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Individual Performance Related Pay

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Question:

Critically evaluate the extent to which individual performance related pay can stimulate higher levels of performance from Employees.
 
 

Answer:

Drawing on published research that individual performance related pay can stimulate higher levels of performance from employees

As per Van De Voorde, Paauwe, & Van Veldhoven (2012), Individual performance related pay is the term which explains that an employee gets the rewards and payment as per their efficiency and as per their skills and talent. Sometimes this tool is also used as a motivational tool as rewards and recognition programs are started to enhance the efficiency of the labors and employees of the organization (Torrington, et. al., 2013). This measure was accepted after the period of recession in the USA when various private companies were performing retrenchment methods (Reeve, 2014). Under these methods, a number of employees were terminated without giving any reason. Individual performance related to pay refers various employees’ linked benefits through which they could secure the job for employees and company will provide a decent notice period if they retrench the employees (Long & Shields, 2010). Apart from this, every organization has various key employees which play the crucial role on behalf of an organization and they act as an important factor for organization’s success (Reeve, 2010). In this condition, the organization always tries to retain these kinds of employees and for retaining purpose, important factors of employees such as employees’ salary, and bonus, incentives, etc. needs to be analyzed. As per Torrington, et. al., (2013), apart from basic needs, retaining key employees requires extra efforts such as offering them luxurious things such as the car, well-conditioned house, etc.(Tooksoon, 2011). These benefits are being offered to employees because of their talent and skills which are helping the organization to earn a satisfactory rate of return in the dynamic business environment (Hasnain & Pierskalla Henryk, 2012).

Reward programs and incentives are provided to employees for their extra efforts (Tooksoon, 2011), and these are paid to employees apart from their fixed salary (Bryson, et. al., 2012). As per the human behavior, getting extra from what promised or decided is a motivational factor and helps the employees to work even better for attaining extra benefits. Hence, organization launches incentives, bonus and other attractive offers for employees to enhance their performance which could bring them a good amount of benefits in financial terms or in kind forms (Whitman, Van Rooy & Viswesvaran, 2010). Motivational techniques used by the organization help employees to fulfill their needs and in return employees starts working with the adequate amount of dedication which helps the organization to attain the organizational objectives (Tooksoon, 2011). Individual performance related pay does the same or it does even more (Whitman, Van Rooy & Viswesvaran, 2010). The more organization gets the outcome from employees' efforts, the more incentives will be credited to his account  Merit pay technique is followed by almost all organizations to enhance their worker's efficiency and to reward them for their extra efforts put to achieve organizational goals. As per recent surveys conducted in various industries, merit pay technique is effective enough to enhance the individual's performance at any level, apart from its being expensive, this technique is result oriented. Outcome orientation is the main reason for performing this technique, multinational companies and in the corporate sector; this technique is followed at huge scale (Fang & Gerhart, 2012).

 


As per Prowse & Prowse, (2010) there are the lot of methods involved under individual performance pay, such as appraisal assessment programs which are generally performed every year under which a certain rate of a hike is provided to the employee in terms of salary for gaining experience as well as for growth of the employees (Prowse & Prowse, 2010). Smart employees start providing results to the organization from very starting and this shows their dedication towards work (Snape & Redman, 2010). And if an organization would not treat them accordingly then it will be an act of demotivating employees (Paarlberg & Lavigna, 2010) and if the same act is conducted in a positive manner, employees get motivated and their dedication towards work also raises accordingly (Prowse & Prowse, 2010).

Piecework or commission is implemented in the organization in terms of increasing the quality in the organization according to (Prowse & Prowse, 2010). This policy is adopted by the HR department and this policy is directly linked to the output provided by the employees in terms of quantity (Gong, Li & Shin, 2011). This method of reward program is adopted in the sales and marketing teams under which employees are given with a certain target and on the accomplishment of that target and on extra work performed, the adequate amount of commission is credited to employees' account (Eijkenaar, 2013). Under these departments, salary amount is fixed and the rest benefits are the more you sell, the more you get. As per this conditions, employees work as per their requirements and to build the effective image in the organization. Money is the power source of motivating human being and this is the reason for every organization for adaptation of incentives, rewards, bonus, commissions, etc. in the form of money. As per Mason & Watts (2010), money attracts the employees to work harder and they start working extra which increases the productivity of the organization. Individual performance related pay is the source through which organization is able to accomplish its targets and objectives as well it also helps the organization to retain its key employees (Homburg, Klarmann & Schmitt, 2010). Other employees of the organization should also be trained so that they could also turn the things in a positive manner for the organization (Van De Voorde, et. al., 2012).

