Performance Related Pay: Concepts, Theories, And Effectiveness

Write an essay in which you:

1. Explain the concept of Performance Related Pay and analyse how the various aspects of Performance Related Pay link directly to academic theories of motivation.

2. Evaluate the effectiveness of using Performance Related Pay systems across two different employment industries. 

3. Use correct academic writing technique including the effective structure, grammar, spelling, use of in-text citations, and a reference list, both of which should use the Harvard Referencing convention.  

Types of Performance Related Pay

Performance related pay is considered as the financial reward to employees whose work is accomplished within time frame. It is usually utilized where the performance of employee cannot be adequately measured in terms of sales achieved.  It has been analyzed that money is powerful motivator which can attract number of employees. Therefore, it is able to connect pay to performance. Variety of compensation system is being offered by performance related pay from merit plans to inconsistent pay plans which are broken out into group incentives plan (Lucifora, 2015). There are various concepts of performance related which will be described in this assignment. Motivation has two kind monetary and non-monetary motivation techniques and the connection between motivation theory and performance related pay will be mentioned to show the involvement of motivation theory in PRP. The two different employment industries will be taken to evaluate the effectiveness of the performance related pay because every industry has its own way to evaluate the performance of the employees and the incentives plan. PRP encourages employee of the organization to earn more money

There are various concepts of performance related pay such as performance planning, reward concept and evaluation concept. The most common type of performance related pay is payment by results, merit pay, profit related pay, commission and organization wide incentives. It has various advantages such as the culture of performance can be developed within the company. It is the effective way of dealing with poorer performing employees. The concept of performance planning shows that the every employee has some capabilities to attain the decided target (Shields, et. al. 2015). The concept of performance planning describes that PRP should be made as per the performance of the employee and for this target of each employee should be settled. The level of performance can be divided into two forms such as group level and individual level. Monetary and non- monetary incentives are encouraged employee to accomplish the task within time frame. The employees of the organization can evaluate their target if they have knowledge about the distributed work and can attain the incentives by doing more work (Lucifora and Origo, 2015). 

Reward concept is most attractive concept of PRP where employees of the organization get benefited in monetary or non-monetary terms as per their performance. The concept of PRP is integral within the organization for improving the productivity of the employee (DeVaro and Heywood, 2017). For instance, the reward concepts are considered as the element which may affect the employment experience of individual. The goal setting of the organization can be improved with the help of performance related pay because it increases the performance culture. The plan of incentives provides the opportunity to the employee to amplify the annual pay which should be based on the performance of the company or individual performance (Bozeman and Su, 2015). These are the way to keep motivated to the employees for performing to the best of their abilities; it would be helpful to increase the profit of the company. It has been analyzed that the concept of PRP is justified and it is proven that the proper systematic design of incentive system can enhance the intrinsic motivation within the employee. Along with that the non-monetary rewards are also benefitted for the employees as they would feel themselves as the asset of the company (Gerhart and Fang, 2015). It is the good way to motivate employee by appreciating them so that they can be retained and motivated.

Advantages of Performance Related Pay

The concern of motivation is critical to the organization from the beginning. It is considered as the imperative that is why it is vital for the human resource to be conscious for some factors that may influence motivation because some factors of motivation can break and make the organization. The performance related pay is dependent on the theories of motivation and the degree to which the financial reward can manipulate by the individual’s performance (Speklé and Verbeeten, 2014). The right behaviour of the employee can motivated by rewards and uninspired by punishments.

This factors are numerous and differed and have been the major topic of various studies over the years. There are number of theories of motivation that may lead the organization in the path of progress. Content theory comprises the Maslow’s hierarchy of needs, McClelland’s achievement, Herzberg’s two factor and Alderfer’s ERG theories. It is the belief of Maslow that the needs of person are arranged in a hierarchy which covers fewer than 5 levels and based on those needs which are unsatisfied. It is the concept of this theory that when someone reach at one level of his satisfaction, the individual will move on the further vital need which cover the range from lower to higher level (Miner, 2015). 

On the other hand, Herzberg believes that the behaviour of an individual can get impacted due to maintenance and motivation factor (Alshmemri, Shahwan-Akl and Maude, 2017). Maintenance factor covered some certain factors that will reason employees’ dissatisfaction if they are not present in the organization and referred as dissatisfies whereas motivators or hygiene factors are considered as satisfiers. They do not have compulsory negative cause in their absence and get positive effects if they do exist (Tongchaiprasit and Ariyabuddhiphongs, 2016). Motivators include responsibility and attainment, recognition of attainment and promotion within the organization. it is also recognized in the Maslow’s hierarchy that assist employees to get satisfied from their job where as the tendency of hygiene and maintenance factor is job dissatisfaction and involve the wide range of factors such as weak company policies, lack of pay and improper conditions of working (Jackson, et. al., 2014).

