Pay-for-performance

Group 7
Allie Zhang Wanqi
Katie Jiang Kaiqi
Valen Liu Shiyuan
 Table of Contents

01 Three myths

02 Factors that determine pay

03 Recommended improvements
 Survey
15%
Others
65%
less important
Individual
Performance

20% important
Individual
Performance

somewhat Determinant of compensation perceived by

important 1000+ full-time workers in the United States
 Performance Measurement and Pay

● Performance measurement drives pay decisions.

● Types of performance-based pay:

○ bonuses, commissions, stock options, profit-sharing

● Benefits of performance-based pay:

Employees Employers
○ motivation and incentive ○ establishing a culture of meritocracy
○ innovation and creativity ○ higher productivity
○ clear goal setting ○ cost-effective and budget control
○ regular feedback ○ talent attraction and retention
○ improved customer satisfaction
 Three Myths

1. You can fully separate your performance from the

contributions of others.

Misconception & Examples Consequences & Challenges

● Cannot fully isolated individual pay from efforts of ● Defining and measuring individual
other employees contributions in group-centered occupations
● journalist Derek Thompson: the whiter the collar, the ● Identifying a single quantifiable metric for
more invisible the product individual performance
● the ultimate product is not easily attributable to any
one individual
○ involvement of complex, collaborative efforts
 Three Myths

2. Your job has an objective, agreed-upon definition of

performance.

Misconception & Examples Consequences & Challenges

● Perception of metrics being straightforward ● Disagreement on constitutions of core missions

● Texas A&M: ○ subjective evaluations
○ focused on class size and grant money
● Overlooking important aspects
○ neglected research quality and student support
○ societal and ethical values
● Difficult to quantify all aspects in job performance
● Oversimplified metrics for complex roles
● Wellsfargo:
○ incentivized unethical behavior
○ damaged organizational reputation
 Three Myths

3. Paying for individual performance leads to positive

organizational outcomes.

Misconception & Examples Consequences & Challenges

● decrease in overall productivity

● Pay allocation solely based on performance could
○ competitiveness and infighting can
prompt internal competition undermine teamwork
● Mayer Brown:
● negative effects on organizational culture
○ encouraged individual competition
○ employees prioritizing personal gain
○ disrupted collaborative work environment
over organizational success
Current Pay Structure Mature Markets
● Primarily variable executive remuneration
● A significant portion tied to positive performance
● Emphasis on short-term and long-term incentives
● Prevalence of equity-based remuneration

Developing Countries
● Greater reliance on fixed remuneration
● Use of base salary and executive benefits
● Growing use of cash and equity incentives

Singapore’s Pay Model

● Base pay typically constitutes 60-70% of executive pay
● Larger companies may have base pay at 50% or less
Factors determining pay

Position-based Company-based

● Job Role
● Market Conditions
○ complexity of job scope and responsibilities
○ Economic conditions, industry trends, and
● Experience
market forces
○ period of tenure in professional terms
● Location
● Expertises
○ cost of living and regional economic conditions
○ skills in demand and specialized
● Benefits
certifications
○ insurance, retirement contributions and other
● Qualifications
perks
○ level and field of educational background
You’re Not Paid Based on Your
Performance
Power
● Influence on Pay Structure
● have a say in how pay structures are
designed
● advocate for certain pay practices that
benefit themselves or certain groups within
the organization
● Negotiation Power
● leverage their authority or connections to
secure better compensation packages
Inertia
A tendency to do nothing or to remain unchanged
● Historical Pay Practices
∙ stick with existing pay structures and
practices
∙ continue to do so without re-evaluating
whether it is fair or competitive.
● Resistance to Change
∙ manifest as resistance to changing pay
structures, even when external market
conditions or internal equity considerations
suggest a need for change.
You’re Not Paid Based on Your
Performance

Mimicry Equity

● Pay Fairness
● Benchmarking and Industry Norms ● ensure that compensation is fair and just
● competitors or industry peers – stay ● influenced by factors such as gender, race,
competitive or other demographics

● Peer Pressure ● Perceived Fairness

● mimic the pay practices of other ● perceive pay practices as unfair -- low morale
companies to avoid losing talent and turnover-- organizations to address
equity issues
Equity

● “This year, our analysis found that 3.5% of our

Salesforce is known for its commitment
global employees required adjustments. Of
to pay equity.
those, 81% were based on gender, and 19%
● They have conducted comprehensive pay
were based on race or ethnicity. As a result, we
equity reviews and made adjustments
spent $3.8 million to address any
to ensure that employees are paid fairly,
unexplained differences in pay, a total of
regardless of gender or race. more than $16 million to date.”
Equity

