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The compensation planning involves mitigating the risks which might surface . A fear of backlash from the 'performance-based' compensation have always topped the chart . The forced ranking and bell-curve have shown over the years , how it dissatisfies the employees .

Contrary to this conventional wisdom here’s a research paper, which proves why and how performance based compensation works better !Ian Larkin (Harvard University) and Stephen Leider (University of Michigan) , emphasised that over-confident employees with an high self-image would opt for bonus plans where they can decide on the amount through performance. This adds on to the self -efficacy, hence is always the preferred plan for them. The sales and marketing are the two verticals, who opt for this.

My view, It all depends on the job and the motivation out of it ! When an employee is aware of an unlimited target which is achievable the employee would go for performance -based compensation. Whereas, the employee who have a limited work area or an unachievable target would opt for higher fixed components.

Please share your views

Leaving Money on the Table
25th September 2010 From India, Mumbai
Am partially agree with the point give… you may implement it for sales team as their out come is visible but what’s about the backend people, like HR, Finance, Admin, Security. These dept can be measured but not on the basis of data as these are not figure oriented dept. If you want to evaluate the performance, there would be some other tools.
I tied a lot in my last organization to implement the performance linked bonus, but every time I was stuck at backend office.
To motivate the individual, money is not an only factor; there are other non-monetary factors as well through which, individual can be highly motivated.
What you say on it…??
25th September 2010 From India, Pune
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