Along with content theories, there is a process theory that comprises Adams’ equity theory, Latham goal theory and Vroom’s expectancy theory. Employees of the organization are impacted to choose different behaviours and they are encouraged by expected outcomes ensuing to those behaviours are at the root of the expectancy theory. It has been found that the connection between employee and the performance come from the motivation. It has been evaluated that the cognitive evaluation theory believes that the reaction of an individual to PRP is contingent on its definition to the individual. It may influence on esteem and apparent self discrimination. Thus, it can be seen as positive and increase the intrinsic motivation consequences from external factors (Lazaroiu, 2015).

Motivation and Performance Related Pay

These theories are assisted to increase the performance of the company. It describes the suitable condition for PRP and the man focus of measurement of this on individual. Transparency is vital element of the performance related pay because it allows employees to identify the both rate of pay and individual elements of their individual pay packets (Nuttin, 2014). However, there are some of current issues of PRP such as insufficient reward, damage creativity, lack of performance with bulk staff and lack of employee support. These issues can be resolved by applying motivational theory within the organization. An organization should define its objectives in concise manner in the scheme of PRP. Employee of the organization should be trained properly so that they can assist others and perform in well manner within the organization. The involvement of the employees in the PRP plan should be compulsory so that they can get understand their responsibilities within the workplace (De Spiegelaere, Van Gyes and Hootegem, 2016). Satisfaction of employee towards work is necessary o accomplish the goal of the company. Herzberg’s theory has told about the two factors of the motivation which may impact the satisfaction of the employee (Sanjeev and Surya, 2016). 

 The performance related pay schemes are different for every industry. The effectiveness of using PRP systems across manufacturing industry and mining industry is defined. Various firms provide remuneration package to the employees that are able to connect pay to performance which can be considered as the motivation. It enables people to work more without getting demotivate and reduce absenteeism and turnover. It has been evaluated that the consequences of the productivity depend on the kind of scheme employed and its design. The incentives of an individual impact largely on the organization while group or team incentives are smaller in magnitude.

Manufacturing industry is having the different incentives plan for their employees. The performance related pay system of this industry is effective as it motivates the moral of the employees. It allows people to do work more which will be benefitted not only for the employee but also for company. For instance, if one company has target of manufacturing of 200000 mobiles cover in a month and divide this responsibility to the 4 group proportionally. One group has advanced quality and they produce more than 50000 mobile cover in a month. In such case that group will get incentives on extra covers which will encourage them to work more. It would be helpful for the company to increase the revenue growth. There is an example of Unilever which is well known company of UK. Unilever is the food, household and personal care manufacturing company that earn £41.8 Billion in revenue per year.   It has been found that the employees of the Unilever company has some certain target and when they reach at their target, they can earn incentives as peer the PRP plan of the company in which employees get certain percentage of their extra efforts (Unilever, 2015). The employees of the Unilever company is more satisfied as it provides number of perks and incentives to its employee such as paid maternity leaves, work from facilities, paid sick leaves which assist to maintain the trust of the employee to be the part of the manufacturing industry (Geller, 2017). Manufacturing industry is different from other industry as it has the responsibility to generate the specific number of products and services to the customers for making them satisfied. However, the role of retailers are major in manufacturing industry as they buy products in bulk from manufacturing company and sell out to the consumers. When manufacturing industry implement an incentive schemes it does because it wants to improve the performance of the employee of the manufacturing industry. The performance of the employee put direct impact on the incentives plan. The role of manufacturing industry is vital for other industry because it creates the material for other industry. The employee satisfaction is necessary for this industry which can be fulfilled by implementing the different incentives plan so that they can remain in this industry for a long time.

Content and Process Theories of Motivation

Hospitality industry is covered the wide range of fields within the service industry such as event planning, theme parks, transportation, lodging and tourism industry. Taking care of the customers is the major business of the hospitality industry and this performance can be done in an effective manner when the employees of this industry is satisfied their job. However, the working hour of the job is in this field is not decided which may the reason of uncomforting due to performance related pay, people are eager to involve in this industry and do study of hotel management. It has been evaluated that the hospitality industry offers the huge incentive plans including the might allowances to its employee which will make them satisfied. Monetary and non-monetary both are followed by this industry to making satisfied its employee. It offers various packages, discounts and so many perks so that employee of this industry does not get fed up with their job. The promotions are being done in this industry annually or as per the performance of the employee. There are two kinds of customers in hospitality industry such as internal customer and external customers. External customers are involving in loading, transportation and dinning whereas internal customers offer the service and transfer the products to the external customers. The role of performance related pay in hospitality industry is integral because it assist to motivate the employee towards accomplishing the task. Goal setting theory of motivation can be applied on the hospitality industry because by setting goals, employees have a clear idea about what he needs to be done. It helps them to think that how much efforts are required to accomplish the tasks and for earning the incentives. The employee of the hospitality industry gets better chance to increase the job performance (Yen, Wang, Lu & Huang, 2010). 

