Nonprofit Variable Pay

The performance-effort connection

The final part of the performance-motivation model is the connection between performance and effort.

The purpose of variable pay plans is to increase the effort of employees and thereby their outcomes.

Of course, this assumes that employees' efforts make a difference in their outcomes. But this isn't always true — at least not in a proportion that allows the performance-effort connection to operate.

Employee perspective. Employees have concerns about attempts to increase effort. They may feel that management is trying to get more than "a fair day's work for a fair day's pay." Or they may feel that variable pay plans are excuses for a speed-up by management. At the extreme, the pressure for more effort may lead to stress and fatigue.

For an employee to have high earnings under a variable pay plan, he or she must put forth a consistently high level of effort. But this may not be a natural pace for people. Most of us can work faster during certain times of the day, though a consistently high level of effort is almost impossible to maintain. Employees who can't keep up may feel a great deal of frustration and concern for their continued employment. Furthermore, establishing standards that treat all employees of a unit or in a particular job identically assumes that all people have the same ability to achieve or exceed the standard. This is not true. There are some employees for whom the performance-effort connection is low because they are easily able to meet the standard, and others for whom the connection is low because they must put forth too much effort to meet it. (But it is impossible to have different standards since that would be perceived as unfair.)

All of these perceptual concerns by employees serve to lower the contingencies required for the performance-motivation model to operate, and can, therefore, reduce the effectiveness of a variable pay plan. Management and the compensation staff need to recognize the possible presence of these concerns and deal openly with them through ongoing communication programs with employees.