Performance Related Pay provides individuals with economic rewards


“Performance Related Pay provides individuals with economic rewards in the form of increase to basis pay or cash bonuses which are linked to an assessment of performance, usually in relation to agreed objectives. PRP appeared in the industrial of the 1980’s as the reply to appealing individuals & building up performance-oriented society. It was seen as a most important force for alteration, & the industry of the today accepted it through much eagerness except slight perceptive seeing that a resources of changing public division bodies into industry” (Armstrong 2002)

Over the last three decades system describing PFP have produced a marvellous quantity of attention however exceptionally modest in the approach of decisive confirmation regarding their effects on performance” (Gilman 2009)

Performance associated pay is technique of paying employees base on their performance. Enhanced performance consequences in higher stages of pay designed for the persons, deprived performance might effected in no adjustment to pay .Certainly as among any paying system have advantages and disadvantages to such a structure in addition these will be discussed as well. (Lawler 1995).

The matter we have selected is connected through the reimbursement for performance which is capable of generally explaining as binding employees to get paid for their performance. By means of weighting on competiveness, efficiency, in addition to delivering assessable base line consequences, the tendency designed for almost every company is to bind no less than a little part of their employees pay to the workers in addition to the company’s performance. In other terms performance associated pay be able to be used as a common term to explain a diversity of payments scheme to facilitate in a number of way connected to workers pay to either a amount of their work group, division or association .Milkovich and Newman (1987) propose to facilitate it is a expression that can be largely functional to several structure with inconsistent pay system which rewards workers on the basis of performance.

Pay for Performance is a way of giving incentive to employees with high performance.

Presently number of causes why companies might bring in this kind of pay system. They might:

be enthusiastic to retain existing employees

desire to struggle intended for innovative faculty

be looking in favor of a fairer method of distributing salaries

Consecutively for performance associated system is to work that will be supposed which is based on apparent, assessable objectives, decided by mutually company and worker. It usually discovered somewhere else concerning these objectives on or after the agreement of service in addition to performance assessment conference they have among their director.

Performance associated pay come generally below these two headings:

Merit based

“Merit-based scheme just engage the instant administrator responsibility of an assessment of every coworker’s employment performance throughout the previous year” (Torrington et al, 2005)

Objective based

“At this time the manager and coworker get together at the begin the assessment phase as well as agreement among them a list of goals which the assessment determines to meet up throughout the approaching months” (Torrington et al, 2005)

Problems and Issues

Whether extrinsic rewards for example performance associated pay in fact inspire workers to improved performance is subject of argument. It has been stated to facilitate financial rewards typically contain a partial length to consider their inspiring outcome. consequently extrinsic payback for instance pay related performance, still if they be capable of exerting a ongoing impact on performance, must be reliable by means of in general organization aim, so that performance related pay might not be reliable with, for instance, a simply price cutback approach; simply be used to strengthen a motivational scheme in which intrinsic (non financial) rewards survive, for example restructuring of employment procedure preparation, worker participation/discussion in decision making, joint contacts, prospects to add ideas, to career expansion strategy in addition to objective setting.

Read also  Aligning Business Strategies and Project Management

Some of the reasons why performance-related pay fails and some problems and issues facing employers flow from circumstances such as the following:

(i) Unsatisfactory criteria to calculate performance, or criteria which were not simply understood, correspondence and acknowledged. Performance pay be supposed to consequently discussed.

(ii) Unsuitable performance assessment scheme to facilitate the aim of the assessment scheme (e.g. anywhere it is proposed to recognize guidance requirements or appropriateness for sponsorship) do not match the aims of the remuneration scheme. Actually the typical assessment scheme must not to be used to conclude performance related pay.

(iii) The lack of normal response on performance.

(iv)The incentive scheme is not intended to meet the aim required to be attained.

(v) The lack of a right mix of extrinsic and intrinsic incentive.

(vi) The absence of a suitable quantum of pay which ought to be focus on performance criteria. This happen when the quantity which depends on performance is so little, otherwise it is much big and consequently the quantity located at risk (when performance is not good) is not satisfactory to workers.

(vii) The deficiency of periodic assessment of the format.

(viii) Non recognition of the information with the intention of performance, particularly profit, is occasionally (even regularly) reliant on issues outside the power of workers e.g. administration choice, trade tariff, depression. Both remuneration at the large-scale have been maintained for performance related pay. The primary relate to service. If boost in essential pay are moved to a revenue associated plan, the companies might be further inclined to employ fresh workers as his set salary price is a smaller quantity than otherwise. If the proportion of revenue to be divided to fixed remains, accompaniments to the labor force do not charge the companies extra in provisions of the profit associated pay. Furthermore, new employment would decrease the quantum existing workers would get unless earnings rises, in addition to a result disappointment between the workers might set in.

