motivation in practice - performance related pay
Performance-related pay is a financial reward to employees whose work is:
• Considered to have reached a required standard, and/or
• Is above average
Performance related pay is generally used where employee performance cannot be appropriately measured in terms of output produced or sales achieved. Like piece-rates and commission, performance related pay is a form of incentive pay.
Whilst the detail of performance-related schemes varies from business to business, there are several common features:
• Individual performance is reviewed regularly (usually once per year) against agreed objectives or performance standards. This is the performance appraisal.
• At the end of the appraisal, employees are categorised into performance groups – which determine what the reward will be (if any)
• The method of reward will vary, but traditionally it involves a cash bonus and/or increase in wage rate or salary.
Performance-related pay has grown widely in recent years – particularly in the public sector. This is part of a movement towards rewarding individual performance which reflects individual circumstances.
According the Equal Opportunities Commission, a well-designed performance-related pay scheme would have the following elements:
•
Objective setting
•
Communication and understanding of objectives
•
Consideration of performance against objectives
•
Translation of evaluation into performance rating
•
A link between ratings and the determination of pay
•
A separate appeals procedure
Disadvantages of Performance Related Pay
There are several problems with performance-related pay:
• There may be disputes about how performance is measured and whether an employee has done enough to be rewarded
• Rewarding employees individually does very little to encourage teamwork
• It may encourage unhealthy rivalry between managers
• There is much doubt about whether performance-related pay actually does anything to motivate employees. This may be because the performance element is usually only a small percentage of total pay.
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