What Are the Advantages and Disadvantages of a Pay-for-Performance Policy?

One advantage of a pay-for-performance policy is that it encourages employees to increase production, while a downfall is that it can lead to a decrease in quality, according to the Local Government Association. The basic premise for a pay-for-performance policy is that with greater financial reward, employees want to work harder. If introduced in the right way, a policy like this can foster an organizational culture where success is encouraged.

According to The Guardian, pay-for-performance policies are a great way to pick up production if output has decreased recently. It may be a sign that workers are either lacking motivation or are simply bored with their jobs. Offering pay for meeting performance targets can be a great way to reinvigorate workers because it gives them a tangible goal to work toward.

On the other hand, pay-for-performance policies can be detrimental to an organization if not implemented properly. For example, if the policy is introduced on a group basis, some employees might have to pick up the slack of those workers who contribute very little. Also, parts of the job that cannot be measured suffer because there is no incentive to work hard in those areas. Pay-for-performance policies can also increase jealousy within a working environment if it is felt that employees are not being compensated fairly for their efforts.