Nonprofit Variable Pay

Problems of Perception

The performance-motivation model is a perceptual model.

This section will re-examine the performance-motivation model to see what problems of perception variable pay plans can have.

Importance of pay

Variable pay plans rely on pay being an important reward for the employee. This is undoubtedly true but pay is not the only reward that is important to employees.

There are many non-financial rewards that employees need and desire in their work relationship. Variable pay plans not only ignore most of these other rewards, but often thwart their satisfaction. Variable pay plans tell the employee that performance is all-important and that money is the only real reward. This kind of motivation may be less important and less attractive to people drawn to nonprofit employment.

Performance-reward connection

As we have seen, the most important aspect of variable pay plan design is the determination of performance standards and the ratio of rewards to those standards. This is easy to say and hard to do.

Performance is hard to define for all jobs. It's even harder to define all the performance variables and relate them to the rewards. As a result, a dilemma often occurs. In order to include all the variables and make the connections, the plan can become complex. This in turn violates the simplicity principle and increases the probability that the employee will not understand the plan. Establishing performance standards is a continual problem. To the degree that performance standards are established by management for the employee, acceptance by the employee depends upon the faith that the employee has in management. Changes in standards (whether justified or not) tend to be viewed with suspicion. Again, variable pay plans require trust between management and employee, something that is frequently missing. Even where there is trust, the process of setting standards is judgmental, suggesting that there is always the possibility of error. As a result, it is wise to have a formal appeal system.

Although the connection between performance and reward is clear in the short run, it may not be so in the long term. Too many organizations focus on today, or at most the next quarter. And decisions that are made in this short-run atmosphere may be dysfunctional in the long run. A further concern of employees may be that the gain made under the variable pay plan goes primarily to the organization and not to employees.