Leopold, Harris and Watson (2005) mentioned pay for performance is the program which is related with how contribution of employees is recognized via company’s monetary rewards, with the focus on the use of pay as a strategic way of aligning efforts of individuals to the organization’s priorities. In terms of the types for pay for performance, there are various performance related pays such as team based performance related pay, competence or skills related pay as well as individual performance related pay and so on. Compared with pay for performance, skill based pay refers to another kind of pay system in which the number or depth of working skills that a working individual acquires and applies is closely linked to the pay increase (Silva 2004). And there are often three types of skills tied to employees’ pay rise including horizontal skills, vertical skills as well as depth skills.
Concerning with the real scenario of Company XYZ, we recommend it is more proper for this organization to adopt the approach of pay for performance to deal with the situation of salespeople and the skill based pay for the programmers.
For sales people, pay for performance approach which sales people can be paid on the basis of their productivity rather than the hours spent in their jobs or the set salary (Silva 2004) has a great many advantages for both the sales people and the Company XYZ.
Firstly, for the sales people, the pay for performance can offer them an unlimited compensation which can largely arouse their work morale. In Company XYZ, a pay for performance plan may result in the situation in which sales persons are able to earn a substantial income compared with the former situation. That is to say a talented salesman in Company XYZ may be able to gain more money since he is paid on the basis of sales volume than the salaried sales man. And from the sales people’s standpoint, the working morale and productivity may be increased largely because of their desire to earn more. (Joseph 2010)
And for the Company XYZ, pay for performance approach for sales people is also beneficial for the organization. On the one hand, this approach can enhance the total sales volume of Company XYZ, which can help them gain more profit. On the other hand, this approach may also help this organization to reduce labor cost of sales people compared with the salaried employment, because there will never be the scenario of gaining money for doing nothing, which can facilitate Company XYZ to transfer the financial risk from the organization to the employee. (Joseph 2010)
At the meantime, pay for performance approach for sales people can improve the flexibility and be more convenient due to employees are paid on the basis of their selling results rather than working hours and other subjective rules. For instance, most of the sales people of life insurance often make the appointments and working schedules by themselves, which is very fit for the characteristics of the job and it can also help Company to save some working space and resources. (Joseph 2010)
Moreover, pay for performance approach can also improve the talented sales people’s retention. High-achieving performers may be happy with their income and some certain level of recognition from their jobs which can help Company XYZ to retain them. (Joseph 2010)
And for these programmers, the skill based pay may be more appropriate. The great influences from the fast technological change, globalization of product markets, more choices for customers and especially the focus on product quality require all the product makers to own more skillful and high technical base (Silva 2004). For the web development company XYZ, the skill of its programmer direct affect the quality and customers’ satisfaction level, which become the initial reason for recommendation the skill based pay for its programmers.
On the one hand, the skill based pay can motivate programmers to more concentrate on their self-development on their professional skills which can not only enhance their competitiveness and income but also improve Company XYZ’s competitiveness in the market and pave for their future development. And based on the improved professional skills of programmer, the productivity and quality of these related web products of this company can also be improved which may also give a rise of the customers’ satisfaction on the products. (Silva 2004; Joseph 2010)
On the other hand, the skill based pay for programmers may also contribute the low rate of employee turnover. Since it is an incentive for programmers on self-development, it can offer employment safety by the skills enhancement as well as more opportunities to be promoted in their future careers. The job satisfaction will be improved to a certain extent because employees can have a greater control over their works’ planning and implementation, which may enhance their self-esteem and confidence a lot. (Silva 2004; Joseph 2010)
The last but also significant benefit of the skill based pay is that it may assist Company XYZ to eliminate unnecessary positions because these programmers may become more multi-skilled they can afford more tasks and workload which can help the company to save some cost in human resource location areas. (Leopold, Harris & Watson 2005)