Performance related pay is a way of financially rewarding and acknowledging employees work, either for employees whose work is considered to be above average and to those whose work is presumed to have reached or supersede a required standard. Booth et al (1999) state that performance related pay is usually used when the performance of an employ in terms of output, produce and sales is not easy to measure. Therefore, performance related pay can be looked at as a form or means of incentive pay to the employee who deserve it. As a means of motivating employees, performance related pay is a method of reward, where employees are mainly motivated by cash bonuses, given in special occasions, or where the employees are warded, salary or wage increase.
Performance related pay has got numerous advantages because the incentive that is offered can assist in increasing the performance of the staff. This is very evident since for a staff to be rewarded, he/she must have accomplished the goals and objectives as set. These goals can either be, personal goals, team goals or organizational goals, and sometimes, they can be a combination of all of them. In addition, it has been studied by scholars that direct incentive is the best way to motivate employees, hence, as PRP, which is categorized as one of the direct ways of giving a direct incentive to employees; it will help workers to reach the set targets. Another advantage of PRP is its ability to offer tangible reward to an employee. Most workers, as researches have revealed prefer tangible motivation to their contributions, or work that they have done, and as such, PRP stands a better chance of meeting this expectation. Also, it’s been investigated and found that when employees expect a reward or a motivation for their work, they tend to develop a unique performance culture which is healthy for achieving an organizations goals and objectives. And since PRP is a well known means of motivation, when used employees develop the kind of expectation which will introduce the performance culture needed for increased employee output, produce or sales. Thus, a good PRP system which is implemented without favors will reward the best performer. Indeed, employees are more likely or are better placed to focus more on the things they need to do or to improve on if they are aware that there will be a reward attached to them, mostly when the reward is attached to pay.
Another outstanding advantage of performance related pay to the managers is its ability to establish a well structured way for setting goals which is of great importance to the line managers. And when the line managers derive assistance from such kind of corporate framework they tend to focus objectively to individual employees and as such they help improve the individual productivity and performance. Furthermore, good line managers can use this corporate structure for setting objectives and goals which are key in improving employee performance, thus making PRP one of the best incentive schemes in dealing with poor performance. Lastly, PRP’s structure enables it to reward the high performance and this can help in retaining the best and most industrious employees.
One obvious disadvantage of performance related pay is its inability to sustain pay equity, and when not operated well, it can lead to reduction in pay equity, or further still it can make an authority to incur costly pay challenges. Also, the employee performance appraisal process is at risk of bias, since the appraisal may lose focus from developmental needs to financial rewards. Sometimes, the goals that are set for an employee to achieve may be so hard to meet and this can de-motivate such an employee. Another demerit of this kind of incentive is that it relies or depends on the quality of line managers judgment, and this can lead to prejudice or bias in the reward process because there is no standard measure of the performance output. Sometimes this kind of incentive can prevent team work and cooperation since every staff will put much focus on the individual work in order to meet individual goals and targets, thus as an incentive to reward short term quantifiable goals, performance related pay may be too narrowly focused. Ultimately, PRP can create expectation of additional pay every year and in a year that inflation crisis befall, the rewards may not be that great.
In summary performance related pay is important in motivating and maintaining talented and most industrious employees as well as getting those employees who are not motivated to improve on their productivity(Booth et al, 1999). On the contrary, performance related pay may be disastrous in that it may be a cause of division for employees if they sense that the line manager is treating them with bias, either unfairly or unequally. However, this is not likely to…