Holiday inn is the biggest hotel which is situated in London. There are 617 guest rooms, 14 meeting rooms which are mostly occupied due to effective services of the hotel and it can be done due to effective staff of the hotel. This hotel provides the performance related pat scheme to the employees which motivate them to do work with more efficiency. The schemes of PRP or performance incentives have become more extensive in recent decades mostly in United Kingdom. It is the more effective scheme in which the employees of the organization get the power to make decisions in the context of the organization. It has been analyzed that the employees in the hospitality industry give preference to the hygiene needs from their fixed pay. The fixed pay comprised the skill factor, hygiene factor and the position factor. It is necessary for the growth of hospitality industry to maintain the fairness in the pay system because managers of the hotel cannot impact the employee behaviour and the performance of the employees. On the prior basis, employee focuses on the money as the tool to attain housing, food and safety and after getting these requirements, they start to focus on earning money for leisure. There are number of hospitality employees working for getting enough money and for accumulating the working experience for buying upper aim of their position in the lower level of pay position.  

Issues in Implementing PRP Systems

Conclusion 

In the limelight of above discussion, it can be concluded that the role of the performance related pay is vital in the organization as it enables people to improve their work efficiency. PRP is considered as the firm fixture of number of organisations’ reward strategies and it can be considered as the effective motivational tool. It improves the individual performance and organizational effectiveness. The motivational theory has been discussed in this assignment which link to the PRP. The right behaviour of the employee can motivated by rewards and uninspired by punishments. There are some roles of job such as sales staff that tend themselves to the measurement of outputs. It can be hard to put PRP plan to knowledge workers, for instance, there are number of workers who work on long term projects but it is not necessary that they get obvious outputs. There are various concepts of performance related pay such as performance planning, reward concept and evaluation concept. The two different employment industry hospitality industry and manufacturing industry has been taken to show the effectiveness of performance related pay. Manufacturing industry allow people to do work more which will be benefitted not only for the employee but also for company. It is integral for every industry to keep focus on the job satisfaction of the employees. 

References 

Alshmemri, M., Shahwan-Akl, L. and Maude, P., 2017. Herzberg’s two-factor theory. Life Science Journal, 14(5).

Bozeman, B. and Su, X., 2015. Public service motivation concepts and theory: A critique. Public Administration Review, 75(5), pp.700-710.

De Spiegelaere, S., Van Gyes, G. and Van Hootegem, G., 2016. Innovative work behaviour and performance-related pay: rewarding the individual or the collective?. The International Journal of Human Resource Management, pp.1-20.

DeVaro, J. and Heywood, J.S., 2017. Performance Pay and Work-Related Health Problems: A Longitudinal Study of Establishments. ILR Review, 70(3), pp.670-703.

Geller, M. 2017. Unilever seeks changes to pay to give managers owner's mindset. Retrieved on 10^th March, 2018, from: https://www.reuters.com/article/us-unilever-salary/unilever-seeks-changes-to-pay-to-give-managers-owners-mindset-idUSKBN1671Q2.

Gerhart, B. and Fang, M., 2015. Pay, intrinsic motivation, extrinsic motivation, performance, and creativity in the workplace: Revisiting long-held beliefs. Annu. Rev. Organ. Psychol. Organ. Behav., 2(1), pp.489-521.

Jackson, J.C., Santoro, M.J., Ely, T.M., Boehm, L., Kiehl, A.L., Anderson, L.S. and Ely, E.W., 2014. Improving patient care through the prism of psychology: application of Maslow’s hierarchy to sedation, delirium, and early mobility in the intensive care unit. Journal of critical care, 29(3), pp.438-444.

Lazaroiu, G., 2015. Work motivation and organizational behavior. Contemporary Readings in Law and Social Justice, 7(2), p.66.

Lucifora, C. and Origo, F., 2015. Performance-related pay and firm productivity: evidence from a reform in the structure of collective bargaining. ILR Review, 68(3), pp.606-632.

Lucifora, C., 2015. Performance-related pay and labor productivity. IZA World of Labor.

Miner, J.B., 2015. Organizational behavior 1: Essential theories of motivation and leadership. Routledge.

Nuttin, J., 2014. Future time perspective and motivation: Theory and research method. Psychology Press.

Sanjeev, M.A. and Surya, A.V., 2016. Two factor theory of motivation and satisfaction: An empirical verification. Annals of Data Science, 3(2), pp.155-173.

Speklé, R.F. and Verbeeten, F.H., 2014. The use of performance measurement systems in the public sector: Effects on performance. Management Accounting Research, 25(2), pp.131-146.

Unilever, 2015. Making sustainable living commonplace. Retrieved on 10^th March, 2018, from: https://www.unilever.com/Images/remuneration_policy_ar15_tcm244-477398_en.pdf.

Yen, C., Wang, Y., Lu, C. & Huang, T., 2010. The effects of pay structure on task performnce in the hospitality industry: the medition and moderation role of pay satisfaction. Competition and collaboration between regional tourism destinations. APTA 2010 Macao S.A.R. 13^th -16^th July 2010.