Describe the relationship between virtuous and vicious circles.

Question

What will be an ideal response?

Answer 1

Some studies suggest that performance-based pay works best when the organization is performing well. An organization with increasing profits or market share is able to pay larger incentives in the form of bonuses and stock awards which is reflected in employee attitudes and work behaviours, which in turn improves their performance and ultimately results in better organizational performance. The circle gains upward momentum. Contrarily when organization performance declines, say in a recessionary period, performance-based pay plans do not pay off; there are no bonuses, and the value of stock declines-with potentially negative effects on organizational performance. Declining organizational performance increases the risks facing employees-risks of demotions, wage cuts, and even layoffs. Declining employee attitudes may speed the downward spiral, creating a vicious circle.