Performance based pay was selected as the key concept for investigation. There are several challenges that are presented through individual performance related pay systems. The systems of pay which is connected with work quantification and qualification and performed through people is known as paying for performance. Plan related to performance for pay has variable plan of pay. In such a pay system, a part of the employee has to be at risk with an aim to earn some more pay (Ljungholm, 2015). On the contrary, in a plan where profits are shared, collective efforts are put in through employee groups for accomplishing the goals of productivity so that incentives for groups can be availed.
Another type of stock options help in providing opportunities for buying the organization stock in certain time in the future. Throughout the years, various companies have made attempts to implement performance based pay for their employees and the same has also been followed for executives (Leonard, 2010). There are some who have managed to have success with programs while there are others who in turn have experienced failures. Research has suggested that performance based pay success varies greatly based upon various factors inclusive of commitment level of employees, program length, expectation of managers versus expectation of employees as well as realistic company cost balance and reward of employees (Jensen & Murphy, 2011).
These however are not the only factor which influences performance based pay success, but these are essential influences over the success or failure of performance based pay. From the perspective of executive pay setting, also, it becomes essential to determine how performance based pay can be influenced through the challenges involved. This essay will focus on various challenges that are offered by individual performance related systems of pay. Furthermore, the focus is on the influence of these challenges when executive pay has to be set appropriately.