increase in revenues, stock value, cash flows and profits whereas soft dollars include turnoverrate, employee motivation and productivity. Therefore, if a P4P plan increases productivity,employee motivation and profits then it is effective. Moreover, a successful pay programshould have clear, promote equity and transparency and measure key results andcompetencies. Another way to see if the pay-for-performance plan is effective is to look at itssimplicity and also see if it allows team members to be involved in establishing the metrics.Even though the performance-related pay is a means of determining employee pay raises andpromotions it also offers some challenges to employees. Given the difficulty in measuringemployee’s performance, PRP causes feelings of inequity at the place of work. Anotherdisadvantage of a pay-for-performance plan is that it can hinder employees from moving upquicker in leadership positions or getting regular pay rises. P4P also offers disadvantagesfrom an employer’s viewpoint in the sense that organizations invest a lot of energy and timein coming up with an effective, it hinders team-spirit and cooperation, reduces staffmotivation and causes deterioration in the quality of the goods or services offered byemployees. It is therefore important for managers to follow strictly the rules given by theperformance-related plan to benefit from it.
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PAY-FOR-PERFORMANCE PLANS10ReferencesGillam, S. J., Siriwardena, A. N., & Steel, N. (2012). Pay-for-performance in the UnitedKingdom: impact of the quality and outcomes framework—a systematic review.TheAnnals of Family Medicine,10(5), 461-468.Hays, S. (1999). Pros & Cons of Pay for Performance. Workforce (10928332),78(2), 68.Lavy, V. (2007). Using performance-based pay to improve the quality of teachers.The futureof children, 87-109.McDonald, R., & Roland, M. (2009). Pay for performance in primary care in England andCalifornia: comparison of unintended consequences.The Annals of FamilyMedicine,7(2), 121-127.Solmon, L. C., & Podgursky, M. (2000). The Pros and Cons of Performance-BasedCompensation.Weibel, A., Rost, K., & Osterloh, M. (2010). Pay for Performance in the Public Sector—Benefits and (Hidden) Costs. Journal of Public Administration Research & Theory,20(2), 387-412. doi:10.1093/jopart/mup009
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