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Employee Motivation: Skill-based or pay for performance plan

Pay is a factor than can affect employee motivation. Should an organization choose a skill-based pay plan or a pay-for-performance plan?

Locate at least three scholarly articles that research various perspectives on employee motivation and pay plans. Then make a recommendation as to which type of pay plan - skill-based or pay-for-performance - would be preferred over the other. Your justification must be linked to one or more motivational theories and to a particular industry or job type.

Present your recommendations in an APA-formatted paper. Reference at least three resources in your paper. Your writing should demonstrate thoughtful consideration of the ideas and concepts that are presented in the course and provide new thoughts and insights relating directly to this topic.

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Skills Based Pay Plan


Pay is considered as an important factor for the employee motivation (Berger & Berger, 2008). In present scenario, there are various job related aspects like pay, workplace, job, organizational culture, leadership, management, communication, job satisfaction etc. All these aspects or factors have their own importance for employee motivation, but pay is on top priority. There are various forms of pay plans like skill based, performance based etc. Different organizations follow different pay plans according to their business structure and philosophy. Skill based pay is a form of compensation on the basis of skills and knowledge (Bunning, 2004). Performance based pay is related to the compensation on the basis of employee performance. There will be an article analysis over the employee motivation and pay plans. Apart from this, it will provide recommendation to a particular pay plan.

Employee Motivation and Pay Plans

Employee motivation comes from various factors that are intrinsic and extrinsic by nature. It is often seen that flexibility in the working environment, fringe benefits etc play a vital role in motivating an employee (Fields, 2002). Monetary and non-monetary aspects have their own role in employee motivation. Pay plans are considered significant factor that determine the employee motivation. It is analyzed from the different needs of employees that pay plans matter a lot to the employees along with other factors.

According to Bunning (2004), pay for performance and skills are two different forms of pay plans or options that is available for the employees. Organizations follow different pay plans according to their suitability and profitability. Pay for performance generally follows two types of pay plans that are based on performance appraisal based system and incentive based system. In performance appraisal based system of pay plan, employees are compensated on the basis of their performance appraisal. According to Bunning (2004), organizations apply skill based pay plans to enhance motivation of their employees.

Under the performance based pay plans, employees are motivated to enhance their performance to attain high pay plans. On the other hand, in the skill based pay plan, employees put their efforts to increase their skill base in order to get high pay. To attain extrinsic rewards, employee put their efforts that assist them to attain their goals. Pay plans affect the valence part of the employees. According to Pappas and Flaherty (2006), employees demand for intrinsic rewards in case of fix pay plans. On contrary to this, in the pay plan that includes commission and incentives, employees demand for extrinsic rewards. So, this difference in valence of employees reflects the impact of different pay plans over the motivational forces.

According to Pappas and Flaherty (2006), expectancies also depend over the pay plans. For example, in case of fixed pay plan that is more focused on salary, employees perceive behavioral elements like customer service, paperwork etc, importantly. On contrary to this, in the pay mix that is more focused on incentives, employees expect that output is directly linked to the performance. So, it can be analyzed that expectancies also vary according to the pay plans offered by the organization.


On the basis of article analysis on employee motivation and pay plans, it is evident that skill based pay plan should be preferred over performance based pay plans. Bunning (2004) states that performance appraisal based pay systems are not based on ...

Solution Summary

This solution discuses skill-based and pay for performance plans.