Performancerelated pay (PRP) rewards employees with a financial payment, either
ID: 373356 • Letter: P
Question
Performancerelated pay (PRP) rewards employees with a financial payment, either consolidated or nonconsolidated, following an assessment of their performance and, typically, the achievement of objectives.
1. PRP is built on the premise that reward can foster the right behaviour and money is a potentially powerful incentive to influence the amount of effort that employees will exert on behalf of the organisation. Some theorists believe that money can act as a goal in itself and can be valued by employees as a symbol of external status and internal recognition. But others contend that early proponents of PRP failed to appreciate the complexity of the wider employment relationship and the extent to which financial reward can act as a longterm satisfier. ‘Needs’ theories such as those developed by Maslow and Herzberg place a great deal of emphasis on the intrinsic aspects of the job, and argue that people can gain the greatest satisfaction from work factors such as responsibility, achievement and recognition. Other critics of PRP caution that such pay schemes are coercive and can encourage the wrong type of behaviour, for example, by focusing on individual effort at the expense of teamworking.
2. The theoretical arguments relating to PRP are not adequately supported by empirical evidence, while the practical research studies that have been undertaken are also contradictory and their conclusions often depend on the choice of the particular sample group, be it managers, employees or HR practitioners. For example, surveys of management typically find that most managers are in favour of rewarding high performers and feel that Individual performancerelated pay (IPRP) does contribute to organisational effectiveness – perhaps because this fits with their own values and successful experience of PRP. Even where practical research has identified benefits, it is clear that no type of performancerelated pay scheme is universally suitable for every type of organisation and PRP will not, on its own, bring about organisational change.
3. Advantages of PRP-Provides a direct incentive , Tangible means of recognising achievement , Generates a ‘performance’ culture , Improves goal setting, Improves individual performance, productivity, quality of work etc, Focuses employees on improvement , Rewards best performers , Can support organisational change , Identifies poor performance , Flexibility may help retain valued staff
4. Disadvantages- Reduces pay equity, Contaminates development aspects of performance reviews , May be discriminatory , Demotivates if goals are too hard to achieve , Relies on quality of line managers’ assessment , Undermines cooperation and teamwork, Focuses attention on activities (often short-term quantifiable goals) that attract financial reward , Raises expectation of continual payout , Does not work well (in terms of motivation) in low inflation climate , Awards may be seen as arbitrary
5. Clearly, PRP is better suited to other employee groups, such as sales staff and customer service operators, as it is more straightforward to devise clear and measurable objectives against which to assess their performance. But even for these groups of staff, it is necessary to incorporate measures that take into account the quality of the customer service provided and employees’ relationships with clients.
Explanation / Answer
HR Management Chapter 11
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