Performance-Related Pay

Performance-related pay (PRP) offers individuals financial rewards in the form of increases in basic pay or cash bonuses which are liked with an assessment of performance, usually in relation to agreed objectives. The trend of reward from the Performance related reward aspect is changed from focus on individual PRP to team based performance related pay.

Merits/ demerits

Merits

• Produce an obvious result of moral stimulation, raise the enthusiasm to work, the one who want a higher pay need to work harder, provide the power of development

• Raise employee satisfaction and achievability, improve employee performance or productivity. Reduce staff turnover, after paid the basic wages, the rest is paid after the relevant work performance is finished, that gives the staff reason to stay in the company. Reduce the need of other managerial control and financial control over staff.

• Have a clear job objective, help to achieve the strategic target. Make staffs more aware of organizational goals or expectations. Encourage them to learn new skills, they also can understand what kind of talent the company lack of or considers important. Motive the company and the staff to pay attention to the key performance issues.

• Reduce the risk of operation, especially used when a company suffered problems with financial affairs. The obligatory expense is just basic pay; the company can save the labor cost.

• PRP is related to the flexibility of wage system or company image, can help change the organizational culture.

Demerits

Measurement problems

It is based on the assumption of all performance can be measured. If the employee considers the measurement is not fair or accurate; the system will not work well. If the gap is too small, the staffs may lose the motivation to work harder.

Bring about narrow focus

PRP often seduce staffs to pursuit for the short term performance regardless of the long-term goal. Try every means to increase their sales volume, make irrealizable promise do harm to the company image.

Foster competition

A high fluctuation between the wages let the staffs fell unsafe. It is hard to balance the relationship between individual and group, cause too focus on rewarding employees individually does very little to encourage teamwork. The colleague will not trust each other, because competition destroys relationship, breeds anxiety, shame, secrecy, selfishness. Always have competition, the ones in the division solved by adopt team based performance related pay, and the ones between different divisions come out.

Features

• It is an appraisal assessment about the past, based on the data of an individual or a group’s past work behavior and performance. Directly link the wage with the fulfillment of the job objective.

• Not suit for all employees, sometimes appropriate to production worker, managers, and salesman.

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