Role of IPRP in terms of motivating employees

As per Gillam, Siriwardena & Steel, (2012) another crucial factor of motivation is providing the bonus and it is a form of IPRP which is provided to employees as per their performances and on the important festivals. In abroad countries like UK, USA, etc., Christmas is treated as their biggest festival; hence people working over there get the attractive bonus in that period from their companies (Herzberg, Mausner & Snyderman, 2011). Payment of bonus is not compulsory in terms of organizations and merit pay and bonus both differ from each other (Damiani, Pompei & Ricci, 2016). The bonus is the additional payment made by the organization to employees apart from their basic pay. This method is mostly used in the financial institutions such as in banks, as people over there are awarded bonuses time to time in relevance to meeting the targets and it is included in the cost-effective tool. This is because rate and occurrence of bonus are not fixed; it is given on the basis of extra ordinary performance showed by an employee (Herzberg, Mausner & Snyderman, 2011). The amount of bonus and a number of incentives and other schemes differs from each other because bonuses are given often and this is the reason of their huge amount and incentives are provided on regular basis on the performance of employees (Whitman, et. al., 2010).

(CIPC, 2015) IPRP system was invented with a view to enhancing the productivity of the organization as well as to provide adequate benefits to employees that will result in achieving targets for an organization and in motivating employees in return for benefits provided to them (Hasnain & Pierskalla Henryk, 2012). But rather than this, these are considered as creating conflicts amongst the organization, between employees such as supervisor level will get incentives as per his performance and pay scale, whereas it may differ for manager level or experienced employee (Buller & McEvoy, 2012). Hence, this could be the reason for creating conflicts amongst the employees which could harm the performance of an organization. As per great motivator, Maslow states that organizations productivity is based on the lower level employees i.e. workers. They should be treated well and their psychological needs should be fulfilled on priority basis so that production capacity of the organization does not get harmed. Apart from Maslow, Hertzberg is another great motivator which states that in the period of recession, when unemployment, job insecurity, etc. happens. At that time, an organization should appoint people who could help the organization to overcome from the term recession whereas appointment of employees at recession times brings motivation in them and they work with adequate dedication towards the organization (Dörnyei & Ushioda, 2013).

As per the above discussion, it is cleared that motivational techniques are necessary for enhancing the performance of employees that will lead to increase in the performance of the organization as well. Apart from an adaptation of motivational theories, an organization could also take the help of IPRP (individual performance related pay) systems and appoint an effective motivator. IPRP systems help the employees to get benefits on the basis of their performance, quality of work delivered, etc. whereas motivator guides the employees to work in the manner which could make the way for being the success in the future. The main component of being the success in coming future is honesty and integrity towards the work and use and importance of these components could be explained by a motivator in a professional way so that employees could get influenced to perform with these qualities and with an aim to achieve adequate objectives for the organization. Motivational techniques also help the employees to reduce their stress level and show them an easy way to perform the work (Zhang & Bartol, 2010).

 


According to Mason & Watts, (2010) HR team is responsible for rewarding employees for their performances and individual performance related pay (IPRP) includes two types of reward programs. One is when employees achieve the targets set by the organization through meeting all the standards of the organization whereas other one performed as per employee traits exhibited. IPRP programs should be conducted through reviewing the position of the organization as well; it does not need that in every situation, employee's gets benefits. This is because, if after every success, the organization starts rewarding its employee's then the organization would not be able to meet its own needs and this will reduce the efficiency of the employees as well (Mason & Watts, 2010). The organization needs to make an effective balance structure between reward programs and deductions. This is necessary because, if an organization would be failing in making deductions in terms of unethical work performed by employees, an organization needs to bear losses in such conditions. All the rewards programs adopted by the company should be in considerations to its corporate objectives as well as the adequate benefit should also be gained by the organization in terms of rewards given to the employees. Analysis of organization's performance with IPRP program will be critically discussed under this assignment (Snape & Redman, 2010).

