PAY-FOR-PERFORMANCE SYSTEMS IN PAKISTANI FIRMS: A FINANCIAL AND HR PERSPECTIVE

Abstract

Pay-for-performance (PFP) systems have emerged as a key compensation strategy in organizations worldwide, linking financial incentives to employee productivity. This paper performs a systematic review for assessing the effect of PFP systems on financial and human resources in firms operating in Pakistan based on the PRISMA guidelines. Research evidence shows that structured PFP models are effective in increasing firm’s profitability, employee’s motivation and increase operational efficiency especially among banking, information technology, manufacturing industries. However, cultural resistance, lack of transparency and voluntarism of labor laws constitute formidable impediments to the implementation process. From the review, it can be concluded that there is a need to clearly define performance measure to be used in implementing PFP, proper distribution of incentives and overall regulatory adjustments to promote PFP implementation. Some of the recommendations are to merge the core pay systems with the merit pay systems based on conventional practices in organizations. This work aims to help business managers and policy makers to come up with sound solutions toward the PFP for the sustainability of organizations in the dynamic business environment in Pakistan.