DEPARTMENT OF MBA

SUBJECT with CODE: COMPENSATION & REWARD SYSTEM-18MBAHR303

Topic: Performance Based Compensation System

By: Prof. Gangadhar Hugar

Rewarding desired behaviour:-
Rewarding desired behaviour is positive reinforcement. It is the process
of strengthening a behaviour by contingently presenting something
pleasure.
 Ways of Rewarding desired behaviour:-
• Extrinsic & Intrinsic reinforcement
• Social reinforcement (verbal non-verbal)
• Tangible reinforcement (food, medal, certificate)
• Physical activity reinforcement (physical education, sports & recreational activities)
Benefits of Rewarding desired behaviour:-
• Provides motivation
• Promotes learning
• Increases productivity
• Promotes innovation
• Links performance and rewards
• Enhances self-confidence
• Develops cooperation
• Boosts commitment
• Improves self-esteem
Guidelines for Rewarding desired
behaviour:-
• Be specific
• Give the employees concrete, specific information
• Action should be immediately
• Be sincere
• Show genuine appreciation
• Should be realistic
• Personalise the reinforcement
• Should be proportionate to the importance of the behaviour
Does compensation motivate performance?
• Managements generally make use of financial incentives like wage,
salary, bonus, retirement benefits, health benefits, medical
reimbursement, etc., to motivate the employees. However such
incentives may not always prove to be motivating employees. In many
case we have seen management use to increase the financial
incentives to keep the employees with the organisation.
• Compensation motivates in following two ways:-
1. Affiliation motivation
2. Performance motivation
Employee Contribution:-
Pay for Performance(PFP):-
• Also called merit pay (MP) or performance related pay (PRP) is a
method of compensation that links pay progression to an assessment
of individual performance, usually measured against pre-agreed
objectives.
• It offers individuals financial rewards in the form of an increase in
basic pay or cash bonuses, which are linked to an assessment of their
performance.
Objectives of Pay for Performance(PFP):-

• Encouraging high performance levels by linking performance to pay

• Embedding an entrepreneurial or high performance culture across an
organisation
• Notion of equity or fairness
Conditions for successful Pay for Performance(PFP):-

• Linked to performance management

• Tailored to organisational needs
• Balancing criteria
• Flexibility
• Teamwork
• Short-termism should be avoided
• Involvement in the design process
 Designing PFP plans:-
Step 1. Condition the objectives
Step 2. Conduct the quest
Step 3. Construct the foundation
a) Incentives
b) Profit sharing
c) Gain discussion
d) Goal discussion
Step 4. Test out the model
Step 5. Communicate and Implement
Limitations of PFP:-
• Motivation can not be guaranteed
• Dependency on performance management
• Proper training is required
• Disputes about performance measurement
Thank you