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Performance Related Pay - Essay Example

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PRP is paying according to the performance, which means the better the performance the more the employee will take home. As a matter of fact, except, academics more often, the majority are now suggesting the opposite may be a fairer case. The common question which might arise is what the need is for organisations continue to throw money at performance issues when they are well equipped with better management options…
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Performance Related Pay Essay
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Performance Related Pay

This paper will explore both positive and negative potential impacts of PRP. Initially, PRP will be defined. An examination of the theoretical utility of PRP and the growth in PRP schemes will follow. There will then be a consideration of the potential disadvantages of PRP schemes. This discussion will be illustrated through the use of a specific study of PRP systems in the finance sector (Lewis, 1998) and the concept of employee burnout (Brown and Benson, 2003). This paper will conclude that PRP schemes in the finance sector can affect the productivity of employees and their quality of service both positively and negatively. If PRP schemes are ineffective at attaining the desired outcomes, which could include improving employee productivity and service quality, this can be a result of several factors. Lewis' study of PRP systems in the finance sector (1998: 70) found more evidence of ineffective implementation of the PRP process cycle than evidence of success. Given the potential drawbacks of PRP schemes, it is crucial that instances of ineffective implementation are avoided wherever possible. It is therefore imperative that those who implement PRP schemes recognise that such systems have the potential to worsen employee performance and service quality. ...
Nearly 40% of the organizations used in 1998 for management, 25% for non-management. The wave turned reverse PRP in 1990s when the previous schemes were not delivering the expected results. Extensive innovations in compensation systems and, in particular, a variety of attempts to link pay to a measure of performance have been witnessed in recent years. Those innovations have been related to wider initiatives in order to improve the performance of organisations and in particular efforts to increase employee involvement. On the whole, there has been a systematic research on the effects of performance-related pay (PRP) schemes. Also, existing results seems little bit contradictory, with some studies suggesting that PRP schemes might have a positive influence on organisational performance.

The majority of existing research focuses on individual-based PRP, especially piece-rates, in spite of the existence of a wide variety of schemes that are neither based on individual performance nor even a tangible measure of output. Many PRP schemes focus on paying to a work-group or firm performance measures. Some, on the other hand are based on subjective measures of output, such as merit pay. There are also schemes that link a component of pay to the profits of the organisation or offer employee's shares in lieu of cash as forms of team PRP scheme. Furthermore, these can also be regarded similar to PRP schemes, although involving a very indirect link between performance and pay. In brief, studies which focus on individual measures of PRP (and in particular those simply concerned with piece-rates) are ignoring a wide range of schemes that clearly tie pay to a measure of performance and that these may differ in their relationships to organisational performance. The ... Read More
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