sector industry, the desired results may include the service rate and service quality. In some organisations that deal primarily with production, the desired outcomes depict an increase in productivity levels accruing from an improvement in the quality of products and/or the production capacity.
The general contention in research on job satisfaction and organisational success holds that better-satisfied employees have the capacity to produce and deliver higher quality products and services. When the performance of organisation is measured from the context of productivity levels, it implies that job satisfaction has a direct correlation with job performance.
Scholarly criticism also exists that job satisfaction is not associated with performance levels exhibited by employees. For instance, Jones argues that concluding that only job satisfaction possesses an overall capability to influence job performance is inappropriate (79). The scholar further argues that high production depends on the capacity of a job to satisfy an employee’s aspects of life. Employees are best satisfied with their jobs when there is an excellent job-personal life fit.
In the context of Maslow hierarchy of needs, people are most likely to perform better in tasks if a job satisfies their fundamental human needs followed by social needs and much later, self-actualisation. This suggests that a link between job satisfaction and job performance only occurs when aspects such as individual worker’s feelings on the purpose of work in determining the value of their lives are manifested in the traits of the job facet that a worker engages in every day within an organisation.
Research on job satisfaction identifies various factors, which increase commitment of employees to their jobs and hence comfort. They include remuneration levels, the degree of delegation of responsibility and organisational culture, among other factors. This underlines the significance of incorporating employees in the decision-making process in an organisation when pay ceases to be a motivational and hence a job satisfaction factor.
This happens when employees become interested in self-actualisation and recognition. Indeed, incorporation of employees in decision-making processes makes employees develop cognitions and perceptions that they are part of the owners of an organisation. Consequently, they endeavour to perform their duties such that the organisation does not fail. This increases the productivity of organisations.
After elimination of all data miscalculations, Judge et al. conducted a research in 2001. They revealed a rise of correlation factor between the magnitudes of job satisfaction and the degree of job performance by .30 (Judge et al. 379). Despite the consensus by various scholars that productivity levels of employees are a function of the extent of employee satisfaction, Jones argues that the relationship is frail (93).
The researcher subscribes to this position on the premise that the definition of job satisfaction ignores the subject matter of life (93). This suggests that other factors need to be considered to define job satisfaction more precisely and concisely. These include the nature of the job, personality attitudes of the workers, and the organisational work environment.
Judge et al. support this assertion by further arguing that job satisfaction depends on whether workers like or hate what they do (378). On the other hand, workers could like their jobs, but not the environment of the organisation in which they work. For the nature of job to satisfy the workers, Glisson and Durick hold that workers evaluate the role they are expected to play, the amount they earn, how they relate internally, and the mechanisms of control and endorsement (79).
From the perspectives of pay levels, satisfaction with salary and wages depends on the amount that employees feel they deserve to earn to their present pay. Glisson and Durick illustrate that earning lower than expected leads to automatic dissatisfaction as opposed to earning higher than anticipated (74). The dimension in which people look at the nature of jobs may affect their performance.
As revealed before, job satisfaction is realisable differently based on individual worker’s interest in a certain component of a job. For instance, some employees would give more significance to good relation amongst themselves at work while others will value salary over all other components of job satisfaction. The goal of the next section is not to explore all factors that influence job satisfaction. Rather, the focus is on how performance-based pay influences job satisfaction.
Link between Performance-based Pay and Job Contentment
In the private sector and governmental organisations that deploy the performance-based system of payment, wage or salary is considered an important factor that enhances the motivation of employees to achieve the goals of the employer. Various special factors are crucial to enhancement of employee job satisfaction, although satisfaction with salary or wage levels is mandatory.
Pressures exerted by challenges of job satisfaction are essential elements that help in determining the appropriate administrative decisions. Drago provides the evidence, “dissatisfaction with the amount of pay leads to employees’ decreased job satisfaction and decreased interest of working” (533). This suggests that pay is an essential factor in determining the productivity of employees. Productivity is a significant feature of gauging the presentation of employees.
Employees are also more willing to learn, perform better in their organisational tasks, and reduce the rates of absenteeism and even their intentions and the actual turnover rates when their payment grievances are addressed by an organisation (Green and Heywood 721). This suggests that various factors that result in de-motivation of employees have pay grievance attached to them.
In the effort to enhance pay satisfaction together with job satisfaction, organisations encourage exploration of a strategy of employee remuneration in relation to the levels of performance. Performance-based system of payment acts as an incredible stimulus for job satisfaction.
