Are Pay-for-Performance Systems Missing the Mark?

Overcoming Design, Implementation, and Operational Challenges

David Bukovinsky, PhD, CPA (inactive)

Pay-for-performance (PFP) systems, once the purview of senior executives, are becoming more common for workers at all levels of organizations. These systems provide a win-win situation for organizations and employees. Organizations want to elicit the greatest productivity from workers, and PFP systems reward employees for excellent results. They focus employee attention on the goals and targets established by management; the attainment of these goals translates into organizational success and greater remuneration. Organizations that tie compensation to performance produce better financial results than those that do not, research has shown. In general, the positive effect increases as more employees are included and as the proportion of their salaries determined by performance increases. Oftentimes, however, programs do not live up to expectations, and results can be disappointing or even detrimental.