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Contingent pay (CP)

Traditionally, reward system only be provided to remunerate for the positions employees are holding
according to what is stipulated in the job description as their pay, benefits and incentives. Pay scheme is
simply set with few salary scale to cover different ranges of performance. Salary adjustment was normally
done at the end of the year according to their seniority at certain percentage of their base salary instead

paying for employees� work quality or performance.

Contingent pay (CP) in todays� reward system, maintain that individual are paid or rewarded based on
how their performance with an amount called variable pay other than the base salary. It is found that
contingent pay in implementation of PMS is more effective in raising the quality of work when individual
pay is directly link to reward system. Contingent pay system guided organization to define effective
performance clearly for employees at different level and positions to understand what is needed and
expected of them in respect of behavior and results in order to communicate strategic goals to the
working levels by management. It guide individual to change behavior that lead to high performance.


However, there is sign of decrease in the drive after implementation of contingent pay system for certain
period of time. This is because of the determinants of performance which are the declarative knowledge,
procedural knowledge and motivation are not in place or insufficient. If the employee put the heart in
doing their work with high motivation due to contingent pay scheme but without good procedural and
declarative knowledge they may still fail. Contingent pay plans will have high motivation effect provided
employees can see: a clear link between efforts and expectations; a clear link between their performance
and rewards; and employees able to appreciate and value rewards represented to them. As mentioned in
Aguinis (2012, p,267) motivation is constituted by meeting expectancy, instrumentality and valence


Other than motivation, declarative and procedural knowledge, there are other factors affecting CP plans.
An organization CP plan may also fail: when PMS is not effective and poor; when the rewards is
insufficient or insignificant to employee; when there is not enough support and accountability from the
managers; when the extrinsic motivation exist at the expense of intrinsic motivation; when rewards for
executives are disproportionately huge compare to those received by employees; when there is a folly of
rewarding A while hoping for B. It is also important and critical that the CP plan blend with organization
culture. The traditional culture or involvement culture of top-sown decision making and clear defined jobs
such as piece rate, commissions and group incentives are seen to work well together with strategic

business objectives.

In order to make rewards work CP plan shall: define and measure the criteria for particular rewards;
ensure performance come before allocation of rewards; ensure all employees are eligible; make rewards
visible, contingent, timely and reversible; also look into using nonfinancial rewards including challenge,
responsibility, interesting and meaningful work. (Armstrong & Baron, 2004, p.103) mention �Non-

financial motivation is provided by performance management through recognition, the provision of
opportunities to succeed, skills development and career planning, and by enhancing job engagement and


The other areas to look into to ensure effective implementation of reward system is knowing how to
structure pay system. It can be classified into different categories of job based on their relative worth as in
salary scale. Of course we also cannot overlook the process of job evaluation through data collection in

relation to the skills, knowledge and abilities that are require for each job scope.

The new challenges faced in organization context during implementation of PMS are ethical and legal
issues such as: employment at will which termination of employment; employers if not follow the
performance management practice may be accused of negligent; employers can be blame and sued for
deformation if employer make a false statement; and organization can also be accused of negative
impact or unintentional discrimination if the PMS has an unintentional impact of the minority or diversed
workforce. As far as ethical alignment is concern, Mujtaba & Shuaib (2010, p.115) mention �individuals
should be given resources, training, and the means of accomplishing results within defined linitations.
Such limitations can be defined by a code of ethics or the values which the company has been guided by
in its day-to-day operations.� It is noted ethical behavior should be a critical criteria for high performance
as it may damage company strong reputation and future in no time and it will affect the trust in customer
which require long term repair and establishment. In one of our business unit with stringent corporate
governance to scrutinize unethical business operation, due to high level management unethical business
practice, that business was under authority investigation. It is often than not unethical business operations
involve higher management unethical behavior and inappropriate value rather lower level unethical act
that trigger detrimental damage to reputation. Due to this unexpected act by the management the

business operations has been stalled for months for investigation. The rebuilding of company reputable

will take a while before customer gain confidence in this business unit again.


Aguinis, H. (2012) Performance management, 3rd ed. Upper Saddle River, NJ: Pearson Prentice Hall.

Chapter 10, �Reward systems and legal issues�

Armstrong, A. & Baron, A (2004) Managing performance: performance management in action, 2nd ed.

London: CIPD.

Chapter 7, �Performance management and rewards�, pp.103-114

P.M. W.71

The contingent reward system is a motivation-oriented system used to reward those that
achieve their identified objectives. It provides positive underpinnings for a job well done. This
reinforcement measurement motivates personnel to efficiently complete their duties and
accomplish their objectives in a timely fashion. Different from annual performance appraisals,
the contingent reward system offers more frequent evaluation of the workers work with

application rewards when qualified. To be efficient, the reward alternatives in this motivation
mechanism should be therefore of interest to the personnel. If the rewards fail to capture the
attention of the workers, the rewards will not offer productive motivation. In companies,
commissions and monetary bonuses are the most used types of rewards. Nevertheless, other
rewards may just be active. Rewards such as free memberships, trips, paid vacation days are
considered productive reward aspects when utilized appropriated. As positive fortification, the
contingent reward system should motivate the general required attitude. Not only must the
personnel achieve the exigent goal, they must endorse and sustain the company’s metrics of
required behavior. For example, the contingent reward program may reward sales persons with
free airfare for surpassing the sales measure successively for numerous months. Nevertheless,
the rewards program must apply to the sales person when the sales accounts fail to meet the
firm’s quality needs. The reward program must be explicitly defined to ensure that all personnel
comprehend what is needed to qualify. Even if the contingent reward program should be a
structured one to be effective, the program should also be tailored and gratifying to capture the
interest of the employees.


Aguinis, H. (2012). Performance management, 3rd ed. Upper Saddle River, NJ:
Pearson Prentice Hall.
Armstrong, A. & Baron, A (2004). Managing performance: performance management in action,
2nd ed. London: CIPD
Mujtaba, B, & Shuaib, S 2010, ‘An Equitable Total Rewards Approach to Pay for Performance

Management’, Journal Of Management Policy & Practice, 11(4) pp. 111-121, Business
Source Complete, EBSCOhost,

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