"Promise and Peril in Implementing Pay-For-Performance"
Human Resource Management
Spring 2004, pp. 3-20
Though most research has provided evidence that pay-for-performance systems can provide an impressive net return on the investment, there is little research on how the implementation of these initiatives affects the success of the initiative.
In the early 1990's, plant managers at thirteen Hewlett-Packard plants implemented local initiatives aimed at improving performance through new pay-for-performance systems. This article explores why the initiatives were eventually abandoned at these facilities.
The authors conclude that: "The case data presented here does suggest that pay-for-performance systems present implementation problems that may be underestimated by researchers and insufficiently acknowledged by practitioners. Part of the problem stems from a fundamental human tendency, to which managers are also subject: to be unrealistically optimistic about what can be accomplished by a management intervention... Another aspect of these unrealistic assumptions may be attributable to the inherent complications in designing and maintaining effective pay-for-performance programs, particularly in the rapidly changing business circumstances that face many companies today... Managers may also have been unaware that, unlike other interventions such as training, shortcomings in the design or maintenance of pay-for-performance programs can actually cause significant problems such as bitter feelings and damage to important relationships... The implications for practice we draw from these cases is that managers might best approach the introduction of pay-for-performance as a process of 'negotiation' with employees if they are to avoid the unintended consequences we observed at HP."
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