Recently, companies across the world have been adopting so-called variable pay models, which involve workers’ compensations changing based on some set of parameters. These rewards are often tied to the employee’s performance or competency, as well as the overall success of the team. They are intended to motivate employees to perform better for the sake of receiving better pay. This essay will explore the advantages of variable pay, the components of such a plan’s success, and the potential pitfalls in their design.
One notable advantage of variable pay is that it motivates employees to improve themselves and perform well if they want to earn more. Competency-based pay rewards skills and learning, and team pay can motivate people to work better together. With that said, Bevan et al. claim that despite high adoption rates of variable pay, only 17% of companies that use them consider it a success. As such, managers should understand the factors that enable them to succeed by reviewing those companies and scholarly findings.
It is challenging to develop criteria for variable pay that will motivate employees to work while not increasing the company’s compensation costs significantly. As such, the involvement of middle management is a critical factor for success in such programs due to their hierarchical position. They can use their insight into low-level operations and high-level decision-making to provide suggestions throughout the design process. Even after the implementation, there are potential problems in variable pay that should be avoided.
A variable pay system can be challenging to administer compared to traditional fixed-amount approaches, driving up costs for the human resources department. Additionally, if the reward is not good enough to motivate employees to work toward the goal, the system will fail. Bolland and Fletcher note that this issue is particularly prevalent for service workers, whose performance can be challenging to quantify. Overall, variable pay systems require continuous maintenance, preferably without an excessive cost.
Variable incentive plans can be successful at improving employee performance if implemented appropriately. By setting targets for workers and rewarding their achievements, companies can motivate them to work hard and improve themselves. However, these practices can also be costly to implement and maintain, as well as ineffective. They involve more work than fixed-cost systems do while not necessarily motivating employees to work. Human resources managers should consider their ability to succeed in the implementation of such a system carefully before committing to it.
Works Cited
Bevan, Stephen, et al. 21st Century Workforces and Workplaces: The Challenges and Opportunities for Future Work Practices and Labour Markets. Bloomsbury, 2018. Google Books E-book. Web.
Mirza, Sal, and Corinne Farneti. “Human Resource Management.” Solutions: Business Problem Solving, edited by Eric Bolland and Frank Fletcher. Routledge, 2016. Google Books E-book. Web.