Individual Performance Related Pay

Strategic Human Recourse Management (HRM3007)

Student Name: Jayasundara Mudiyanselage Sarani Tharanya

Jayasundara
Student No: 20415623
Word Count: 2151
 1. Introduction

Performance related pay (PRP) were first introduced in the United Kingdom in the
1980s. It was hoped that many organizational performance salaries would make a
difference in the organization. (Kessler I, Purcell J , 1992). As Armstrong (1999)
noted, there was a great deal of anticipation since performance-related payroll
reports were first created. But the proposals did not yield the expected results at
the time. (Pual Suff et al, 2007). Various scientists have argued about PRP and its
motivational tools. The advantages of PRP are that it provides a tactile means of
identifying individuals' achievements, direct encouragement, and flexibility to retain
key staff. They have also argued that the criteria for paying for performance in this
way means that it can be discriminatory, eliminating a large number of high-
performing employees and preventing a sense of equality. (Pual Suff et al, 2007).

PRP is built on a foundation on which reward can nurture correct behavior. It is also
a powerful incentive for the financial institution to influence the efforts of
employees on behalf of the organization. However, some theories state that money
can act as a goal in itself and that employees can value external status and internal
acceptance as a symbol. One of its theories, Maslow and Herzberg’s theories of
'needs', focus on the innate aspects of the job and argue that people can get the
most out of work, such as responsibility, success, and acceptance. Other critics of
the PRP also point out that such pay proposals are coercive and may encourage
misconduct. For example, teams focus on a single effort at the expense of work.
(Pual Suff et al, 2007)

The purpose of this essay is to examine the advantages, disadvantages, and

contextual differences between individual performance-related pay and its
perspectives. It also aims to discuss at length the advantages and disadvantages of
the individual performance-related payroll system, characterized by strengths and
weaknesses based on certain literary evidence. It aims to discuss how individual
performance works in different nationalities, different organizations, and some
cultures. Various contextual issues that arise with the implementation of this
payment method are discussed. Finally, it goes on to discuss the management and
theoretical implications of IPRP in detail with the conclusion of the essay.

2. Advantages and Disadvantages of IPRP

According to Armstrong (1999), PRP is a fair administration based on the theory

and realistic expectation that it can act as a key lever for organizational change and
that it may work better in some organizations than in others. Also, according to
Armstrong, ‘If the PRP mechanism fails, it is most likely because the valuation
process is flawed. It is clear that a PRP scheme is more effective based on the
performance management system on which it rests. (Armstrong, 1999). This
growing understanding of the practical application of PRP and its advancing society
with globalization has given many organizations today a more innovative approach
to its use. For example, the concept of 'complete reward', in which merit pay or
incentive bonuses are considered to be one of the factors influencing an individual's
work experience, resonates with employers who seek to meet different expectations
of their employees. (Armstrong, 1999)

One thing that needs to be talked about specifically in this thesis is when it comes
to employee self-motivation. There (Gerhart & Fang, 2014) argues that they are
looking for what needs to be implemented as soon as possible to have a higher
relationship with wages. Thus, the required job can be executed quickly. (Fang,
2014). Further confirming this, (Pupato, 2017) noted that the company's employees
provide increase growth for the members of the organization to achieve work goals.
It can, in the end, take employee acceptance to the surface with certain
consequences that lead to the psychological well-being of employees.

In general, with the achievements of the staff of any company, the individual must
ensure that the payment method and benefits are compensated. It is noted that it
currently represents skills, experience and knowledge capital, taking into account
that it leads to enhanced activities. Therefore, this motivation helps the
management of any company to formulate action plans for their staff and to create
work ethic for each staff through effective work ethic. Furthermore, in doing this, it
is important to understand that differences in staff performance and skills will be
individually identified and a proper payment system will be provided. This is
because, on the one hand, the manager must adhere to their specific pay scale for
each employee performance measurement to ensure that the input and payment
system is balanced. ( DeWitt and Hamel, 2002)

The Individual performance of the human resources or staff in a company should be

in line with the vision and mission of the organization, and one of the goals of the
IPRP is to build interpersonal performance with that vision and mission and
business objectives. This is a fact that benefits the business. This is because such a
pay scale is usually based on the performance appraisal of the individual.
(Researchkorner, 2013)But there are drawbacks to this approach. They can drive to
a friendly competition between individual man resources or staff that can lead to a
workplace controversy, and they can if they think so, get depressed the
Performance evaluation of individuals, what they have done for the business
organization does not match what they personally think. (Researchkorner, 2013).
This has the strengths and weaknesses of pay rolling in relation to individual
performance. For example, paying for a favorable performance appraisal, especially
in the learning process, provides a positive reinforcement of human resources or
the attitudes and behavior of staff. Also, Champion-Hughes (2001) states that this
can be used as a motivating factor and as a financial benefit scheme.

