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The Pros and Cons of Performance-Based Remuneration

By HR Tech Outlook | Friday, September 18, 2020

When employees become aware that their performance will influence their paycheque, they are likely to take more initiatives. Hence, there would be an increase in productivity as well as profits.

FREMONT, CA: Performance-based remuneration has been perceived as both beneficial and disadvantageous. Some people are pleased with its capability of aligning employees with strategic objectives and key focus areas of the business. On the other side, others think that it serves more to condemn their performance and affect their pay.

Let us look at the pros and cons of performance-based remuneration:

The Advantages:

Top 10 Employee Recognition Consulting/Service Companies - 2019• The organization and its supervisors can use a defined framework in order to set goals, which contribute to increasing productivity and performance.

• When employees become aware that their performance will influence their paycheque, they are likely to take more initiatives. Hence, there would be an increase in productivity as well as profits.

• This would create a sense of control in employees as they can increase their productivity as a way to earn more money.

• It can serve as a benefit for the organization since there is a healthy performance-based culture established with an in-depth understanding of the business’s functionality.

The Disadvantages:

• An unrealistic performance measure can make employees feel demotivated, which, in turn, can result in a decrease in productivity and performance.

• The shift in focus can affect the performance appraisal process since the financial rewards become a priority rather than developmental growth.

• The amount of time invested in developing competencies, setting performance measures, placing key focus areas, and actual rating is the time that could be spent on some other important work.

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