Human resource managers are abandoning the pay-for-performance approach in the workplace as they have realized that it does not translate to an increase in production as it lowers the motivation levels of many employees. It has failed to bring the expected results owing to its largely impractical nature. The decision to change it for more effective ways of management is timely as pay-for-performance has proved that the cost of implementing it far outweighs the benefits. Training and other means of motivation which are less costly are more desirable rather than one that does not translate to an increase in profitability (Delery et al, 2000).

While making the decision to implement the scheme, managers failed to do a thorough survey on its practicality especially by first predicting its reception by the workforce. Many people tend to overestimate the need for financial benefits across the various sections within the workforce. There are several ways in which way a reward system can be implemented to adequately compensate the workers for their effort, of which financial gain is just but a part of it. The experiment that was carried out at Hewlett-Packard during the 1990s and which led to the conclusion that the pay-for-performance had many shortcomings in the sense that it was not cost effective clearly shows that more research has to be done to ascertain the contribution of financial rewards as a motivational factor.

Many professionals in human resources seem to belief that it is more likely for employees to give an exaggerated report on the employee survey about pay-for-performance. This is not the case as employees do not favor performance-based system. Evidence shows that employees are more comfortable with a predetermined pay rather than one that is based on performance based one due to the unpredictability in sales, especially in the marketing department.

Pay is rated as one of the greatest motivators even though managers do not give it the importance it deserves. The secret behind most successful companies lies in a healthy pay for the workers as they feel adequately compensated for their effort.  However different individuals attach different meanings to the pay they get from a particular job. Some view financial gains as the most effective way of motivating employees while in the real sense job satisfaction which is brought about by a combination of many other things matter just as much. The appraisal system should be very sensitive to the needs of the workers to inspire them in to improving their performance by giving them a sense of pride and self worth within the organization.  This implies that the pay-for-performance scheme adopted by many companies should be evaluated to determine its effectiveness. (Delery et al, 2000).

Managers should consider coming up with alternative strategies of rewarding employees. It is essential to draw a difference between hierarchy and compensation as a motivation factor. The system that bases compensation on the more traditional method of promoting employees as opposed to pay-for performance must also do a reality check as the two may bring different results depending on how employees rate the style they adopt.

Recent surveys have found that workers usually tend to underestimate the issue of pay as many of them attach little importance to it as a factor for motivation. Pay matters more in shaping the lifestyle of many individuals than it does in motivating them.  Pay increase leads to a change in employee behavior and as such leads to an increase in production.  Research has reveled that employees are more likely to understate the importance of money as a potential motivator (Delery et al, 2000).

Although high performers are comfortable with performance or skill-based pay arrangement, many view it as unfair especially those who can not match the expected levels of production or service delivery. This is a pointer to the fact that many employees will celebrate the decision by managers to abandon this program because it puts them under pressure to meet unrealistic targets set by the management as they base their pay on productivity. Many human resources managers are not comfortable with the idea of rating employees in different categories. These differences are responsible for low levels of morale among employees and as a result lead to falling standards of service delivery as well as production. The system leads to loss of commitment to the pay system because managers may be forced to pay more than they are supposed to and this may lead to losses or a fall in production. Organizations should adopt a compensation system that captures the expectations of the workers.

Internal promotions are very effective in motivating workers into improving performance. Categorization of workers demoralizes workers who do not register high levels of production. It is much worse and indeed unfair when it is based on financial performance as all workers contribute to the company’s profits and shared profit is the most ideal approach.


The performance system of compensation lowers the motivation levels of many employees and leads to more losses than benefit and as such organizations should find other models like improving on service delivery, training and coaching as well as effective leadership that is capable of improving productivity in the organization’s workforce. Performance based pay benefits departments that register more production but are crucial departments whose services can not be quantified are sidelined in this kind. They are the greatest source of dissatisfaction among employees leading to many of them quitting jobs hence loss of human capital.  Human resources managers should invest more on research into the most suitable ways to compensate the workers for their effort to improve on production as pay is a motivator in any workplace. Gain sharing is more effecting in creating a sense of equality among the workers and motivating them as all workers attach equal importance to the pay they get for their work and if they fell adequately compensated, they perform better.















Delery, J et al, (2000). Unionization, compensation and voice effects on quits and retention. Industrial Relations. 39, 653 –646