Which compensation strategy aligns pay with performance?

• A. Pay-for-performance (incentive-based pay or merit-based pay).
• B. Cost-of-living adjustment.
• C. Salary cap strategy.
• D. Seniority-based pay.

Answer: (A)

The idea tested is tying compensation to performance. Pay-for-performance rewards employees based on results, such as meeting targets, quality improvements, or demonstrated merit, through incentives, bonuses, or merit raises. This links what someone delivers with what they earn, motivating higher performance and aligning individual effort with organizational goals.

The other strategies don’t tie pay to performance: a cost-of-living adjustment increases base pay to offset inflation but isn’t based on an employee’s results; a salary cap sets a maximum earning limit rather than linking pay to performance; and seniority-based pay rewards length of service rather than actual performance.