Should Companies Pay Performance Based Salaries?

Name: H. Arda Sutaşır FINAL REPORT Research Question: SHOULD COMPANIES PAY PERFORMANCE BASED SALARIES?                                                         Performance Based Pay System       Due to the increasing population and needs in recent years, many companies and institutions have been established in the world. One of the biggest problems of these companies and institutions is that their employees have received too much or too little money. Some companies needed a new payment system because the CEOs and managers earning were too much money than they deserved. This new and controversial system is called a 'performance based pay system'. There are two sides to the performance based pay system, the first of which argues that it is useful and necessary, and the other argues that this system does not work and that employees can manipulate performance based pay system. According to this statement, directors can show the performance better than the real one for getting extra money. (Nicklaus 8) There are four main reasons why the performance based pay system does not replace the current system. Employees and managers may want to change their existing financial reports to benefit from this system and earn extra money, people who score employees may be prejudiced, be found in behaviors that would block work on employees who receive negative feedback, individual managers don’t stick with the program and performance based incentives are only good and effective for routine tasks. ( Rosin 1) On the contrary, the performance-based payment system is more effective than the existing system for most academics and authorities. Managers can improve communication between employees (Es 6). Although Thanks to feedback from the system, employees and managers can correct their mistakes. (Kumbul 3) The biggest perceived benefits of the performance-based payment system to date are increased efficiency and cost effectiveness. (Mogultay 8) It is very difficult to evaluate a very creative person. People can be affected by some emotions while making this assessment. For example, prejudices are a good example of this. (Senol 90) Some of the managers or employees who are not convinced of the results or who received negative feedback due to this assassment may do something negative to influence the workflow. (Woods 193) In addition, according to the research, there is a near time effect the performance of the last days of the period is more suggestive than the whole period to the assesment makers. It is difficult to remember everything about employees and near time performance affects assassment. (Senol 91) Salaries earned by about 60% to 80% of senior executives depend on their performance. However, according to research on incentive and performance based payment systems, it seems that senior managers have not made much contribution to paying the receivables. This is because the performance-based payment system is not suitable for the nature of the work that senior managers jobs. (Rosin 2) This research concerns five arguments. Performance incentives are only effective for routine tasks. But these jobs are not the jobs of senior managers. Senior managers do not do routine work. They are innovative, creative, open to change and people who are adapting to solutions to non-routine problems. Fixing on performance can fall it. Instead, framing around learning leads to improved performance - such as acquiring new skills, learning how to handle a new situation. Internal motivation is stronger than foreign incentives. Performance based pay systems’ goal is to increase people's external motivation. But intrinsic motivation is important for creativity and innovation, to want to do things to fulfill one's own sense of accomplishment and fulfillment. The conditional pay often leads to deception. People can make cheat to achieve the goal for to get bonus payment. No measuring method is perfect, it is impossible to evaulate everything about person and his or her job. (Cable et al. 4) The performance based wage system makes striking shareholder-friendly voices at first glance. A new research report published by the University of Washington found some problems with the performance based payment system. After analyzing salary data from 750 major companies, researchers find out that a very large percentage of companies hit their targets exactly or achieved them with a penny per share. A small part of these companies could not reach their targets. Researchers link manipulation to these results. As the analyzes deepened, researchers noticed that some managers and managers made short term adjustments to their accounting records in order to achieve their awards. Theoretically, the performance based pay system must work, but in reality, people can make adjustments to get bonuses and cause long term negative effects on companies and employees. (Nicklaus 8) There seems to be no obstacle in theory. Give all employees and executives short term additional bonuses for their work, both the employees gain and the bosses. In practice, though, it’s a different story. Only 50% of annual incentives, for example bonuses given to employees, make any difference in how good employees or managers do their job. Just %20 of executives thinks that these bonuses given to employees from performance based pay system thinks merit pay increases higher levels of individual performance in which corporation they work for. According to research of Laura Sejen, global chief of rewards at Willis Towers Watson, companies are spending millions of dollars a month for this unsuccesfull programs and