The underlying basis for PRP is motivational theory. Maslow (1943, 1987) and Herzberg (1959) highlight a salary as a basic need that contributes to motivation at work. PRP is also based on process theories of equity and expectancy.
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Expectancy theory is based on the notion employees will be motivated if direct correlation exist between effort, performance and reward (Kessler & Purcell, 1992). PRP satisfies this notion by rewarding employees on basis of their effort and performance.3 (Pilbean & Corbridge, 2006:248).
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Equity theory is based on the concept that employees need to be treated fairly at work and in relation to other employees. Employees calculate fairness subconsciously by comparing the ratio of their inputs to outputs. Equality between the two contributes to maintaining motivation. PRP creates equality between inputs and outputs by rewarding employees on grounds of inputs.3 (Pilbean & Corbridge, 2006:248).
PRP comprise three sequential stages:
- The establishment of individual assessment criteria usually through appraisal or imposition.
- An assessment of performance against assessment criteria usually done by the line manger.
- The selective allocation of pay on grounds of assessment findings usually by exercising managerial prerogative.
In stage one a criteria for an individual to achieve is set commonly through appraisal meetings or imposition by management. In the second stage performance is measured against the pre-set criteria after which at the manager’s prerogative the individual is rewarded.
Advantages
PRP rewards the individual by linking systematic assessment of their performance to their level of pay or bonus amount, which is advantageous to the organization because the firm rewards industrious employees only. Thus encouraging a more performance-conscious culture and potentially reducing the firm’s expenses by only rewarding hardworking employees opposed to the whole workforce.
The level of pay or bonus amount is based on the degree to which employees satisfy their assessment criteria, which can be advantageous to the organization granted the targets set are weighted to reflect their relative importance to the organization. This is advantageous to the firm because the weighting encourages employees to meet highly weighted targets which are of more importance.
In certain organizations work is classified as either manual or non-manual and as a result problems arise in regards to measuring employees’ actual rates of work. PRP is advantageous to such organizations because it can be used as necessary incentive in situations the work rate is difficult to measure.
PRP incorporates the organizations aims and objectives when creating employees assessment criteria which ultimately benefits the organization because their employees are working to achieve their individual targets that have been derived from the organizations aims and objectives, effectively the employees are also working to achieve their organizations targets.
Other advantages of PRP include an increase in productivity and an improvement in quality. A key objective of PRP is to reward employees for achieving set targets, employees that are largely influenced by money are likely to be more focused on their work and assert themselves more in a bid to meet their targets thus improving the productivity of the workforce.
Expectancy and equity theory are based on what employees perceive to be fair, PRP is advantageous to the organization because it provides a system based on individual contribution and is appraised using a predefined assessment criteria created by employees and managers during appraisal meetings.
A key advantage of PRP is it helps organizations weed out lazy employees. PRP is based on individual achievements thus making it easy for the organization to identify industrious and lazy employees. Once an organization identifies the employees that are under-performing necessary steps can be taking to improve their performance or terminate their contract ensuring retention of an industrious workforce.
Disadvantages
Bonus earnings are paid annually, which could be disadvantageous to the organization primarily because payments are too infrequent to provide a direct incentive to employees. The infrequency of bonus payments could render them insignificant in motivating employees throughout the year.
PRP has been reported to cause jealously amongst colleagues and to make colleagues less willing to assist each other. Both of these factors are disadvantageous to the organization because they create hostilities amongst employees affecting their Love needs according to Abraham Maslow and efficiency is reduced because employees are working as individuals and not as a team.
In certain instances PRP can be disadvantageous because it forces organization to incur additional un-forecasted training expenses. Before PRP can be implemented line managers will require training to equip them with skills necessary to run appraisal meetings and to operate a complex reward system.
Excessive emphasis on extrinsic rewards namely pay can have adverse effects on intrinsic motivation. In organizations where extrinsic motivation is valued more than intrinsic motivation the pride employees feel in doing their work is undermined, which is disadvantageous to the organization because employees lose their esteem needs according to Maslow.
A key disadvantage of PRP is although it encourages improved individual performance PRP does little to encourage teamwork and cooperation among employees. Under PRP employees are likely to devote their energy to meeting individual targets at the expense of meeting team targets which ultimately affects the overall performance of the team and the organization.
A potential disadvantage of PRP to the organization is the disarticulation of objectives. Reducing a whole job into an easily quantifiable collection of appraisal criterion can easily shift employee focus onto achieving individual targets, opposed to doing an overall good and meeting company objectives.
Kohn (1993) argued that employees rate their personal contribution to their organization more highly than management, thus employees are disappointed and de-motivated upon receipt of their reward. Kohn (1993) also argued professionally qualified employees view PRP as a form of management control that restricts their own freedom of action and forces them to work as their manager dictates.4 (Taylor. 2005:283).
Conclusion
There are various advantages and disadvantages of PRP to an organization, in theory neither outweighs the other but in practice the degree of success depends largely on the type of organization.
The potential advantages to an organization of implementing PRP include retaining and rewarding industrious employees, reducing expenses by only rewarding the hardworking, aids organization to identify underperforming employees, satisfies key expectancy and equity theories, increased productivity and can be used as an incentive in situation it is difficult to determine a rate of work.
The potential disadvantages of implementing PRP in an organization include employees may perceive the prospect of a annual bonus to be insignificant thus wasting the organizations resources and time, creating a hostile environment in which employees are working against each other to achieve similar targets, satisfying one employee need at the expense of another i.e. according to Maslow give the employee higher pay (Physiological) but increased competition among employees cause friction thus taking away from their love and belonging needs.
I conclude that the implementation of PRP could have both positive and negative repercussions to an organization and thus it is critical that before any organization implements the scheme considerable planning should be put into the process in order for the firms to weigh the potential advantages and disadvantages to its respective organization.
References
1 Tom Redman & Adrian Wilkinson (2006). Contemporary Human Resource Management. 2nd Edition. Harlow, Prentice Hall.
2 Keith Sisson & John Storey (2003). The Reality of Human Resource Management: Managing the Employment Relationship. Maidenhead, Open University Press.
3 Stephen Pilbean & Majorie Corbridge (2006) People Resourcing: Contemporary HRM in practice. 3rd Edition. Harlow, Prentice Hall.
4 Stephen Taylor (2005) People Resourcing. 3rd Edition. London, Chartered Institute of Personnel and Development.
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