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HRM Assignment v 2 Upload

HRM Assignment v 2 Upload

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Published by ShaadH
Performance related pay
Performance related pay

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Published by: ShaadH on Jan 17, 2010
Copyright:Attribution Non-commercial


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Human Resource ManagementPage 1
“Performance related pay is one of the most effective solutionsto lagging performance culture”How far would organisations agree with such a statement?
Recent years have witnessed a variety of attempts to link pay to a measure of performance. Among thevarious extensive innovations brought to compensation systems, a substantial growth in the use of 
Human Resource ManagementPage 2
 performance related pay (PRP) has been noted. Such innovations have often been related to broader initiatives to improve the performance of organisations and especially efforts to increase employeeinvolvement in decision-making
(Appelbaum and Batt 1994; Walsh 1993).
While the original performance related pay systems were concentrated in the private sector, an increasing number of publicsector employers have introduced this scheme recently, or are considering of doing so. For instance in2007 government of Mauritius introduced PRP in the public sector.The most common and oldest PRP scheme is the “piece-rates”, where a price is paid for each unit of output. “Payment by results” is another form of PRP. Here, bonus earnings depend on measuredquantities or values of output for individuals or groups, usually based on work studied time units; thiscovers a wide range of bonus schemes.There is also “Plant or organisation wide incentives” which ensures that bonus earnings or pay levels are based on measured quantities or values for the whole establishment. “Merit pay” is another widely usedPRP scheme where bonus earnings or pay levels are usually based on a general assessment of anemployee’s contributions to performance.“Performance related pay” which is currently being applied within different organisations across theworld is another form of PRP scheme. This PRP system ensures that bonus earnings or pay levels are based on an assessment or appraisal of an employee’s (or team’s) performance against previously setobjectives, usually part of a performance management system. This is a fairly recent development, particularly in the public sector, which has grown sharply in use since the 1980s.“Competence based pay” is another form of PRP where reward and training are linked to competencyframeworks, based on the worker demonstrating certain skills (eg. Problem solving, decision making,leadership, customer service, dealing with differing views) or achieving certain qualifications.There is also “Profit related pay” which is a PRP scheme where bonus or share options are based on theorganisation’s profit performance; this is widespread in the private sector, where share options are oftenimportant for senior managers.PRP can be individual or group based. The key to all performance pay systems is the measurementrequired to determine the output on which to base payments. The main steps are setting objectives,appraisal results and linking achievements to pay. The ultimate reason behind the adoption of PRP byorganisations is to enhance performance. People like processesandsystems, are a source of competitive  advantage. In order to make the most of this advantage, an organisation need to make sure that itsemployeesare motivated and are working on achieving the company’s set objectives.
Human Resource ManagementPage 3

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