Performance Related Pay
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Performance Related Pay (PRP) is a link of financial rewards to the individual/group/company performance. The logic is to spread wages according to performance linked to the objectives of the business.

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PRP allows managers to reinforce control over employees. The single most important objective of PRP is to improve employee performance by:

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

  • Supporting a performance orientated culture by paying for results.

  • Emphasising individual performance or teamwork through various schemes.

  • Setting objectives and performance standards for employers to meet.

  • Rewarding those whose performance is high.

  • Motivating all staff.

If managers are able to achieve the above successfully, then they would be able to use PRP to work to their advantage. Not only will the extra pay concept, help motivate the workforce to work harder, it will also help them to become more aware of business objectives.

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  • Pays the right people the right amounts.

  • Weeds out lazy workers.

  • Defines the clear objectives of the business.

  • Retains skills - Employees are attracted and retained as the company recognizes achievement through the pay system.

  • Increased efficiency through improved company performance.

  • Focuses efforts of employees where the business needs it.

  • Improves individual/team performance.

  • Provides a warning criteria, employers make clear performance criteria they require. Employees seek to achieve this criteria in order to be rewarded with higher pay.

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If not carefully planned and managed PRP can cause as many problems as benefits:

  • Conflicts between employees competing with each other.

  • Additional pressures placed upon managers and supervisors.

  • Performance being recognised and not effort.

  • High costs of implementation.

  • In times of recession, high fliers are not promoted or rewarded greatly - may result in the high quality staff leaving. 

  • Workers are being controlled via reward system.

  • Needs commitment from employees.

  • Difficult to measure levels of performance.

  • Has an effect on teamwork.

  • Often PRP is used in the wrong areas where it is difficult to improve performance.

  • The managers become the judges - too subjective.

  • Unreasonable levels of criteria may be set.

  • Translating appraisals into pay.

  • Union and employee acceptance.

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PRP should not be treated as a quick fix leading to a cheaper wage bill, in order for PRP to be implemented, certain requirements must exist:

  • A comprehensive survey on employee attitudes and opinion needs to be carried out.
  • The results should be used to improve morale.
  • A consultation process should occur for views on PRP.
  • Proceed with PRP if  you have the commitment from everyone in the business.
  • Consider implementing PRP on a trial basis in one section of the business prior to full implementation.
  • Get thorough training for personnel assessors.
  • Agreement with trade unions.
  • The best examples of PRP are those which are simple to understand, fair and consistent.
  • The objectives of the business need to translated into effective and meaningful performance criteria.
  • If performance is to be rewarded it must be defined and rewarded from the outset.
  • Job definitions need to be clear, with both individual employees and the employer aware of their roles.
  • Pay out levels need to be set at levels where they produce the desired motivational impact.
  • PRP schemes must offer differential levels on performance rating, so that high, medium and low performance levels are adequately rewarded.
  • The new PRP scheme needs to be communicated to all the employees, with clear reasoning as to why the PRP schemes are being introduced, with appropriate training.
  • PRP needs to be reinforced from time to time to keep its value. PRP like any other pay structure needs to be reviewed regularly to ensure its appropriateness to the needs of the business.

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(c)  Est 08/00 - Last Updated 28/05//2001