PRP (Performance Related Pay) emerged in the 1980s. PRP financially rewards individuals for their performance and acts an incentive for employees. However PRP is not a universal incentive, as A. Kohn, 1998 found, “…There is no firm evidence for the assumption that paying people more will encourage people to work better…” It can infact be a demotivator, for example if you were a teacher and your pay was based on the performance of your pupils, you may suffer a loss in income purely because your students were of a poor standard. PRP has been found to have a most positive impact on high performers, finds the IPD’s 1998 survey, “…most positive impact on high performers (21 per cent, compared with 4 per cent for average performers and 4 per cent for poor performers)…” PRP delivers the message that performance is important and meets the basic human ego need, to be rewarded.
A good Pay structure can be an efficient motivator as it allows room for an increase in salary. This means a company will be able to offer both competitive pay rates and increase the number of applicants for a job at the same time. Pay structures also allow room for a pay increase therefore motivating staff. (Appendix 1.2) shows a typical graded pay structure of for example a teacher. The lower paid jobs have lower differentials and the higher paid jobs have higher differentials and a broader band allowing more room for improvement. In every pay structure there is a trend line which most employees find themselves following (Appendix 1.3). However as with every company there are high performers and low performers that do not fit the trend.
The productivity of a shopfloor employee (a labourer in the manufacturing industry) can be measured using a BSI (British Standard Institution) formula (Appendix 1.4). This formula can also be used to test the success of an incentive on an employee. The answer given by the formula is usually expressed out of 133. 100/133 being the average performance of an employee without an incentive and 133 being that of a fully motivated operator.
Humans have many different needs. These could include Pension schemes or a company car. Pension schemes are good for employees as they offer good rates and motivate staff to earn more on top of their pension scheme; they also fulfill a human’s need for security. Pension schemes benefit the company aswell because not only do they motivate staff but they also effectively tie employees who take advantage of the scheme, to the company. Pension schemes are often part of the job package and non-transferable if the employee decides to leave the company.
Company cars are probably the most troublesome of all employee benefits. However employees see them as one of the most effective motivators. They satisfy a humans need to impress (ego need) and provide transport from a to b. It is still generally cheaper to posses a company car rather than own one despite the tougher tax regime on company owned cars. Employees see a company car as a blessing as they no longer have to worry about paying for spares or servicing. Unfortunately company cars are not available to all, as it would simply cost the company too much. This can lead to jealousy among those who are not eligible and act as a demotivator. Sometimes even those who are eligible can become upset when they find their dream car is not within the company’s allowance. Company cars can be offered in two ways 1. On account of your ‘Status in the company 2. Only for those who need transport to do their job, for example a ‘Salesman.’ Due to the difficulties associated with ‘Status’ company cars, many firms decide not to offer them, including ‘Cable & Wireless’. However some companies do give employees a car allowance to cover the costs of getting to and from work.
Contribution related pay takes a more rounded evaluation of an employee, unlike PRP or competence related pay. It takes into consideration both your skills (competence) and your performance (results). It therefore looks at both your past performance and your future performance (Appendix 1.5). The advantage of contribution related pay is that it promotes continuous improvement, therefore making the employee eligible for a higher pay and a higher status. This will also increase a company’s productivity in the long-term. At ‘Bass Brewers’ pay is calculated on an overall contribution rating of 50% competency and 50% achievement. Using contribution related pay makes employees more aware of the importance of skills in the modern day world. This could also mean employees will take advantage of training opportunities in future in order to increase their; in the long term this will lead to a more skilled workforce.
I have found that there is not one definite motivator, as ‘Maslow’ understood, but a variety of different incentives must be used, for every employee to reach their maximum potential. However some factors are more influential than others for example money. Many of ‘Maslow’s ideas rely on finance, a new car boosts a person’s ego, but at the cost of the car. I have therefore concluded that if one sole incentive were to be used it should be ‘Contribution-Related Pay,’ as it not only takes into account your past performance and productivity but it also considers one’s skills (competence) which will benefit the company in the long term.
Appendices
Appendix 1.1
Bibliography
Information on:
Abraham Maslow from
PRP from the book of ‘Employee Reward’ written by Michael Armstrong.
PRP survey from the ‘Institute of Personnel and Development’ 1998 pay survey
BSI formula from the BSI website:
A. Kohn from the INC Journal, 1998, January
Other information from the book of ‘Employee Reward’ written by Michael Armstrong.
