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Under what conditions is a group performance related pay scheme likely to fail? Should organisations employ only individual PRP schemes?

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COURSE TITLE: MN 207: Human Resource Management Under what conditions is a group performance related pay scheme likely to fail? Should organisations employ only individual PRP schemes? Performance related pay (PRP), or merit pay, as it is often called, can be defined as the explicit link of financial reward to individual, group or company performance, or any combination of the three. In simple words, this means that the better the individual, group or company performs, the higher the financial reward will be for the worker. This reward can be in the form of a pay-rise, bonus, benefit such as a company house or car, or any such financial incentive that will in effect, motivate the employee to work even harder, and produce even better results. There are also different fixed types of PRP schemes, such as commission, profit-related pay, piece-rate (which is a more primitive method, as compared to the now modernistic methods that have been incorporated into management). PRP schemes are often categorised into three stages; The nature of the performance criteria, how performance against such criteria is assessed, and how this assessment is linked to pay. In accordance to these three approaches, it is possible to differentiate between individual schemes, and group approaches. This brings us to the focus of the discussion, which questions what could bring about the failure of group PRP schemes. ...read more.


individual appraisal with a superior, often against mutually agreed targets Either by a predetermined bonus or by movement within an incremental salary band Group PRP schemes Group or company performance, either in terms of profit or project targets According to a pre-determined formula based on company results for a specified period In terms of a regular bonus or various forms of share options applicable to all those involved in the scheme This brings us to individual PRP schemes. This is a system, which fulfils a number of functions that are relevant to organisational effectiveness. It has some features which are very favourable; Firstly, financial gain to the company is a prospect, since this system reduces the fixed pay-bill. This is done by the company paying out only based on what they get back in return, that is quality goods. Secondly, it is an effective method in terms of recruiting, and retaining because of the assumption that it will be attractive to quality employees, and unattractive to poor workers, whom the firm would be glad to part with. Also, it is a fairer method of payment, this being because it does not reward both, high and low performers equally, but only rewards them based on output, or productivity. Lastly, it is held to focus effort where the organisation wants it, strengthening the performance, planning process, and generally encouraging a performance-oriented culture, emphasising results rather than effort. ...read more.


PRP works against creating a climate of openness, trust, joint problem solving, and commitment to organisational objectives. This is again in terms of specialisation taking place. The worker will concentrate on only his specific task at hand, and the rest of the company objectives will get left behind. On the other hand, group schemes provide the chance for the company objectives on the whole to get achieved, as well as the smaller tasks simultaneously being carried out. Also, as mentioned earlier, individual PRP can also divide the workforce into those supporting the plan, and those against it, which could create adversarial relationships within the workforce. As one can see, there are advantages and disadvantages to both, individual and group PRP schemes. I don't think it possible to be able to generalise and say that one is better than the other, and that firms should use only one or the other. It mostly depends on the type of goal the firm is setting, what they want to achieve, and how they want to achieve it, which can help decide which system to use when. PRP schemes on the whole, are being used so far and wide these days by firms, and it is essential to the overall success, and progress of the firm, that they know when to use which type of scheme. Thus, I think it is not possible to say that organisations should employ only PRP schemes, I think it mostly depends on the situation, and the goal to be achieved. ...read more.

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