The practice of linking pay to performance has been around for a while. However, what’s new is that the percentage of pay that is linked to performance and the way in which the same is structured around different components of performance is new. We all know about the system of increments and bonuses in the Government and Public Sector. These were designed in such a way that the employee’s performance is rewarded proportionally. However, the quantum of bonus and increments was so small that it hardly had an effect on the pure play linking pay to performance. The resulting inefficiencies in the government and public sector have been extensively reported.
In recent times, the concept of linking pay to performance has taken on an entirely new dimension with the introduction of variable pay. This article discusses some aspects of the variable pay and performance linked incentives in place in the contemporary organizations.