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Write an essay in which you:

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

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

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.

Comparison between two industries

Payment methods adopted for employees are one of the important challenges that managers of business organisations face in the modern world. According to Herhausen, Luca and Weibel (2017), payment of employees need to be based on the effort provided by them at the workplace. At the same time, Shields et al. (2015) have made a counter-argument, stating that payment needs to be made based on the performance of the employees at the workplace. The essay highlights the concept of payment based on the performance of employees along with its link to the motivation of employees. Motivating employees is required to ensure that the teamwork and efficiency within an organisation exists. A comparison is made between two industries based on the effect that performance-related pay has on the industries. At the same time, the advantages and disadvantages of such a method are also taken into consideration.

According to Bellé (2015), performance related pay is a paying system that is solely made for the performance and contribution made by the employees towards an organisation. The performance is measured by the efficiency and the result that is received by the organisation after the end of a financial year. For example, sales representatives or production line workers receive wages via this type of payment. Such a method of payment has drawn in various debates over the years. As stated by  Malik, Butt and Choi (2015) employees need to be paid for the effort provided as the end result of a particular sale of a product may not always in the hand of the organisation. Tastes of customers, competitors and economic factors play a major role in the success or failure of an organisation. On the other hand, Bellé (2015) argued that without a good performance from the employees, organisations cannot succeed. Consequently, the payment of the employees may cease due to lack of success and revenue.

In the modern day, it has been seen that most managers use the basic standard system for calculating the salary or wage of an employee. The basic standard of pay provides employees with a high salary if the performance rate is more. For example, if the rate of sale of cars for one particular month is more for a particular employee, then the employee will receive a better salary than its peers will. Poor sales performance, however, may lead to have problems regarding job security and provide a modest or low rate of payment (Storey and Sisson 2015). Such a method of payment acts as a motivational factor for employees. Lucifora and Origo (2015) stated that the payment received in the form of incentives acts as the rewards that a manager provides to motivate the employees. The targets set up by a team or an organisation needs to be achieved so that employees become eligible to receive the payment. Thus, the theories related to motivation can be linked with the concept of performance related pay.

Motivational theories and performance-related pay

One of the theories of motivation that can be linked to the performance related pay is the theory proposed by Herzberg. According to Schaller et al. (2017), motivation is required to ensure that employees remain loyal to an organisation and the work atmosphere remains fun as well as competitive. Employees need to fulfil the basic needs to lead a good and luxurious life.  Payment made in the organisations act as a hygiene factor for the employees. This is because poor payment, lack of bonus or commissions acts as agents that create job dissatisfaction among the employees. Improving the hygiene factors lead to the decrease in the level of job dissatisfaction among employees (Lepper, and Greene 2015). Thus, it is necessary to provide payments that are based on the performance of the employees. Extra payment in the form of bonus or commission acts as a huge motivational factor, as employees try to make a living that matches their social class. The societal class of the people can be maintained or improved with an increase in the payment.


In this regard, the motivational theory of Maslow can be considered as another important concept related to performance related pay. In the words of Healy (2016), Maslow's hierarchy of needs provides a systematic approach to attain motivation while working in an organisation. Employees tend to fulfil the basic needs such as a place to live, eat and job security before aiming at enjoying a healthy lifestyle. Hence, performance-based pay can encourage the employees to aim at a healthy lifestyle initially. To do so it is required that the employee utilises their skills and work hard for the success of the organisation. Monetary benefits provided to the employees can help them to achieve more for the betterment of an organisation. At the same time, Chadwick and Raver (2015) stated that employees with poor performance could be motivated by the fact that the peers are earning more money. Thus, this important factor needs to be considered by the managers as the performance-related pay can act as a beneficiary for both high and low performers at an organisation.

According to Lucifora and Origo (2015), to ensure that the performance-related pay is executed in an effective manner, it is important for the managers to remain transparent so that the employees are given the proper benefit from such a scheme. In automobile industries, performance-related pay is based more on the selling of the cars. If an employee manages to sell a car at the rate set up by the company then the payment received by the particular employee is greater than the payment received by the others. At the same time, the number of cars sold by an employee also accounts for success in the payment department. Hence, such a method of payment is considered beneficial for the employees alone with benefits received by the organisation. However, as stated by Schaller et al. (2017) employer benefit also needs to be included in the performance related pay scheme.

