Discussion about 'Human Resource Management works well in theory but not in practice.'

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Discussion about ‘Human Resource Management works well in theory but not in practice.’

Abstract

This article focuses on discussing whether “performance-related pay” (PRP) works well in theory but not in practice. Although it was designed in theory as a good motivation to lead people in organizations to go ahead, in order to improve individual and organizational performance, in practice, however, it is not the only motivator, or even an effective motivator—it can positively demotivate. (Armstrong, 1996, p271) PRP is depicted and discussed in this article, which explains how it works in practice and why it does not work well. A case is also introduced into the article to make some more detailed discusses.  

Keywords

Performance Related Pay; motivation; appraisal; practice.

  1. Introduction

During the late 20th century, human resource management was heralded by a number of writers and academics as a different way of managing the employer- employee relationship. Although HRM has already expanded many branches of theories and the step of development keeps on going ahead, in this essay, we will focus on an important and controversial aspect of Human Resource Management – performance-related pay. PRP emerged in the entrepreneurial 1980s as the answer to motivating people and developing performance-oriented cultures. It was seen as a major lever for change, and the government of the day adopted it with much enthusiasm but little understanding as a means of transforming public sector bodies into businesses. (Armstrong, 1996, p261) This article is divided into several sectors as follows:

First of all, we will assess that it works well in theory, and second, analyse how it works in practice and give some detailed analysis based on case, which would show a clash between the theory and the reality. Finally, we will give out our opinion on if ‘Human Resource Management works well in theory but not in practice’.

  1. Performance-Related Pay

What is performance-related pay?

Performance-related pay (PRP) explicitly links financial rewards to individual, group or corporate performance, or to any combination of these three (Armstrong and Murlis, 1991, p211).

Traditionally, most employees think about pay in terms of base pay, which embodies the values of predictability, security and permanency – none of which are characteristics consistent with the desire to change employee behaviours (Redman and Wilkinson, 2001, p105). Needless to say, this is not really the best way to develop employee behaviours appropriate to the business strategy of the organization. Therefore, many organizations are trying to build a more effective reward system. Today, performance-related pay has become the most widely used one. Controlling labour costs and increasing productivity through the establishment of clearer linkages between pay and performance are considered to be a key human resource management (HRM) component of competitive advantage (H. John Bernardin, 2003, p238).

The single most important objective of PRP is to improve employee performance by:

  • Motivating all staff.
  • Specifying to all employees the objectives and targets of the business.

This could help employees to understand what they are working for.

  • Supporting a performance orientated culture.
  • Emphasising individual performance or teamwork through various schemes.
  • Setting objectives and performance standards for employers to meet.

So they would know exactly the behaviours that the organisation wants.

  • Rewarding those whose performance is high.
  • Improving recruitment and retention.

Many employees expect PRP to be part of a well-managed working environment.

  • Flexing pay costs in line with company performance.

 (Sources: developed from  and Armstrong and Murlis, 1991, p211-212)

Theoretically, PRP seems to be an ideal panacea for the improvement of employee performance. Now the question is if it would work in practice as well as in theory.

Does PRP work well in practice?

Margaret Ellis of Sainsburys recently did six months’ full-time research at Oxford University on the relationship between pay and performance. She identified only one piece of reliable research, studied the impact of what they called ‘performance-contingent compensation’ in the Social Security Administration. Rigorous analysis provided no evidence that it had any significant effect on performance. (Armstrong and Murlis, 1991, p442)

Similar to the whole HRM, PRP has also been doubt about its effectiveness in practice. And this is what we are going to discuss. Let us start with the determinants of effective PRP systems (see Figure 1.1)

  • Determinants of Effective PRP Systems

Figure 1.1 Determinants of Effective PRP Systems

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  1. Worker values outcomes (money, prizes).
  2. Outcome is valued relative to other rewards.
  3. Desired performance must be measurable.
  4. Worker must be able to control rate of output.
  5. Worker must be capable of increasing output.
  6. Worker must believe that capability to increase exists.
  7. Worker must believe that increased output will result in receiving a reward.
  8. Size of reward must be sufficient to stimulate increased effort.
  9. Performance measures must be compatible with strategic goals for short and long term.

(Source: H. John Bernardin, 2003, p240)

To motivate higher performance, the outcome of reward must be valued by employees. And ...

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