Performance related pay

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21066054

Human Resource Management

Assignment one

Question. 6. Performance bonuses

Word count: 1752

23/03/2012

Student number: 21066054

Student name: Christopher Mills

Introduction

This report will discuss the use of performance related pay (PRP) in the work place, and whether performance bonuses in the financial sector should or shouldn’t be curtailed by the state. PRP is a hot topic at the moment in the UK financial sector, with many banks being slated by the public and members of the government for their massive bonus payouts. The government has called on banks to pay smaller bonuses, with Deputy Prime Minister Nick Clegg urging them to be "sensitive to the public mood" (BBC news 2011).  RBS, Lloyds TSB and HBOS have all been bailed out by the government with taxpayer’s money. Even though these three UK banks failed, the high earning employees are still raking in large bonuses, so should government intervene to stop these seemingly outrages bonus payouts? An argument by Copeland (2010) argued, ‘the market sets a high price on rare skills, and in a competitive world, any attempt by a single country to restrict that price will result in it losing those skills and the business that goes with them’.

Discussion 

The reasons for offering employment benefits are to increase the potency of the total reward package in terms of recruitment, retention and motivation (Gilmore and Williams 2009). The financial sector is very competitive and relies heavily on getting the best people for the job, so they need the ability to compete in the labour market for talented employees. Bankers in the financial sector receive a payment bonus that rewards them based on the assessment of their performance and contribution. Better pay and benefits attract better-quality candidates, giving the employer greater choice over whom to employ (Gilmore and Williams, 2009). Businesses use PRP to attract the best candidates as well as obtaining a heightened performance from their current employees. This is not always such a successful method though as there are issues with measuring the performance of an individual, miss-selling, and the effects on the culture of organizations.

Performance bonuses can potentially have the effect of employees focusing on quantity rather than quality. This phenomena lead to acute practices such as miss-guided investment failures which ultimately, amongst other actions accumulated in the financial crisis in 2007. There have been many cases of banks miss-selling their products, most recent is the miss-selling of payment protection insurance to small businesses.The payment protection insurance scandal lead to banks having to pay £6billion back to approximately twelve million customers. The lenders are accused of pushing incomprehensible and inappropriate products onto consumers (This is Money, 2012). There is also the fact that staff in this industry will take higher risks to achieve their bonus targets. In-fact, risky behaviors are actively encouraged and rewarded in the financial sector.

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Business Culture

There is clearly a strong culture of greed, wealth, and mistreatment of customers. Such is the strength of the present banking culture the response essentially amounts to, “greed is good and anyway we can afford it” (HRZONE. 2010). The current culture is being influenced strongly by PRP. PRP rewards people not only for what they do but how they do it, can also spell out what behaviors are valued and will be recognized (Armstrong and Brown. 2006). PRP strategy is ultimately a way of thinking that can be applied to any reward issue arising in an organization, ...

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