The subsequent advantage is that increased salaries throughout a performance associated system will not effect in inflationary tendencies because such add will often be the consequence of improved output. The remuneration to organization in addition to workers is that:

Where performance and income raise, higher salaries accumulate to workers

Where earnings decrease, the decrease in the performance associated pay can mitigate workers alongside redundancies

Read also  Changan Ford Automobile Co Management Essay

worker recognition through the achievement of the commerce is improved

dissimilarity in wage guide the workers becoming more recognizable through the chance

(Or hard luck) of the trade. This would depend on the information distribution put into practice of the administration.

“Performance supervision might be explained as the set of procedure by which institute run their performance in procession with their business plan.”

Enhanced organizational performance is preferred through all sectors, public, private and charitable in addition to every company, little, limited nationwide and worldwide. Majority companies say somewhere in their trade map or advertising resources that ” Our people are our mainly significant source” It is often intriguing to see what follows that statement in terms of actions and reactions – the processes in place for managing and developing people and what the organization rewards. Better performance comes when people use initiative, communicate better, solve their own problems and resolve conflict. Managers and leaders can have a huge effect on staff performance and yet little time is spent on ensuring that the manager and leader is developing and working to their full potential. We have found that traditional learning and development programmers focus on managers having the right knowledge and skills in the professional/technical area that they are managing, rather than the knowledge and skills required to manage, lead and develop their employees to perform.

Performance Management is a two-way review of the employee’s contribution to the organization. It actively involves employees in understanding what is expected of them, and provides valuable feedback on their performance to date.

R. Black. (2005) there are different methods of communication with the employee which are used to evaluate their performance or used to increase the efficiency of the work force as there is a brief description of what are probably the most popular methods for business communication used today. Some of these are universally familiar, others recent arrivals on the scene, but for completeness and to ensure a common understanding, I have attempted to describe them all.

pixel.gif (807 bytes)’s%20Model.gif

Survey &feed backs

Surveying employees is an effective first step in fixing communication barriers in an organization. Even if there are no obvious problems, communication surveys can help get an organization to the next level of performance. M. Brandel. (2006)

We have chosen the survey method of communication because it benefits in conducting an employee communication survey and acting on the results include:

improved employee satisfaction

lower turnover

reduced absenteeism

less political infighting

greater levels of manager-worker trust

reduced defect rates

higher customer satisfaction

A well-run communication survey can give you these benefits. However, a poorly conducted communication survey can have the opposite effect. Surveys badly planned, rolled out and followed up can actually increase employee cynicism and resistance to change, and employee turnover and absenteeism. And this impacts on customer satisfaction and your bottom line. McGraw-Hill (2006).

Case of Inland Revenue

Performance related pay was introduced for the majority of the staff at the inland revenue in 21th century’s as they thought it would act positive and motivate the employees, to have a better view of the result a survey was conducted later, with views of 2500 staff on the impact of performance related pay on their own behavior and impact of that over others.

Read also  Critical analysis of a Charitable Organization

The findings towards this showed that majority of the staff supported the idea but minority of is feels hostile to it, secondly the positive motivational effect of performance related pay have been, at most, very modest among staff. It is by no means implausible that the motivational effects has been negative, the reasons for this failure in accordance to staff, performance related pay is seen unfair, awards are given only to those who have received good appraisal rating but many of respondents felt that appraisal system was corrupt. Secondly the amount of money involved in performance related pay was simply not enough to justify a chance in behavior thus if it is to succeed then it is important to increase the amount of money involved and to overcome its perceived unfairness of operation among staff. If this is not done there is a clear danger that the scheme could become steadily more counterproductive.

– Increasing task motivation: this links performance – linked rewards to motivate greater work effort per unit of time worked, which should translate into increased labor productivity and reduce of labor cost.

– Altering performance standard: This enables using combination of formal performance measurement and performance contingent rewards to renegotiate pre-existing performance criteria or standard.

– Increasing labor cost flexibility: It is also known as financial flexibility, this involves using performance contingent pay to vary pay levels and aggregate labor cost in line with changes over time in the organization’s ‘capacity to pay’.

The culture objective of transforming employee values, attitude and behavior so as to elicit higher level of organizational commitment and organizational behavior.


Whilst performance related pay has clear advantages and disadvantages it is not suitable for all organizations. Whilst it strives towards worker independence and less manager interference it invariably tends towards the reverse. Disharmony in the workplace will be common place as employees will often see their own efforts as being more worthwhile when compared with others who are receiving larger or more attractive rewards than them. This disharmony can lead towards an organization that does not communicate well, operate efficiently and may not be able to compete effectively. However it can be very effective, with all employees working towards the same goals raising the companies’ efficiency in all these areas.

Performance related pay when carried out fairly can be very effective; high achieving employees will receive the rewards and become more committed to the company presumably staying on and attempting to attain even more rewards within the company. Poorly achieving employees will not be rewarded and thus will be less likely to continue to work with the company, making way for possibly more hard working employees.

Order Now

Order Now

Type of Paper
Number of Pages
(275 words)