Some economists have suggested that individuals adjust their behavior at work when offered financial incentives (Alafita, 2004). Financial incentives, is seen as a way of improving performance and productivity and providing motivation for workers. Whether this is true has been a matter of debate and mixed results have been seen across industries (Marsden & Richardson, 1992), (Stedman & McCallion, 2001), (Alafita, 2004), (Ohtake & Karato, n.d.).
Some of the other reasons why employers may choose to introduce performance related pay is to ensure fairer distribution of income between employees, to attract new talent and to maintain the interests of the existing staffs (Performance Related Pay, n.d.).
Alafita (2004) suggests that for performance related schemes to be successful the three theories, “Expectancy Theory”, “Goal Setting Theory” and “Systems Theory” should be met. Expectancy Theory states that the performance goals should be clearly understood by the employees and they must believe that they have the skills, resources and time required to achieve the goals. The criterion that links performance to pay must be clearly communicated and understood and the employee must consider the reward to be worthwhile (Alafita, 2004). Goal setting theory places emphasis on employee support and supervisor feedback whereas Systems Theory suggests that aligning organizational resources with policy objectives increases employee motivation (Alafita, 2004).
Performance based pay have been used in the education sector since the 20th Century (Stedman & McCallion, 2001). Dissatisfaction with teacher’s salary scale system, desire to improve the quality of teaching, and attracting and retaining talented and effective teachers have been some of the main reasons for considering and introducing incentive plans in primary and secondary schools (2001) (Beavis, 2003).
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