Payscale is a company that specializes in compensation data and software. They help
organizations ensure pay equity and market competitiveness and their services are used by
many companies to address pay equity.
These factors can interact and overlap in complex ways.
power dynamics within an organization -- how mimicry of industry norms and equity considerations are addressed

Agreed but have drawbacks

Zhang Wanyan Mo Yucheng

“Mimicry is based on free-market economy, which

“Once a certain pay scale or structure is established, it
believes that wages should be determined by the
often continues unchanged for a long period. This inertia
balance of supply and demand…However, the
can legitimize a particular salary or wage for a job over
problems it brings include inequality, wages that do
time, limiting room for negotiation.”
not cover the cost of living, and lack of stability.”
However, equity is HARD to change coz it is due to the fair economy

A Fair Economy

Change 1 Change 2 Change 3

Raise the pay floor Expand the middle Lower the ceiling

● Minimum wage ● Resuscitating ● Reining in excessive

high enough to labor unions compensation
live on ● Revision of ● Raise top-end tax
labor laws rates
Improvements on Pay-for-performance
Strategy

1. Performance Metrics

2. Pay Form and Strategy - Group Incentive Plan

 Performance Metrics

Wanyan Zhang Zhaolan Wang Jiaying Yin

Involving employees in the Pay-for-performance plans Lack of transparency and

compensation decision-
making process, which can
enhance the fairness of
decisions.
should be flexible and
adaptable. They need to
evolve as the business
environment changes and the
organization's priorities shift.
inconsistency in evaluation
mechanisms are also
serious issues that remain.
1. Use the business strategy as the basis
for selecting performance metrics
A tailored performance
metrics for each job (family)
2. Include internal planning, external trends
and economic data to set adaptable and agile
performance targets.
3. Include stakeholders and employees in the process 4. Test the effectiveness of the performance metrics

- Ensure fairness and inclusiveness - Validity: Does the metrics accurately reflect
job performance? Does the award based on
- Increase employee engagement the metrics actually drive business
performance?

- Reliability: Is the result consistent over time

and across raters/observers?
 Group Incentive Plan
Advantage When should companies use group plan?
● Increase in overall production and positive impact
of about 5 to 10 percent per year. ● Performance Measurement: output is a
collaborative effort and individual
● Builds comradery and positive organizational
contributions cannot be assessed.
culture, in which each individual gains vested
interest in helping one another for the good of the ● Organizational Adaptability: performance
whole. standards, production methods, and
labor mix must adapt to meet changing
● Improves engagement with more employees
environments.
participating in the decision making process.
● Organizational Commitment: High
● Evolving toward a learning organization. By using
commitment to organizational as a
group-based plan, employees are encourage to
whole built upon sound communication
make suggestions that break existing pattern and
of organizational objectives.
explore different ways of thinking and behaving.
Questions to Ask

1. Strength of Reinforcement: Considering the balance between rewarded and non-

rewarded tasks, what role should base pay assume relative to incentive pay?

2. Productivity Standards: What performance metrics and standard will be used to

assess group performance?

3. Gains Split Among Groups: Should the plan address a difference in gains split
between managers and workers, and on what ratio?

4. Care in exercise: How to motivate and recognize individual efforts within groups?

5. …
 References

About Us. (n.d.). Payscale - Salary Comparison, Salary Survey, Search Wages. https://www.payscale.com/about/

Breton, K. (2023, July 12). What is Performance Based Pay? Pros and Cons Explained. Omni HR.

https://omnihr.co/blog/pay-for-performance/

March 29, President, 2021 B. H., & Officer, C. P. (2021, March 29). 2021 Equal Pay Update: Deepening our Commitment to Pay

Fairness. Salesforce.

https://www.salesforce.com/news/stories/2021-equal-pay-update-deepening-our-commitment-to-pay-fairness/#:~:text=This

%20year%2C%20our%20analysis%20found%20that%203.5%25%20of

Gerhart, B. Compensation (14th ed.). Burr Ridge, IL: McGraw Hill-Irwin, 2023.

Rosenfeld, J. (2021, February 23). You’re not paid based on your performance. Harvard Business Review.

https://hbr.org/2021/02/youre-not-paid-based-on-your-performance
Thanks
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