Performance and Pay

Introduction

Because performance is defined as the act or process of carrying out or achieving a deed, job, or role, performance-related pay is a financial reward system designed for employees that links their salary progression to an evaluation of their individual performance in relation to monetary reimbursement (Farooqi 2011, p.54).

Performance Measurement

Performance is measured against predetermined goals and evaluated against a predefined criterion over a set time period. Managers in private sector firms typically utilize Performance Related Compensation systems to inspire employees and connect their efforts with the organization’s goals. Regular salary payments are pre-stated and consequently immeasurable in terms of performance of individual employees; this makes it difficult for the organizations to accurately reward their employees accordingly (Gielen, Kerkhofs, and Van Ours 2010, p.300). Therefore, the introduction of Performance Related Pay is the best way to improve organizational performance since it is a key incentive for encouraging higher productivity among employees.

Analysis

Performance Related Pay basically indicates that an organization and its employees have a pre-stated agreement on financial rewards that are directly linked to their performances at work (Boeri, Lucifora, and Murphy, 2013). These rewards could be categorized into monetary profit sharing, piecework payments, sales commission, and bonuses on attaining targets. These systems are considered to be both beneficial and harmful depending on perceptions and opinions of the individual employees, in a given organization.

Arguments against PRP

Opponents of PRP postulate that the payment system is problematic since rewards are made for short-term quantifiable goals, which may be narrowly focused. Moreover, Lucifora and Origo (2015, p.625) argue that the opponents posit that rewarding people often reduce their other motives that encourage them to perform a particular task since their focus is shifted towards the rewards. Additionally, the opponents argue that short-term rewards often distract people from their key objectives, which may include enhancing their skills to perform tasks more efficiently among others (Bryson et al. 2013, p.122). Finally, opponents of the reward system posit that the system hinders cooperation and the team-work spirit since individuals compete against each other in a bid to get rewarded rather than focusing on working together to achieve organizational goals.

Rebuttal/Refutation

Opponents of the PRP system postulate that the system is inappropriate since it distracts people from developmental needs as they focus more on rewards; it reduces people’s other motives for performing tasks; it hinders cooperation and teamwork, and it is narrowly focused because it focuses on short-term goals (Armstrong 2010). However, the PRP system has numerous benefits, which outweigh the stated demerits, making it one of the most effective tools for improving organizational performance. First, PRP is an effective way of dealing with poor performance as it encourages performance improvement since employees are motivated by the rewards to achieve the set organizational goals, thereby facilitating higher productivity and organizational performance.

Benefits of PRP

Secondly, Gruman and Saks (2011, p.128) argue that employees tend to focus on the areas that will improve their performance at work since its pay related. Further, the best performers and the most hardworking employees are paid off their efforts by a good PRP system, unlike in a regular salary system, where some individuals may feel inadequately compensated for their efforts, thus discouraging them to work hard in achieving organizational goals (Hutton 2011). Moreover, a PRP system helps in retaining staff since they appreciate the fact that their efforts are rewarded effectively; hence, employee turnover under the PRP system is low since employees are protected from inadequate compensation, which is a key factor that encourages high employee turnover in most organizations.

Therefore, the PRP system enhances organizational performance, since it acts as a key incentive for employees to achieve the pre-determined organizational goals. Although opponents argue that the system is narrowly focused, the system plays a crucial role in achieving the long-term goals by enhancing the achievement of the short-term organizational goals that are directly linked to the long-term goals (Kompaso and Sridevi, 2010, p.89). On the other hand, although opponents postulate that the system shifts employees’ focus towards rewards rather than towards developmental needs and hinders teamwork and cooperation, the system facilitates increased cooperation as employees seek to improve their performance by working with others to enhance their competence in performing tasks so that they can benefit from the rewards (Daley, 2012). Additionally, PRP encourages employees to pursue other work-related motives, including developmental needs, since they understand that they cannot achieve high-performance levels if they are incompetent in performing their tasks.

Conclusion

PRP is one of the most effective tools for improving organizational performance because it acts as a key incentive for encouraging employees to work hard towards achieving organizational goals. Further, the system encourages employees to focus on developing their areas of weakness so that they can achieve the desired level of performance and benefit from the reward system. Finally, the system is an effective tool for retaining employees since employees are fairly compensated for their effort; hence, they cannot quit from their work for reasons of inadequate compensation.

References

Armstrong, M., 2010. Armstrong’s handbook of reward management practice: Improving performance through reward. Kogan Page Publishers.

Boeri, T., Lucifora, C. and Murphy, K.J. eds., 2013. Executive remuneration and employee performance-related pay: a transatlantic perspective. Oxford University Press.

Bryson, A., Freeman, R.B., Lucifora, C., Pellizzari, M. and Pérotin, V., 2013. Paying for performance: incentive pay schemes and employees’ financial participation (pp. 122-123). Oxford University Press.

Daley, D.M., 2012. Strategic human resources management. Public Personnel Management, pp.120-125.

Farooqi, S., 2011. Performance Related Pay. Anvesha, 4(2), p.54.

Gielen, A.C., Kerkhofs, M.J. and Van Ours, J.C., 2010. How performance related pay affects productivity and employment. Journal of Population Economics, 23(1), pp.291-301.

Gruman, J.A. and Saks, A.M., 2011. Performance management and employee engagement. Human Resource Management Review, 21(2), pp.123-136.

Hutton, W., 2011. Hutton review of fair pay in the public sector.

Kompaso, S.M. and Sridevi, M.S., 2010. Employee engagement: The key to improving performance. International journal of business and management, 5(12), p.89.

Lucifora, C. and Origo, F., 2015. Performance-related pay and firm productivity: evidence from a reform in the structure of collective bargaining. ILR Review, 68(3), pp.606-632.