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.
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.
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.
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.