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This section conducts analysis of two empirical cases critically and makes assessment of the value PRP theory and benefits it achieves in business organizations.

Performance related pay theory in business organizations The whole objective of pay related systems like the PRP and other HRM theories is obviously to bring or add to the value of business organizations. When we take a look at the first paper, it is obvious that on the average PRP increases an organization’s value. The following are the perceived benefits of the PRP theory:

Motivates employees and improve their performance

The human needs hierarchy theory of Maslow (1943,1987) and the two factors theory of Herzberg (1959) indicate that in modern society satisfying human needs like payment is in a position to motivate people to work harder. Furthermore, in business organizations payment related to performance can stimulate people to accomplish the performance that organizations want. Kessler and Purcell (1992) claimed that if direct relationship exists between effort, performance and reward, employees would be motivated. PRP schemes act exactly as this direct link motivating the employees to increase their efforts.

Facilitates change in organizational culture Kessler and Purcell (1992) argued that PRP refers to flexibility, dynamism, entrepreneurial spirit and careful allocation of resources, leading to a

performance-orientated culture. Therefore, the introduction of PRP facilitates change in business organizations culture from collectively negotiated formula to individual contribution, which assists in solving problems and increase value of organizations. communication and reducing problems of recruitment and retention.

Generated by Foxit PDF Creator © Foxit Software http://www. In the implementation of PRP. Table above shows that only 2 percent respondents consider PRP as the motivator for them to work harder while respondents with opposite idea accounts for 45 percent. PRP can produce many benefits for organizations. However. the organisation’s norms of behaviour can be enhanced by rewarding congruous work effects and by punishing incongruous performance. there are always gaps between theories and practice of PRP as Marc Thompson (1992) stated that it is hardly to find any relationship between corporate performance and the use of PRP. Also 67 percent respondents embrace neutral idea on the question of whether PRP . Equity theory bought up by Adams (1965) stated that employees need to be treated fairly at work in relation to other. Other functions PRP also refers to rewarding employees in equity.foxitsoftware. Compared to non-incentive pay based on collectively-negotiated formula. PRP schemes are more fair and moral because it rewards employees for their achievements and whether employees accomplish targets set by organizations. it strengthens management control and clarifies job roles within organizations. Encourages the internalization of performance norms “PRP can encourage the internalization of the organisation’s goal or norms of behaviour among the employees of the organization” (Geary. For evaluation only. In this part data from the NHS case will be utilized to illustrate some core problems of PRP. 1992). which have been demonstrated above. Problems of PRP in practice Theoretically.

Therefore. Besides payment. short term approach stemming from narrow and misleading objectives could make employees ignore intangible aspects and long-term tasks. which is often not the case in practice. Reward PRP regards reward as the motivator for employees to work hard. As Belfield and Marsden (2002) argued that the use of PRP will do more harm than good if the right monitoring environment is not in place.Generated by Foxit PDF Creator © Foxit Software http://www. . imposition and narrowness of PRP in objective-setting could lead to failure of the implementation. Maslow’s theory of the Hierarchy of Needs (1943) stated that payment is not the only need of human beings. What’s For evaluation only. Setting performance objectives It is essential for organizations to set up clear and measurable objectives so that the behaviour of employees can be guided by objectives. In practice. scales of ratings and fair appraisals made by managers are difficult to achieved. esteem needs and self-actualization. However. scheme affect motivation to do the job and 77 percent respondents did not feel more co-operation after the introduction of PRP scheme.foxitsoftware. Assessment and ratings Assessment and ratings are indispensable stage of PRP system. people also have mental requirements such as belongingness needs. the weakness of PRP in objective-setting could discourage behaviour that is not financially rewarded and prevent business organizations from functioning well. which make employees not satisfied with ratings given to them. two crucial elements during these processes.