Performance Related Pay

Essay by teatree May 2005

download word file, 14 pages 4.5

Human resource management is defined as 'the part of the management process that specializes in the management of people in work organization. It emphasizes that employees are the primary resource for gaining sustainable competitive advantages, that human resources activities need to be integrated with the corporate strategy...' (Bratton & Gold, 1994, p5) Human resource management has become an important tool in today's business environment, with organizations looking forward to enhancing productivity through effective employee management. In recent years there has been an increased emphasis on how businesses use reward and appraisal schemes in order to achieve this. One area of a reward scheme is payment of employees and what method is used to achieve this.

Performances related pay (henceforth PRP), often termed individual performance related pay, is defined as 'a system in which an individual's increase in salary is solely or mainly dependent on his/her appraisal or merit rating' (Kinnie .N&D.

Lawe, 1990). PRP has grown in popularity since the 1980's as businesses hadmoved towards individualization.

In theory PRP seems an attractive scheme. Employees are set targets by the company and are assessed on their achievement of them. The employees are assessed on their ability to meet these targets and reward is thengiven in return in the form of payment. Many advantages have been attached to PRP. For instance, it serves as a motivator and as a result that can enhance performance; in addition, it is seen as an effective way to attract and retain qualified employees. Moreover, it aids in reinforcing or changing organizational culture and also highlights differences between high and low performers (Pinningtoo.A&T.Edwards, 2000).

There have been documented examples of PRP being successful in practice. Richer Sounds, a UK based hi-fi retailer implemented a PRP system in which employees customer service performance resulted in payment...



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