Heywood and Wei support this line of thought by further adding, “Perceived associations between pay and performance account for additional changes in pay increase satisfaction relative to when the entire demographic variables are put together” (525). This implies that the implementation of programs for pay-based performance creates opportunities for organisations to develop effective systems that enhance satisfaction of salary and wage levels.
People who are satisfied with their salary and wage possess higher degrees of developing positive attitudes towards their work relative to those who are not satisfied by remunerations offered for a given task (Heywood and Wei 525). For instance, persons working as sales personnel within organisations where they are paid on a commission basis are motivated by the desire to make more significant sums of money to make more sales.
Human needs are insatiable. Hence, when people make more money, their needs balance their increase in incomes. Since people desire to remain within the established social class that represents their social status, it implies that earning lower amounts of income in the future amounts to the erosion of the established social class status.
Upon considering the insatiability and need to maintain a given social class and status, performance-based pay system encourages performance in work. People will always desire to perform better for better pay, hence lifting their social status profiling. In this paradigm, performance is a function of the magnitude of outputs and not essentially the quality of the service or products produced.
Although performance-based pay system is essential in motivating employees to increase their levels of performance, it poses significant challenges where teamwork accomplishes various tasks within an organisation. Where products or service delivery occurs through some processes where different people give different levels of inputs, it becomes difficult to measure performance levels for each individual.
Basing the payment of performance levels for the entire team based on say, the number of customers served or the number of products produced per unit time, is disadvantageous to people who have given larger inputs. In this extent, performance-based pay systems become inappropriate paradigms of enhancing job performance within an organisation.
Employees who have given larger inputs are also likely to be dissatisfied with their work on the accounts of exploitation by some teamwork members. Such perceptions may make some people within team decrease their levels of performance in the effort to ease their workloads compared to some sections in the processes of products production and service delivery.
In the context of the above arguments, Heywood and Wei suggest that people possess low levels of job satisfaction together with higher levels of turnover intents when they are paid a fixed salary (523). Hence, individuals are expected to be contented with their occupation when they are paid consistent with their amount of labour inputs.
This underlines the significance of adoption of the performance-based payment systems. However, research on the impact of performance-based pay systems in different sectors and industries yield conflicting findings to this assertion. For instance, in the education sector, OECD argues, “there is no relationship between an average student’s performance in a country and the use of performance-based pay schemes” (12).
This suggests some schools, which record high performance, operate under the performance-based form of remuneration of teachers while some schools, which also perform equally well, do not apply such a system.
OECD further argues that in some nations where performance-based payment system is deployed, with teachers being paid salaries that are within the range of 15 percent of the nation’s gross domestic product per capita, students perform better (13). In such a situation, the salaries of teachers are satisfying. Hence, their jobs are enjoyable.
However, in some nations, where teachers are paid above 15 percent of the nation’s gross domestic product per capita, performance-based pay produces negative impacts on the performance of students (OECD 13). Although the jobs may be satisfying in such situations, challenges emerge on the accomplishment of the purpose of education systems within a nation. Nevertheless, even in such a scenario, performance pay is still directly associated with job satisfaction.
Deployment of schemes of payment developed on the paradigms of performance-based pay is shown by various studies as having the ability to increase productivity of employees. However, Green and Heywood say, “it remains unclear in terms of the effect that performance pay schemes have on worker satisfaction with the job” (710).
This assertion suggests that while some programs of performance-based pay may increase job satisfaction of employees through increased motivation arising from increased earnings, such programs have no effect on the job satisfaction in some situations.
Performance-based pay may give rise to periodic fluctuations in the incomes earned by employees to the extent that they are not able to reduce their utility risks. To handle this challenge, workers may be compelled to exact more effort to the degree that the resulting increased earnings do not make their jobs satisfying.
Green and Heywood further add, “Some types of performance pay such as profit sharing may increase job security while others increase earnings dispersion within the firm and may reduce perceptions of fairness or lower morale and motivation” (710). In this regard, the effect of performance-based pay schemes is to raise workers’ satisfaction with salaries or wages while lowering their levels of comfort on some other aspects of work including perception of fairness, effort, and risks.
Theory on payment systems suggests that an organisation adopts a payment system, which fits its interest together with the benefit of employees. Linking performance levels with payment of the employees facilitate optimal utilisation of a worker in comparison with other payment systems such as time-based payment systems (Heywood and Wei 523). In this context, performance-based pay systems are an advantage to an organisation and a worker.
