The implementation of pay-for-performance system in many companies has been discontinued due to its impractical nature. 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 however not the case as employees do not favor this 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.  Different individuals attach different meanings to the pay they get from a particular job. This therefore implies that the pay-for-performance scheme adopted by many goods and services companies should be evaluated to determine its effectiveness. (Delery et al, 2000).

Managers have of late tended to abandon pay-for-performance they initiated a while ago due to its negative reception by their respective employees, for example in Hewlett and Packard. Employees are of the opinion that this kind of a system is too elitist and favors only a few employees with the rest having to do with payment that can barely sustain them. 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.

However much beneficial it may be, pay-for-wonk is slowly losing meaning to managers as they have realized that it does not translate to an increase in performance. Pay –for – performance tends to lower motivation in employees rather than improving it. This is mainly due to the fact that the employees who get less pay lack the resolve to improve on their performance due to low pay. The sales department is the most affected by pay – for – performance because this is where performance matters most.  A study into this scheme has established that sales tend to decrease rather than increase considering the fact that many of the employees who get low pay as a result of poor sales do not feel adequately motivated and compensated and as such they end up lowering their efforts.

Companies that operate on the pay – for – performance are more likely to record poor sales compared to the ones that base their pay on determined criteria. Managers have realized that this scheme is responsible for a fall in production as well as poor quality goods. It is a fact that the quality of goods or services rendered is compromised as workers struggle to outdo each other. Many of the organizations that operate on a pay – for – performance basis are more likely to register more claims and complaints from their customers due to poor services rendered by employees as they compete to do more work that they are capable of doing and as such the standards of their product or services fall drastically. Many managers have adopted a system whereby employees get incentives such as bonuses and promotion instead of the pay – for – performance system in order to ensure that no worker feels disadvantaged than the others.

Although high performers are comfortable with the pay – for – performance 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 the amount of goods produced or service delivered. This system has been associated with several difficulties problems with very many difficulties linking performance to effort. 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 for the company pay – for – performance pay – for – performance.


Many human resources managers have tended to replace the pay – for – performance system with other models like an improvement in service delivery and effective leadership that is capable of delivering change to the company’s performance.

Managers have also adopted the system of giving bonuses instead of pay-for-performance because it does not strain the company’s budget. An assessment of costs and benefits has led to discontinuation of the pay-for-performance system as it has been found no to be cost effective.




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