Importance of transparency in performance-related pay

For example, it can be said that two organisations such as a police and law firm can be taken into consideration. The fact that the police are paid their salary irrespective of the work done provides them with an advantage over the law firms. People at the law firms need to win the cases they are on so that they can get a decent pay. Thus, the performance related pay exist among the people working in the law firms. According to Lucifora and Origo (2015), improvement of the performance and productivity of individuals can be guaranteed with the introduction of performance based pay in the organisations. The defined framework for achieving the goals can help the employees maintains a particular target that can help them to improve their performance and get more payments. The focus on the things that need to be done can be maintained for staking the claim towards earning pay based on good performance in the workplace. However, Cascio (2018), direct link to pay of an employee need to be considered by keeping in mind the manner in which the payment is provided to the employees. At the same time, a good performance-related pay system could reward the best performers and ensure that the other employees consider these performers as a benchmark.

This can be considered as an effective way to deal with the poor performers. Gerhart and Fang (2014) stated that often it is seen that the good performances of the peers instigate a feeling of improving the performances among other employees. This is mainly because of the monetary benefits that are provided to the better performers for the work done by them. Moreover, the monetary rewards that are provided are often effective in retaining the staff members. This is mainly because of the fact that motivation plays a huge role in the success of an organisation. Motivation can be provided either by monetary or non-monetary factors (Pinder 2014). Thus, performance related pay has its advantages mainly in the retaining employees so that the organisations can benefit from the contribution made by the employees. The work targets of the employees are defined that provide the additional motivation required for maintaining a good performance. One of the biggest advantages that are gained with the implementation of performance-related pay is the fact that contribution of the employees is recognised with the tangible reward.


Nyberg, Pieper and Trevor (2016) consider that the use of tangible reward as a source of maintaining records within an organisation. The non-monetary pay provided to the employees may often be intangible, as it cannot be converted into assets for the development of the future of the employee. Such a benefit makes performance related pay more famous among employees. This also accounts for the development of a healthy performance pay culture among the organisations. This is because the employees can be motivated to work hard to earn the extra incentive. Monetary benefits and the hygiene factor of the employees are taken into consideration while ensuring that performance-related pay is introduced within the organisations. In the opinion of Shafritz, Ott and Jang (2015), the advantages provided by the performance-related pay can help an organisation as well as the employees in varieties of ways.

Advantages and disadvantages of performance-related pay

However, certain limitations exist that some time raises doubts about the application of the system within the organisations. One of the disadvantages of performance related pay is the fact that goals can be difficult to achieve if it is set in a complex manner. This can be particularly difficult for employees that have been newly appointed by an organisation. As argued by Miner (2015) performance-related pay is mainly provided in companies that provide a set of a target for the employees. Thus, employees need to be trained and briefed properly about the job roles that they need to play and the target that they need to achieve. Most organisations do not provide such facilities and as a result, it becomes difficult for the employees to reach their target and receive the incentive provided. Bozeman and Su (2015) stated that the performance-related pay process relies heavily on the judgement that is made by the manager. The manager provides the target for the employees based on the skill and talent level of the employees. Thus, the reliance on the managers of an organisation is extensive and it provides extra pressure on the employees.

D'Souza and Gurin (2016) stated that the biggest disadvantage of performance-related pay is that it reduces the opportunity for employees to undertake equal earning. This act as a de-motivation factor for most employees as the effort given by all employees is same. However, the outcomes vary that result in the differences between the payments of the employees. In this regard, an argument can be made that the outcomes and methods related to achieving a target cannot be the same. This is considered as one of the biggest debates that exist since the implication of management system is the organisations. Reeve (2014) countered this by stating that such poor performance and failure to achieve target may at times result in the improved performance of the employees’. The unequal pay poses challenges to organisations as it becomes liable to equal pay challenges if companies fail to implement operate it fairly. This also affects the performance appraisal process, as most of the times; the performance is judged by the outcomes and not based on the effort showed by an employee.

One of the biggest restrictions related to performance appraisal is the fact that the managers cannot remain biased (Kessler and Purcell 2016). Biases can prevent proper judgement that can subsequently affect the rating the performance of the employees. According to Herhausen, Luca and Weibel (2017), performance appraisal needs to be conducted keeping in mind the efforts as well as the results obtained by the employees. However, in organisations that have implemented performance-related pay, the application of performance appraisal is mainly done based on the payment received by the employees. This causes a great deal of de-motivation for the other employees as the equal effort has been put to achieve the target. An example can be provided in organisations that provide fixed salary as compared to organisations that provide salary based on payment. Such examples include difference in salary between police officers and lawyers or sales personnel and management people. This even affects the teamwork and co-operation that exists within an organisation. Gerhart and Fang (2014) stated that performance-related pay affects teamwork within organisations. This is because some members of the team get more payment than compared to others. This may create a sense of division among the team members and consequently, team performance may be hampered. This can be a huge disadvantage for an organisation as it may prove to be difficult to attain success without proper contribution from the teams.