In situations where workers are paid on piece rates or commissions, the marginal earning is equated with marginal effort. This mode is impossible in cases where time rates inform the system of payment adopted by an organisation. Although it is essential for organisations to benefit optimally from the effort or performance levels of employees, satisfaction of workers with their work is important in the overall success of an organisation.
Some aspects of organisations raise the levels of satisfaction associated with performance-based pay. Green and Heywood suggest, “Workers prefer employment environments that are seen as rewarding their productivity since such environments increase worker optimism about future employment” (711).
Some performance-based pay systems are developed according to successful HRM creatively innovated approaches for enhancing high performance in workplaces. High-performing workplaces create perceptions of self-belonging, increasing levels for organisational commitment, and self-esteem of employees. These aspects increase the levels of job satisfaction among employees when integrated with rewarding systems factoring in the amounts of effort put by the individual employee.
In spite of the existence of scholarly research evidencing positive impacts of performance-based pay on job satisfaction, there are also other studies attesting contrary findings. As claimed before, measuring performance to determine the corresponding correct amount of pay may be quite troublesome in some situations.
Heywood and Wei concur with this assertion by insisting, “evaluations may be overly subjective, or objective measures of performance may be poorly tied to actual firm profit” (526). In such scenarios, total surplus may be problematic to increase as employees attempt to optimise objectives in the effort to meet the number of units produced or the targets set by their supervisors.
The context from which performance is measured is also essential in the evaluation of the association between performance-based reimbursement and work contentment. Some organisations measure performance from the context of profitability levels associated with higher production levels within standard times while using standard procedures.
While the general assumption is that paying employees based on the number of units produced may enhance their satisfaction with work, an organisation and employees may not benefit from such increased output levels because of lower quality levels and a higher number of injuries (Green and Heywood 713), which may accompany higher output levels. Work environments, which pose risks to the health and wellbeing of people, are dissatisfying.
Deployment of performance-based pay may result in the intensification of work within an organisation. The work of Drago (1996) evidences that computerised monitoring, coupled with piece-rate approaches to the determination of employees’ payments makes worse conditions of high stress and low wages within an organisation (53).
Green and Heywood support this argument adding, “performance pay may be merely a disciplinary tool that does not allow greater optimisation but merely increases work effort while lowering satisfaction especially for the low skilled” (711).
Where work is done in work teams, performance-based payment schemes may create internal groups pressures on the mechanisms of sharing extra earnings depending on the individual effort on the overall task completed by the work team. This suggests that even when earnings increase consistently with increased outputs level of a work team, job satisfaction may reduce due to internal conflicts.
Compensation based on performance levels may raise earning risks akin to the schemes that may fail to incorporate the wage demands of workers. Basic estimates for job satisfaction assume that earnings are constant. This implies that any recorded impact of earning risks is replicated in the dwindled levels of happiness.
The work of Heywood and Wei provide evidence that people who have a high tolerance level to risk possess higher probabilities of selecting jobs that are based on performance pay (525). This means that performance pay is directly related to job satisfaction for people who have a higher risk tolerance level.
Hence, although performance-based pay is related to a higher risk of earning, it does not mean that people who receive performance-based pay are essentially less or not satisfied with their jobs. Risk tolerance is a personality perspective that varies across different people. Rather, personality perspectives are important in determining the impact of risks associated with performance-based pay on individual levels of job satisfaction.
Organisations seeking to gain competitive advantage look for mechanisms of increasing their performance. One of such mechanisms is the optimal utilisation of their available human resources through the establishment of various payment and rewarding systems to enhance satisfaction of employees with their jobs. Such an approach has been traditionally considered important in the organisational and human resource management theory.
Better-rewarded employees have been thought of as being better motivated and more satisfied with their work. They are more productive. While this fundamental approach to increasing performance remains relevant today, the paper revealed that governmental and private sector organisations are shifting towards performance-based pay schemes to enhance satisfaction of employees with their jobs.
While performance-based payment schemes have direct positive impacts on job satisfaction, the paper maintained that there are also situations in which the converse is also true. Hence, even though performance-based reimbursement plans are crucial in terms of forming feasible guiding principles for organisations, further research is important to help evaluate how the execution of the choice can be done in a more pragmatic way.
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