projects. On the other hand, according to research, in 2015 companies planned bonus pool to reward it’s employees and managers but it was lower %87 of their target. It means, even the best performanced employees didn’t get what they deserved according to the plans. (Fisher 4) In contrast to the counter argument, according to resarch, thanks to performance based pay system, student participation, competitive power, loyalty and quality of teachers, and the academic and participation goals of the county has increased while teachers getting their bonus payments. This research showed us teachers have earned 9 percent of their total annualy salary added to their salaries. There were three success criteria for them. These are; GPA, attendance and on field success for athletes. For athletes, attendance was very important, for example their requirements are for the high school boys and girls basketball enrollment requirement is 30, swimming is 40, wrestling is 20 and cheerleading is 20. The junior high enrollment total for boys and girls basketball is 14, wrestling is 20 and cheerleading is 10. According to research, teachers achieved their attendance goal and they recieved %4 bonus for their success. (Burleson 3) When the benefits of the performance-based payment system are broken down into two, antitrust managers and employees are emerging. The managers are evaluating the employees. Managers can see the lack of communication between employees as soon as possible and they can act to make up for this incompleteness. They can easily observe existing and potential problems, and they can properly train workers for these problems. In addition to this, employees can get their deficiencies thanks to the feedback they receive from the managers, better understand their role at the workplace, and get more efficiency from their work in line with these results and increase their self confidence. (Es 7) The performance-based payment system is also an opportunity for employees to make corrections to their employees through feedback and feedback mechanisms. According to the researches conducted, the positive determination of the price as a motivating tool indicates that the employees are the most recognized (39%) or have reached a certain status. After all, wages cause a negative job satisfaction due to the fact that wage justice (40%) can not be provided for employees within or outside the organization. Dissatisfaction with the amount of wages after the employee's feedback as we know it without investigating can cause psychological and physical disorders. And after that, it can cause some serious depression. In fact, they are all about the feedback mechanism. Performance-based systems work well when there are no prejudices, personal reasons or prejudice. There are more benefits than damages. Managers or managers have great responsibilities when evaluating employees. (Kumbul 3) In recent years, changes in management methods have increased interest in performance-based payment system forms. This payment system helps to redefine jobs and include employees in the production process. On the other hand, with the performance-based wage system, the worker's cooperation in this process is guaranteed and guaranteed. (Demir 9) When working on an employee, he can work at various levels and develop knitting special skills over time. These two characteristics of the workforce require organizations to develop management tools to reduce workers' risk of loss and protect investment in business-specific skills. (Rubery 341) In spite of there are people who thinks that performance based pay system can’t evaluate as a whole and assesment makers can have prejudes about employees (Senol 91); transition to performance based payment system benefits both employees and managers. Whem companies apply performance based pay system, if there is a good inner control, no one can make cheats to achieve their goals and they can’t get their bonuses. On the other hand, when people have their what they deserved, they will try to work harder to earn more and when they earn more, their motivation and self confidence will increase. It is a win-win situation. All of these researchs and academical articles shows us performance based pay system is good when it applies right. Employees and managers will work hard to earn and they will get what they deserved. While doing that, quality of work will increase, people will be motivated on their workplace. BIBLIOGRAPHY 1. Demir, Serdar '' Performance Based Pay Systems '' Ankara: University of Ankara Publishing, 2007. 2. Nicklaus, David. '' Professors Explore Dark Side of Performance-based Pay '' Missouri: St. Louis Post-Dispatch, 2016. 3. Senol, Sultan. '' Implementation of Performance Based Compensation System in Public Administration '' Ankara: BTK, 2012. 4. Es, Muharrem. '' Impact of Performance Based Pay System on Employee's Motivation '' Yalova: University of Yalova, 2014. 5. Kumbul, Burcu. '' Performance Based Pay Systems As A Provider of Justice at Cost '' Izmir: Dokuz Eylul University Publishing, 2001. 6. Fisher, Anne. ‘’ Why Performance Bonuses and Merit Raises Don’t Work’’ New York: Fortune, 2016. 7. Cable, Dan and Vermeulan, Freek. ‘’ Stop Paying Executives for Performance ‘’ Boston: Harvard Business Review, 2016. 8. Rosin, Tamara. ‘’ Performance-based pay isn't suited for executives ‘’ Chicago: Beckers Hospital Review, 2016. 9. Burleson, Anne. ‘’ Ogden School District Approves Performance-based Bonus Pay ’’ Utah: Standard Examiner, 2017. 10. Mogultay, Ulas. ‘’ Making Performance Pay More Successful in Public Sector ‘’ Istanbul: Journal of International Economic Issues, 2016.