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"To what extent are merit and performance related pay schemes an advance on more traditional payment by result and time-based methods?"

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Introduction

40RA Assignment " To what extent are merit and performance related pay schemes an advance on more traditional payment by result and time-based methods ? " INTRODUCTION The work an employee can be motivated to do has been a core problem confronting employers for centuries and pay systems have been a crucial influence in addressing this issue. (Towers, 1996, p283) Arguments about the advantages and disadvantages of incentive schemes, such as merit or performance related pay, have been hotly contested in recent decades (Kessler (1994). Despite many theoretical attractions there has been little evidence to show that they consistently delivered improvements when compared to the older time and result based methods. (Torrington et al 2002, p602). This essay will attempt to assess if merit or performance related pay (PRP) represents an advance on previous methods of employee remuneration. While acknowledging that most pay schemes can be applied to both individuals and groups alike the main focus for this essay will be on individual employees. Before assessing some of the positive and negative effects of merit or performance related systems, compared to payment by result and time, it will be necessary to define what these are and to briefly explain their historical context and relevance. Within the constraints of this essay it will not be possible to fully reflect or evaluate the vast amount of literature that exists in relation to merit or PRP schemes. However a comparison should be possible by referring to some of the organisational and employee affects associated with these newer payment methods. It will be shown that there are various factors which determine the success or otherwise of using merit or performance related pay. Finally, taking account of the evidence cited, conclusions will follow that there is not one universally accepted payment method which organisations can employ to gaurentee maximum employee effort and organisational effectiveness. While merit and performance related pay systems may appear, in theory, to exhibit some advantages over time and result based methods such schemes will be counter-productive unless organisations implement them properly and take full account of all internal and external factors. ...read more.

Middle

The authors add that where this has happened such incentive schemes have failed. Hertzberg (1966), cited in Torrington et al (2002, p595) argued that while pay was limited as a tool of motivation it can very easily de-motivate when managed poorly. Furthermore where PRP is not closely linked to organisational performance pay drift may occur causing the PRP scheme to become uneconomical ( Armstrong 2003). Wright (1991) states that even the most ardent supporters of PRP recognize that it is extremely difficult to manage effectively and consistently. Fowler (1988, p 158 ), stressing the economical need for PRP schemes to avoid over-complexity, cited an example of a 34 page management manual which required the completion of a six page appraisal form for each of the 300 employees, by three senior managers. Lockyer, cited in Towers (1996 p 291) states that time and rate systems are simple and cheap to operate and are easier to understand. This should make for a better understanding on the part of employee and employer alike. However traditional payment schemes have also achieved notable organisational improvements. Iler, Hammermish and Rees (1996) cite the example of Ford Motor Company who managed to reduce turnover by 80 percent , raise productivity by 95 per cent and reduce absenteeism from ten to less than .5 per cent per annum by merely raising it's hourly rate to $5. Economically PRP can make sense for organisations especially where overheads such as wages can be reduced in time of business difficulties. ( *** ) PRP can create a performance culture, reward achievement, identify under performance and, where applied on a group basis, foster teamwork and fairness. Establishing a means of rewarding high performance can assist in retaining the most industrious staff. Within HRM literature there exists conflicting opinions as to whether reward should play a supporting or soft HRM role, a view implicit in the Harvard model of HRM, or, conversely, that it should drive organizational performance - an opinion which finds greater favour amongst exponents of hard HRM (Kessler, 1995: 254). ...read more.

Conclusion

Much recent legislation on equal pay and discrimination has served to encourage payment reward schemes as they can provide a line of defence in the event of such claims. ( White and Druker, 2000, p18) The success of PRP schemes can also be influenced by cultural factors. Sparrow, cited in White and Druker (2000, p 217) distinguishes between the principals of meritocratic societies such as the UK and US, where PRP schemes may be more accepted as opposed to the egalitarian societies of Japan and China. EVALUATION DOES IT HAVE A FUTURE ? POINTS FOR Despite the problems previously outlined it is possible to Implement PRP successfully as shown by the Industrial Relation Services case study in 2000. However according to Torrington et al it will only work if used in appropriate circumstances and implemented properly having taken account of all relevant internal and external organisational factors. Gomez-Mejia and Balkin, cited in Torrington et al (2002, p605) specify that favourable conditions for a successful PRP scheme should include objective and relevant measurement, maximum employee control, minimum emphasis on team-work and an individualistic organisational culture. Brown and Armstrong (2000, p314) argue that PRP should not be operated in isolation from other methods of reward. According to Torrington et al one main advantage of PRP schemes is that they help ensure organisational goals become individual priorities thus leading to organisational improvements. POINTS AGAINST CONCLUSIONS As we have seen, and in accordance with Lockyer, cited in Towers (1996, p 300) there is not one best payment scheme for employers to use. While it has been shown that PRP schemes can be limited in providing incentives through financial gains alone they should not be rejected out of hand. It would appear that all PRP schemes have their strengths and weaknesses. Taken at face value, these intentions seem entirely compatible with an integrated and strategic approach to human resource management. In reality, however, the definition and measurement of good performance is a controversial matter, involving fundamental issues of motivation, assessment and reward. Are they a step in the right direction ? ... but not the finished article... 1 ...read more.

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