Pay System Plays a Crucial Role When

PAY SYSTEM plays a crucial role when managers are looking for ways to retain and motivate employees. Higher employee turnover rate can have a demoralizing impact on company's performance and is usually connected with an unfair pay system whereby some employees' feel that their hard work is not being rewarded adequately and thus choose to leave the firm for better opportunities.

Management literature and some actual examples reveal that the best pay system is the one that is based on employee performance. When pay system is tied to performance, we call it 'paying for performance'. This system ensures that effort, dedication and commitment of each and every employee is properly rewarded and that hard work doesn't go unnoticed. For this reason, it is important to develop a proper system of performance measurement, which helps in designing a better and performance-based pay system.

Measurement of performance and paying for the same in terms of incentives, bonuses, annual increments, a word of appreciation and a pat on the back is basically about recognizing the efforts of the employees and encouraging them to perform according to their capacity thereby accomplishing organization's goals. This concept of performance appraisal, the measurement and payment of continuous diligent effort in terms of monetary gains has gained rapid momentum lately. With the world transmuting into a global village, the leaders as well as the managers of the corporate village today face greater challenges in terms of retaining trained workforce and hard working employees. Keeping the spirits high and raising morale of the company's employees is another challenge faced by the supervisors. Therefore, the concept of paying for performance and frequently utilizing the performance appraisal methods to gauge the ability and worth of an employee is expected to sour high. Moreover, with the augmentation in social awareness and human rights among the employees regarding their social and work status as well as their growing needs to fight back inflation, employers are left with little option than to make efforts to adequately apply the measurement and pay for performance concepts. The changing trends in working conditions show that it is not only those employees that are working 9 to 5 who are concerned about performance appraisal and want expedient pay scale that complements their performance as well as quality of work and the valuable hours put in. But it is also the teachers now and other employees working part time that demand the application of the pay for performance. The prime example includes teacher's boycotts all over the world against their inadequate pay scale.

Recent developments in the field of management and performance-based evaluation systems provide conclusive evidence of the fact that the understanding of the urgent need to motivate and reward employees based on their performance is augmenting over time.

That is why "analysts are predicting that performance-based deals will become increasingly prevalent, with some estimates showing pay-for-performance rising to 30% of all online ad revenues by 2006" (Riolo, 2002)