Merit pay is the part of individual performance relates pay as rewards and appraisals are included under this term (Daley, 2012). This measure is used by reviewing employees’ past performances. The main focus of this technique is the appraisal by reviewing the performance of the employees after a certain period of time. The organization has various kinds of benefits by applying for merit pay reward program in their workplace because it helps them to retain the employees for a long time and these programs also help the employees to enhance their performance to increase their productivity consistently. Merit pay applicability in the organization is dependent on the organization’s concern i.e. organization is concerned about the quality of the product or with the quantity. Hence as per these measures, incentive programs are implied in the workplace to motivate the employees for enhancing their performance. The organization should maintain the balance between the rewards and the employees' efforts and slab rate for reward programs should be mentioned as per the organizational department. This is necessary because supervisor level rewards and a manager position level’s rate of incentives and reward will differ from each other (Paarlberg & Lavigna, 2010).

“IPRP acts as the motivator” is a statement that proves that individual performance related pay should be offered to the employees in such a manner so that they could work without any personal benefits (Walumbwa & Hartnell , 2011). Monetary benefits could generate greed in employees and then they could start working for themselves rather working for an organization. To reduce the impact of this, the certain rate has been fixed by a management of the organization for reward programs so that after achieving at the certain level, employees could get extra benefits. As competition is increasing day by day and to compete in the competitive environment of business, an implication of IPRP methods is very obvious and result oriented. Thus, individual performance related pay system describes that the more you put efforts, the more you will get benefits in financial terms. Increasing rate of incentives, commissions, and merit pay scheme increase the cost of the organization but it also leads to increase in the productivity of the organization, hence performance linked incentives, quality linked incentives, and quantity linked incentives are common in various companies (Herzberg, et. al., 2011).

 

Contextual issues

Contextual issues such as employment, the standard of income, etc. gets affected in terms of individual performance related pay. Reviewing the IPRP techniques, it is found that employees’ performance is increased by providing them adequate benefits in the form of monetary terms. Organization appoints employees to complete the tasks effectively and efficiently and to enhance their work performance, the organization offers them incentives and other attractive offers. IPRP techniques affect certain issues like occupation, employment, and standard of income. For instance, an organization is appointing experienced and talented employees to perform certain activities in relation to get incentives and bonus in consideration towards the IPRP techniques. These are some techniques which are being followed by mostly all organizations at the international level. In these conditions, if any organization does not practice these techniques, an adequate orientation of results I quite difficult for that organization.

These techniques also put a great impact on the standard of income for an employee because employees have the opportunity to increase their earning by giving adequate outputs to the organization. As per individual performance related pay which also states that this system leads to motivate the employees helps the organization to make a decision for appraisals accordingly. It is obvious that employees working under the same slab will be given same rate of appraisal to reduce the chances of conflicts. Employees working for incentives i.e. person who worked every month more than the set targets get the incentives for his extra work done but still, he should be given more appraisal than ordinary employees as he is the reason for organizations improving performance. It is also found sometimes that a task was assigned to marketing team under which 10 employees were playing a part of that particular team (Council, 2012). The whole team accomplishes the target efficiently infect they obtained certain more from desired objectives.  As per the team's performance, organization is liable to pay incentives to all the team members along with the team leader and in the team there were 2 members who were not sincere in relevance to their duties hence, other members performed their duties and due to their hard work, whole team manage to achieve the targets as well as next level of targets were also achieved. In this scenario, an organization should make some analysis so that the person who performed adequately should be treated with extra ordinary benefits whereas those 2 team members should be penalized. This will state the lesson for other employees too so in future; this practice could not be repeated again (Reeve, 2014).

 

Conclusion

As per the above discussion, for acquiring adequate results from the employees, their basic as well as advanced needs should be fulfilled. And those fulfilments must be in the form of monetary terms or in the kind forms but that kind should be relevant to them. Apart from them, IPRP’s motivational factors were also discussed under this essay.

Author’s Opinion

The above discussion determines the importance of IPRP techniques and these are some of the valuable techniques which are useful for every type of organization. Apart from this, author has described the importance of motivational techniques in the organization. If any organization wants to achieve adequate objectives, then organization needs to adopt certain motivational and IPRP techniques so that employees could work efficiently. 

 

References

Bryson, A., Freeman, R., Lucifora, C., Pellizzari, M. & Perotin, V., 2012, “Centre for Economic Performance, LSE”, Paying for performance: incentive pay schemes and employees' financial participation (No. dp1112).

