Last Updated 08 May 2020

Pay performance link

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First, narrow differences in wages and status assist develop an atmosphere of trust and confidence between workers and management, supporting the atmosphere of participation. Large differences in status can restrain participation. As employee involvement increases, management relies more on the good will and cooperation of employees. Employees often feel large wage differentials are unfair, and employees who consider disadvantaged are less encouraging of the goals of the highly rewarded group.

Second, bonuses based on group productivity give workers incentives to work for group goals and give incentives for workers to monitor and discipline free riders. Narrow wage dispersal promotes cooperation, while large wage differences and competition for promotions can diminish cooperation, as workers endeavor to win the bonus or promotion "tournament. " The way we allocate money tells employees what we value in our organizations. The phrase “follow the money” means that if we know how management distributes money we distinguish what management really wants.

It is appealing to note how closely the case study observations fit together with the general conclusions from recurring game theory. The typical gain-sharing plan emphasizes employee involvement as well as the group reward structure. Worker participation is usually seen as an essential component in successful Scanlon plans. Practitioners lean to indicate that otherwise well-designed gain-sharing-like plans can fail if trust and cooperation are not engendered during the implementation phase (Rosabeth Moss Kanter, 1987).

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FitzRoy and Kraft, in their West German case study, argue that the traditional division of labor inhibits the worker interaction and collective response that are essential to produce a positive profit sharing effect on productivity (FitzRoy, FR and Kraft, K. 1985). Case studies usually conclude that profit sharing can assist to improve productivity--in an environment with the proper corporate culture. A current piece of conformist wisdom is that group incentives like profit sharing are productive, whereas individual incentives like piecework are counterproductive.

Constant with this, there has recently been a distinct growth of group incentive systems. Many observers report that in the fast changing work world a great need exists for a highly flexible, cooperative labor force, flexible to new contingencies and not hampered by rigid work rules. Several assert as an empirical generalization that particularly in the fast-growing service and information sectors--the main probable sources of improved productivity now come from interactive team and communal efforts at the workplace, which are hard to segregate and encourage with individual incentives.

According to this scenario, then, profit sharing, by promoting group values completely related to group productivity, may be becoming a significant part of the new work scene. However, the mechanisms translating incentives into increased productivity are inadequately understood. The literature emphasizes such factors as increased worker association, more labor-management cooperation, heightened monitoring of fellow workers, more information sharing, working smarter, greater awareness of and interest in the company's productivity, and improved corporate culture.

Most observers agree that performance-related pay plans are more probable to lead to improved productivity than pay plans that are not tied to appropriate performance measures. But it is as well a common observation that background organization conditions can significantly persuade the pay performance link.

References: • Petersen K. S. ( 1988, December 30). Sisterhood vs. 'betrayal' at the office. USA Today, pp. 1A, 2A.

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