It is important that all decisions concerning pay and incentives are designed. To attract, motivate and retain employees in an organization. Therefore, the pay structure should be designed such that it adheres to above. However, a majority of organizations put a limit to their pay system to only a percentage of the pay package. Only those who perform well are guaranteed a standard pay package.
Nevertheless, this also keeps the employees ensured about them financial security and helps in retaining them in the organization. Various extrinsic performance-based pay systems are adopted by organizations. The most known and frequently used system is the base-pay system. Here, the pay is put at risk without endangering the employee’s basic financial security. The employee’s overall performance can be addressed, whilst simultaneously the group performance can also be measured at team level. Individual pay systems on the basis of performance increases, whereas bonuses, gratuities and annuities are standard across all skill sets. Also, to induce employees to work efficiently throughout performance based incentives are encouraged at all levels .