Buller, P.F. & McEvoy, G.M., 2012, “Strategy, human resource management and performance: Sharpening line of sight”, Human resource management review, vol. 22 (1), pp.43-56.

Council, F.R., 2012, “The UK corporate governance code”, London.

Daley, D.M., 2012, “Strategic human resources management”, Public Personnel Management, pp.120-125.

Damiani, M., Pompei, F. & Ricci, A., 2016, “Performance related pay, productivity and wages in Italy: a quantile regression approach”, International Journal of Manpower, vol. 37 (2), pp.344-371.

Dörnyei, Z. & Ushioda, E., 2013, “Routledge”, Teaching and researching: Motivation.

Eijkenaar, F., 2013, “Key issues in the design of pay for performance programs”, The European Journal of Health Economics, vol. 14 (1), pp.117-131.

Fang, M. & Gerhart, B., 2012, “Does pay for performance diminish intrinsic interest?”, The International Journal of Human Resource Management, vol. 23 (6), pp.1176-1196.

Gillam, S.J., Siriwardena, A.N. & Steel, N., 2012, “Pay-for-performance in the United Kingdom: impact of the quality and outcomes framework—a systematic review”, The Annals of Family Medicine, vol. 10 (5), pp.461-468.

Gong, G., Li, L.Y. & Shin, J.Y., 2011, “Relative performance evaluation and related peer groups in executive compensation contracts”, The Accounting Review, vol. 86 (3), pp.1007-1043.

Hasnain, Z. & Pierskalla Henryk, N., 2012, “Performance-related pay in the public sector: a review of theory and evidence”.

Herzberg, F., Mausner, B. & Snyderman, B.B., 2011, “Transaction publishers”, The motivation to work (Vol. 1).

Homburg, C., Klarmann, M. & Schmitt, J., 2010, “Brand awareness in business markets: When is it related to firm performance?”, International Journal of Research in Marketing, vol. 27 (3), pp.201-212.

Long, R.J. & Shields, J.L., 2010, “From pay to praise? Non-cash employee recognition in Canadian and Australian firms”, The International Journal of Human Resource Management, vol. 21 (8), pp.1145-1172.

Mason, W. & Watts, D.J., 2010, “Financial incentives and the performance of crowds”, ACM SigKDD Explorations Newsletter, vol. 11 (2), pp.100-108.

Paarlberg, L.E. & Lavigna, B., 2010, “Transformational leadership and public service motivation: Driving individual and organizational performance”, Public administration review, vol. 70 (5), pp.710-718.

Prowse, P. & Prowse, J., 2010, “The dilemma of performance appraisal”, In Business Performance Measurement and Management (pp. 195-206). Springer Berlin Heidelberg.

Reeve, J., 2014, “John Wiley & Sons”, Understanding motivation and emotion.

Snape, E. & Redman, T., 2010, “HRM practices, organizational citizenship behaviour, and performance: A multi?level analysis”, Journal of Management Studies, vol. 47 (7), pp.1219-1247.

Tooksoon, H.M.P., 2011, “Conceptual framework on the relationship between human resource management practices, job satisfaction, and turnover”, Journal of Economics and Behavioral Studies, vol. 2 (2), pp.41-49.

Torrington, D., Hall, L., Taylor, S. & Atkinson, C., 2013, “Human Resource Management”, The Ultimate Bookshelf, vol. 9.

Van De Voorde, K., Paauwe, J. & Van Veldhoven, M., 2012, “Employee well?being and the HRM–organizational performance relationship: a review of quantitative studies”, International Journal of Management Reviews, vol. 14 (4), pp.391-407.

Walumbwa, F.O. & Hartnell, C.A., 2011, “Understanding transformational leadership–employee performance links: The role of relational identification and self?efficacy”, Journal oal and Organizational Psychology, vol. 84 (1), pp.153-172.

Whitman, D.S., Van Rooy, D.L. & Viswesvaran, C., 2010, “Satisfaction, citizenship behaviors, and performance in work units: A meta?analysis of collective construct relations”, Personnel psychology, vol. 63 (1), pp.41-81.

Zhang, X. & Bartol, K.M., 2010, “Linking empowering leadership and employee creativity: The influence of psychological empowerment, intrinsic motivation, and creative process engagement”, Academy of management journal, vol. 53 (1), pp.107-128

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