Performance related pay might even fluctuate with the change in economies of a country (Gerhart and Fang 2014). This is because the economic growth and capabilities of all countries are not equal. This provides the organisations with limited ability to gain profit and consequently the payment provided to the employees also suffer. The amount of money provided to the employees by an organisation located in an economically stable location may be more than the payment provided to employees belonging to a lower economic region. This causes frustration among employees as the performance and the efforts put in at different branches are identical. Thus, this causes a huge disadvantage in the performance related pay. In this regard, the effectiveness of the performance related pay could be analysed across different industries. The analysis is done keeping in mind the efforts put in by the employees and the payment they receive from working in an efficient manner.

The employer benefit is provided in police organisations. This is because the police officers get the benefit of payment without having to complete their tasks; the mere presence of the police officers at the station can provide them with the money required for maintaining a proper life. However, performance based pay can be related with the law firms as without results, lawyers are not paid. In fact, the job of the lawyers remains in balance if they do not get to win the cases. Hence, the comparison between the two industries highlights the advantage as well as the disadvantage of the performance-based pay. In one industry employees are provided with payment based on performance while in other a fixed salary is provided for remaining present.

Conclusion

Thus, it can be concluded that performance-related pay is one of the most effective manners in which satisfaction of employees can be maintained. Without proper payment, the performances of the employees cannot improve. However, on most occasions, it has seen that such a method of payment has received criticisms based on the inequality of payment. This opens up debate about the method of paying employees so that they can be satisfied and effective performance can be derived out of them. The advantages as well as disadvantages posed by this method of payment are significant and contribute heavily towards the development of modern managerial developments. The effectiveness of such a system of payment highlights the impact it has on the mentality of the employees working in these departments. By analysing the effectiveness, it can be said that the application of performance related pay needs to be based on the proper analysis of a situation. The mode of achieving goals can be made simple so that employees can gain the benefits provided by the performance related pay.

Reference

Bellé, N., 2015. Performance?related pay and the crowding out of motivation in the public sector: a randomized field experiment. Public Administration Review, 75(2), pp.230-241.

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

Cascio, W., 2018. Managing human resources. McGraw-Hill Education.

Chadwick, I.C. and Raver, J.L., 2015. Motivating organizations to learn: Goal orientation and its influence on organizational learning. Journal of management, 41(3), pp.957-986.

D'Souza, J. and Gurin, M., 2016. The universal significance of Maslow’s concept of self-actualization. The Humanistic Psychologist, 44(2), p.210.

Gerhart, B. and Fang, M., 2014. Pay for (individual) performance: Issues, claims, evidence and the role of sorting effects. Human Resource Management Review, 24(1), pp.41-52.

Healy, K., 2016. A Theory of Human Motivation by Abraham H. Maslow (1942)–reflection. The British Journal of Psychiatry, 208(4), pp.313-313.

Herhausen, D., Luca, L.M. and Weibel, M., 2017. The Interplay Between Employee and Firm Customer Orientation: Substitution Effect and the Contingency Role of Performance?Related Rewards. British Journal of Management.

Kessler, I. and Purcell, J., 2016. Performance related pay: objectives and application. Human Resource Management Journal, 2(3), pp.16-33.

Lepper, M.R. and Greene, D. eds., 2015. The hidden costs of reward: New perspectives on the psychology of human motivation. Psychology Press.

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.

Malik, M.A.R., Butt, A.N. and Choi, J.N., 2015. Rewards and employee creative performance: Moderating effects of creative self?efficacy, reward importance, and locus of control. Journal of Organizational Behavior, 36(1), pp.59-74.

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

Nyberg, A.J., Pieper, J.R. and Trevor, C.O., 2016. Pay-for-performance’s effect on future employee performance: Integrating psychological and economic principles toward a contingency perspective. Journal of Management, 42(7), pp.1753-1783.

Pinder, C.C., 2014. Work motivation in organizational behavior. Psychology Press.

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

Schaller, M., Kenrick, D.T., Neel, R. and Neuberg, S.L., 2017. Evolution and human motivation: A fundamental motives framework. Social and Personality Psychology Compass, 11(6).

Shafritz, J.M., Ott, J.S. and Jang, Y.S., 2015. Classics of organization theory. Cengage Learning.

Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P., Johns, R., O'Leary, P., Robinson, J. and Plimmer, G., 2015. Managing Employee Performance & Reward: Concepts, Practices, Strategies. Cambridge University Press.

Storey, J. and Sisson, K., 2015. Performance-related pay. Strategic human resource management: Theory and practice, pp.177-184.

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