According to (Pual Suff et al, 2007) , they see IPRP as an advantage that provides
direct encouragement. It is also used as a tangible means of recognizing victory. It
is also believed that ‘performance’ generates a culture. Moreover, IPRP helps to
improve target setting as an advantage. They say that it improves personal
performance, productivity, quality of work, and so on. Focus employees on
improvement. Rewards the best actors, aids corporate change, recognizes poor
performance, and flexibility helps retain a valuable staff.
 3. IPRP in Different context

Individual performance related pay can be discussed through various aspects. It

varies from country to country, from company to company, from culture to culture,
and so on. Several authors argue that individual performance-related pay is easier
for lower-level employees because their performance is broadly quantitative and
measured in terms of their output (Unger, et al., 2019). Also, the authors critically
point out that there is no risk of lowering the monthly salary of low-level employees
in various companies and in different countries with their performance appraisals.

According to (Peter and Reilly, 2005), the efficiency of the public sector is
determined by performance-related salaries. For example, they point out that
payments related to individual performance in France and Madsen are limited to a
minority of the public sector. It also means that only one tenth of the employees
receive it. However, research has shown that some people find satisfaction, relief,
and the inherent reward of a job rather than pay. For example, they point out in
the 2002 Public Service Productivity Report that public service is rarely referred to
as a salary motivation.

(Zahid Hasnain et al, 2012) Argues that observational studies of performance-

related pay for public sector employment suggest a somewhat limited effectiveness
productivity of this component of pay flexibility. However, according to a survey
conducted in the United States, the United Kingdom and Australia incentives
program reviews, especially performance management and identification systems,
and the implementation of the Inland Revenue Service Performance Scheme
Several common problems are documented in this study. There, employees never
scored below the satisfactory level of their ratings. (Cardona, 2007)

However, bonus schemes are designed to ensure that only a very small number of
employees receive no pay and note that there was no empirical link between wage
fairness and workplace behavior. Analyzing this further, the manager has
encountered minor positive changes due to the introduction of performance pay,
and in the context, multiple studies confirm the political and operational difficulties
of successfully introducing any major program of pay reform in the public service.In
the private sector, individual performance pay is seen as a very good means of
communication. They see it as an economic necessity. In a competitive economy,
wages can be adjusted based on individual circumstances. However, it is used as a
key staff retention tool in the private sector. (Peter and Reilly, 2005)

(Marcet, 2019. ) However, performance-based salaries are used by private sector

organizations with relatively high competitiveness. That is, they have empirical
evidence suggest that performance-based pay is more appropriate for lower-level
non-executive employees, and that higher-level employees have the problem of
accurately measuring the quality of their work results. It has not only a positive
aspect but also a negative outlook on individual performance-related pay. This is
because previous research has shown that individual performance-based pay is
more appropriate for service-oriented organizations such as finance, auditing, and
IT. These are the method of evaluating performance, the number of employees, the
corporate culture, the market competition, the corporate profitability, and so on.
(Brehm and Imberman, 2017).

4. Indication of motivational theories about IPRP

Talking about motivational theories is an important part of IPRP. This is because

the impact of wages on individual performance is linked to a variety of theories,
such as goal setting theory, aspiration theory, and the theory of innate and external
motivation.

According to Brown and Haywood (2002), PRP is a stress factor for employees,
and many line managers are of the opinion that staff tend to put more pressure on
them. They also achieve motivation and goals through the rewards and incentives
offered for each performance. However, it is not uncommon for employees to feel
pressured as their promotions and evaluations are highly tied to a performance-
based approach. This causes workers to feel more stressed and can even lead to
the collapse of a staff member. (UKEssays., 2018)

Goal setting theory, however, implies that the primary criterion for effort is the
achievement of personal goals. (B .Corgnet et al, 2018). According to (Mu’izzuddin,
et al., 2017) it can be seen that personal goals stimulate an increase in the effort
generated by incentives. Challenging goals lead to better goals than easy ones
because people have to put in more effort to achieve them.

