Pay and Reward

University Degree Business and Administrative studies

Questions:

As an HR Manager, how could you change the reward system to address each of these problems?

Overall, does the situation suggest a more radical overhaul of pay, reward and appraisal? If so how could this be done?

1) As an HR Manager, I could change the reward system to address each of these problems. I would represent a system called ‘Performance Related Pay’.

Introduction:

Performance Reviews for Pay and Reward

As a HR Managers I could interview my staff and review their pay. This gives me a chance to reward my employees and for doing a good job. I have looked in many different aspects of changing the reward system to address each of the problems specified. In recent years reviews have been associated with the system ‘Performance Related Pay’. This means that as a manager I examine individual’s performance by reference to performance benchmarks (i.e. what the typical employee can be expected to achieve). This will enable me to see how far above or below that benchmark an employee is performing. This then determines what pay rise the individual will get.

My research carried out to find out what ‘Performance Related Pay is?’

Performance Related Pay is a method of payment where an individual employee receives increases in pay based wholly or partly on the regular and systematic assessment of job performance. It is argued that PRP, in the right context, can be of potential benefit to both employers and employees. It can, for example, help employers improve the efficiency and effectiveness of their workforce by emphasising the need for high standards of job performance. It can also offer the flexibility to help motivate and retain valuable employees by targeting higher pay and reward at better performers. Employees in turn may welcome a system which rewards extra effort by extra pay and or reward. The introduction or revision of PRP is often linked with other changes in pay administration and personnel policies, including:

• Greater decentralisation of the responsibility for pay determination

• Moves towards harmonised terms and conditions of employment for all workers

• The greater use of flexible working arrangements

Some organisations give a rise in the individual review for above average performance. There is often managers who try to be kind to everyone so poor performers get very little less than good ones, because the mangers sees the employee every day and may not want to create bad feelings that would damage their working relationship. In many organisations trade unions negotiate a pay deal with the employer. In such cases the pay deal agreed will apply to all employees, except for senior managers. In these organisations individuals pay reviews will ...

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• The greater use of flexible working arrangements

Benefits or Advantages of Performance Related Pay:

All employees receive a percentage pay increase.

It enables (employers/companies) to recruit high quality staff.

It encourages employees whose performance is not up to standard.

Staffs do not always feel that appraisals are fair.
Rewarding employees who perform well remains an attractive one.

Despite similarities in the reasons for introducing PRP, there are considerable differences in the way in which employers seek to modify payment systems to take account of pay for individual performance. The more common approaches are to:

• replace part or, occasionally, all of general pay increases with PRP awards

• strengthen the link between pay, reward and performance by introducing additional payments above the scale maximum to recognise high performance

• introduce PRP in place of incremental pay increases based on service, age or qualifications.

Employers of very different sizes have introduced or are actively considering the introduction of PRP. Although more commonly found in larger organisations, smaller firms are also considering its appropriateness. Furthermore, it has been introduced by public bodies and is not confined to the private sector.

However, as PRP schemes can be time-consuming to implement and manage and can involve a substantial change to an organisation’s culture, they are often restricted initially to a particular group of employees (usually senior management) before consideration is given to extending them to other parts of the workforce. Such a gradual approach has certain advantages:

• senior managers need to be committed to achieving improved performance from their employees. Experiencing a scheme at first hand will help to foster such commitment

• restricting PRP to specific groups of workers allows an opportunity to test whether the scheme is appropriate, meets its objectives and contains sufficient safeguards to be fair.

It is important to establish that such an approach will be acceptable since restricting PRP in this way could lead to the charge that some employees are being treated more favourably than others. However, if the scheme has proved effective with the pilot group, it can then be introduced for other employees, or for the majority, and will be more likely to prove equally effective.

Before introducing PRP

I will consider whether it will be appropriate to my organisation and clarify my objectives. A PRP scheme should be introduced only if the primary reason is to improve performance. So I should consider whether any change is needed in the existing payment system by measuring it against certain criteria:

• is it fair?

• does it enable the organisation to recruit and retain on equal terms in the labour market?

• does it accommodate change?

• does it measure performance adequately?

• does it motivate employees?

• does it encourage productivity?

• is it controllable?

2) Overall, does the situation suggest a more radical overhaul of pay, reward and appraisal? If so how could this be done?

Conclusion:

So my PRP should be based on the foundation of a sound payment system and accepted salary levels. It should not be introduced if what is really required is a general increase in wage rates – PRP is not an effective substitute for adequate basic rates of pay. Another method of improving the payment system is to redesign the payment structure and re-evaluate job grading. Some employers may find that introducing appraisals and setting systematic and achievable objectives improves the performance of the majority without the additional incentive of an element of pay.

I should not introduce PRP a ‘market supplement’ payment to retain certain groups of employees. Any scheme is likely to fail if additional payments are given to some employees but not to others, for example in areas where there are skill shortages. The scheme is unlikely to induce improved effort from the majority as it will not be seen to be rewarding better performance.

As we employers seek to compete more effectively to meet customer requirements we are increasingly examining methods of improving workforce flexibility and engendering a culture of high performance in our organisations. By making a distinction between individuals’ pay on the grounds of properly measured criteria and by linking reward more closely to performance, employees may be encouraged to increase productivity. Resources can be better targeted to recognise effort and achievement, and to reward and retain more effective employees. Properly introduced, PRP can be used as a mechanism for promoting greater employee involvement and commitment to this organisation. Improved quality and customer service can be additional benefits.

Employees will except the introduction of well designed and implemented PRP schemes as a fairer means of recognising that more effective performers should receive higher pay. There is thus a more direct link between effort and reward which may in turn lead to an improvement in morale.

List of References:

Adcock, F. & Birth, I. Trivitt, (1988) ‘Developing and Assessing employees’ Advanced Business. 404

Taylor-mckenzie Online (2004) Clients (Online].

, Accessed 19 March 2004