Performance Related Pay

Performance Related Pay

Author of Report:

Shevon Oxford (Personnel manager)

The purpose of this report is to gather views from staff regarding the introduction of a performance related pay system.

Requested by: Tony Milward (Personnel Director) of Transmitacom. Transmitacom is a company, which produces software for the telecommunication industry.

Date request was made: 01/11/04

Date completed: 16/11/2004

The data was collected from a variety of books dedicated to the subject of Performance Related Pay and from an article entitled: Performance Related Pay is it a motivator? Also from internet sources.

What is Performance Related Pay?

Performance related pay is the idea of Frederick Taylor who comprised his theory of scientific management. ‘It is a bonus salary increase awarded in line with an employee’s achievement over a range of criteria.’ These criteria depend on each job. (David Lines and Ian Marcouse pp)

A company that adopts this method has to set clearly defined objectiveso that staff know what they rae doing. Awards are decided based on appraisal results. They must link achievements to pay (and decide how much to pay and where the money comes from).

This table looks at the advantages and disadvantages of Performance Relate Pay from the article:

Advantages Disadvantages

• Only those who perform well get paid

• Rewards employees with highest productivity

• It is argued this system motivates staff

• It enables firms to recruit highly qualified staff who like the idea of being able to earn a bonus

• Encourages employees whose performance is not up to scratch to leave company on a voluntary basis

• Easy to identify companies aims and objectives

• High flyers find it attractive • Possible to give employees no pay rise at all

• Inflations means pay will be cut and this coupled with the indignity of being judged and found wanting would, would make it that employees seek a job elsewhere

• Union influence within the company diminishes and employees negotiates their pay individually and furthermore appreciates that their bonus depends on the company being successful

• Staff do not always feel they are appraised fairly

• Works against good team spirit as it every man for himself

Views of Transmitacom staff

30% For

70% Against

As Transmitacom is producing software, employees should try to work together to enhance quality. Introducing Performance Related Pay into the company will cause conflict. The element of teamwork diminishes; some employees will do better than others, which may lead to the stealing of other workers equipments. It is every man/ woman for him/herself.

As employees of Transmitacom it is understood that under this system both the company and the individual will benefit as better performance leads to higher revenue and rewards.

Transmitacom ultimate aim is to increase productivity. Some members do agree with Performance Related Pay, it was said that ‘since good performers, expect and indeed require more pay in order to be as satisfied as are lower performers, it follows that in order to retain good employee, they must be paid more than poorer performers.’ (Lawler E pp) These employees feel that this is justice

Others against the system argue that there will be no loyalty from employees; they will have job dissatisfaction. This system does not care about employees only about increasing productivity, well for the company not employees.