Performance bonuses are a very common implication when discussing employee

motivation. This is because they are a fairly basic performance based payment. In
general, bonus awarding takes into account the appraisals of an individual, group of
employees, or the entire department. There, long-term or short-term activity is
evaluated for productivity or performance and a special bonus is awarded. In order
to award these bonuses, they are determined on a case-by-case basis and are
awarded for exceptional performance. Performance bonuses can be very effective,
but it is important to pay attention to these bonuses carefully and clearly. This is
because these bonuses are not given in standard sizes or frequencies, and some
employees may sue for sponsorship if the bonus is not properly planned. (FIRM,
2018)

Another important motivational medium is the merit-based reward system. This

is commonly used in factories. For example, the garment industry, food production,
tea factories and other factories. This allows employees to be financially
compensated based on the development of skills relevant to their job. In some
companies, employees have the opportunity to receive additional training for skills
that the company thinks will improve their performance. If the employee chooses to
attend the training session, they will receive a prize. If they choose to leave, they
will not receive any prizes. This method is based on the simple idea that employees
with more relevant skills will be motivate and that compensation is a good way to
encourage employees to receive training on those skills. (FIRM, 2018)

Conclusion
The purpose of this long essay on individual performance-related pay is to examine
the pros, cons, and contextual differences in drawing its perspectives. In summary,
individual performance-related wages are a recent development in the human
resource management literature that began in the UK in the 1980s. Although these
payments are said to be one option for different pay scales, such as merit-based
pay, seniority-based pay, and peace-based pay, they are widely used by
performance-based payroll companies that are relatively highly competitive.
Previous research by service-oriented organizations such as finance, auditing, and
IT confirms that there is not only a positive aspect, but also a negative outlook on
individual performance-related pay. Finally, based on previous literature findings, it
is suggested that the payroll system associated with each performance, such as the
number of employees, the performance appraisal system, market competitiveness,
corporate profitability, and corporate culture, is highly influential.

References
DeWitt and Hamel. (2002). Retrieved from leg.mt.gov: Available at :
http://leg.mt.gov/content/publications/fiscal/interim/financecmty_june2002/
broadband_report.pdf/Payment system Plan. Legislative Finance Committee: (Accessed on
04.10.2020)

Armstrong, M. (1999). Employee reward. , Institute of Personnel and Development.

B .Corgnet et al. (2018). Goal setting in the principal–agent model: Weak incentives for strong
performance. Games and Economic Behavior, Volume 109, pp. 311-326.

Brehm and Imberman. (2017). Achievement effects of individual performance incentives in a teacher
merit pay tournament. Labour Economics, Volume 44, pp. 133-150.

Cardona, F. (2007). Performance-Related Pay in the Public Service in OECD and EU Member States . Paris:
OECD SIGMA.

Fang, B. G. (2014). Pay for individual performance,issues,claims,evidance and the role of sorting effects.
human resource management review , 24(1) 41-52.

FIRM, S. (2018, August 17). www.sozofirm.com/increase-employee-motivation-with-performance-based-

pay/. Retrieved from www.sozofirm.com: Available at : https://www.sozofirm.com/increase-
employee-motivation-with-performance-based-pay/ (Accessed on 06.10.2020)

Kessler I, Purcell J . (1992). Performance‐related pay: objectives and application. Human Resouce
Management Jurnal, Vol 2. No 3.

Marcet, F. (2019. ). Performance Pay and Catering Incentives. .

Peter and Reilly. (2005). INDIVIDUAL PERFORMANCE-RELATED PAY. Training Journal, 36.

Pual Suff et al. (2007). Paying for Performance New trends in performance-related pay. INSTITUTE FOR
EMPLOYMENT STUDIES.

Pupato, G. P. (2017). Performance pay , trade and inequality. Journal of Economic Theory.

Researchkorner. (2013). researchkorner.blogspot.com/2013/11/strengths-and-weaknesses-

individual.html?detail=yes. Retrieved from researchkorner.blogspot.com: Available at :
http://researchkorner.blogspot.com/2013/11/strengths-and-weaknesses-individual.html?
detail=yes.,(Accessed on 3.10.2020)

UKEssays. (2018, November). Performance Related Pay And Employee Rewards Management Essay. .
Retrieved from Available at : https://www.ukessays.com/essays/management/performance-
related-pay-and-employee-rewards-management-essay.php?vref=1., (Accessed on 6.10.2020)

Zahid Hasnain et al. (2012). Performance-related Pay in the Public Sector. The World Bank.