Results vs. Effort. How to Calculate Your Employee’s Salary?

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It is no secret that each of your employees, whether past, current, or future, is getting paid for the work they’ve done. It’s true, any kind of work should pay, and this is something all employers are well aware of for decades. It may be clear to you that you are responsible for setting and managing your staff’s salaries. But, what is not always that clear is how you are supposed to do this.

In today’s highly competitive and rapidly-changing market, defining the right structure and amount of compensation for your employees is harder than ever. So, how do you find the most optimal way to calculate salaries that would keep everyone happy? In this article, we are going to take a closer look at the two most common payment types – based on results and based on effort – and try to define which one works best.

Results-Based Salary: Pros and Cons

Results-based (also called performance-based) salaries are the most trending these days among high-performing companies (especially in the sales-related field). Many of them are leaning towards this type of pay structure to keep their employees motivated to work harder. But, what do we know about this kind of salary?

In a nutshell, performance-based pay implies that employers compensate their employees based on their contributions to a company. To help you grasp the idea better, think of a car store. Most of them are practicing performance-based pay, which means that their employees profit from a fixed commission on each sale they make. This basically means that if a particular employee sells one car in a day, he or she will receive compensation from that sale, but if no cars sell during another day, the store will not generate any revenue and, respectively, the employee won’t receive the commission. The same type of salary is a common practice among companies that offer cheap essay writing  for students. The writers only get paid for their work, so if they don’t work, they don’t get any compensation.

According to this pay structure, only the top-performing employees will gain regular and high revenue. This is why this type of salary is believed to be an effective way to boost employees’ motivation and performance.

Okay, but what are the drawbacks of this system? Although many believe that incentive-based pay is highly beneficial for the company’s success and performance, this belief is true only to a certain extent. This system has plenty of drawbacks, including:

• Studies claim that the level of pay doesn’t really affect performance. Employees that tend to be underperforming will most likely keep slacking even if their pay will depend on their performance.
• Another study found that performance-based salary can negatively impact some employees’ engagement, satisfaction, and trust. Not everyone is willing to work on such terms.
• This pay structure can lead to corruption – employees may find ways to cheat the system in order to increase their compensation. Remember how employees of Wells Fargo retail bank were creating fake customer accounts just to meet extreme sales quotas?
• Finally, this pay structure can also lead to greater levels of stress in workers. As a result, there will be a much lower job satisfaction rate. And eventually, this pressure can have the opposite effect on employees’ productivity.

Effort-Based Salary: Pros and Cons

Another common pay structure, most widely used in educational institutions, is an effort-based salary.

Basically, this form of compensation implies that every employee’s effort made for the company, organization, or institution will be evaluated against the 100% scale to define the reasonable amount of compensation for that employee.

What does the “effort” mean in this case? Looking at the example of educational institutions, by “institutional effort,” they imply the total amount of time a staff member spends on various faculty activities that are excluded from the list of their professional obligations. This may include some administrative duties, extra-hours teaching, research, etc. All these activities are then reported to the institution’s authorities, who, in their turn, calculate the percentage of effort made by each employee and calculate the total amount of pay based on this.

Similar to the performance-based salary, effort-based pay is also used to boost employees’ motivation and overall performance. However, it encourages employees to engage more in activities that are not directly connected to their basic job duties. Thus, it can be considered as a different pay structure that doesn’t put quite as much stress on employees as performance-based salary. Yet, it still adds pressure and leads to stress due to longer work hours that employees have to take to increase their pay.

So, Which Salary Type Is Better?

Although both results- and effort-based payment types are often used by companies across all industries and all over the world, none of them is perfect. Both systems lead to higher levels of stress.

Also, needless to say, such types of salaries aren’t good for everyone. For employers, it is vital to understand that some of their employees need to receive a steady paycheck, whereas others may indeed feel more motivated thanks to the benefits they get from their work. Thus, it is hard to say for sure if any of these salary types will fit perfectly to your company.

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