Performance Related Pay
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Performance-related pay is money paid to someone relating to how well he or she works. Car salesmen, insurance salesmen, production line workers, are often paid in this way.
Business theorist Frederick Winslow Taylor was a great supporter of this method of payment, which is often referred to as PRP. He believed money was the main incentive for increased productivity and introducing the widely used concept of ‘piece work’.
This standards-based system is used for evaluating employees and setting their salaries. Standards-based methods have been in de facto use for centuries among commission-based sales staff: They are paid more for selling more, and low performers do not earn enough to make keeping the job worthwhile.
In addition to motivating the rewarded behaviour, standards-based methods are said to provide a level of standardization in employee evaluations, which can reduce fear of favoritism and make the employer’s expectations clear. For example, an employer might set a minimum standard of 12,000 keystrokes per hour in a simple data-entry job, and reassign or replace employees who cannot perform at that level. Employees would be secure in knowing that their performance was evaluated objectively according to the standard of their work instead of the whims of a supervisor, or against an ever-climbing average of their group.
A fundamental criticism of performance-related pay is that the performance of a complex job as a whole is reduced to a simple, often single measure of performance. For instance a telephone cellcentre helpline may judge the quality of an employee based upon the average length of a call with a customer. As a simple measure this gives no regard to the quality of help given, for instance whether the issue was resolved, or whether the customer was happy.
Performance related pay may also cause a hostile work attitude, especially in times of low custom, multiple employees may compete for the attentions of a single customer. Where a customer has been helped by more than one employee, further resentment may be caused if the commission is taken by whoever happens to make the final sale. Macroscopic factors such as an economic downturn may also make employees appear to be performing to a lower standard independent of actual performance.
Performance-based systems for rating physicians or job performance have met some opposition as they are being adopted by corporations and governments. Frequently, the opposition is motivated by fear of the unknown, and it subsides after the new system is in place and seen to operate transparently. In other cases, opposition is motivated by specific ill-conceived standards, such as one which makes employees work at unsafe speeds, or a system which does not take all factors properly into account. When intelligently implemented, standards of care have reduced hospital-acquired infections, medical mistakes and inappropriate treatment, to use the healthcare industry as an example. When implemented carelessly, standards have been a source of significant stress and low morale, no matter what the industry is.
In other cases, opposition is motivated by a dislike of the consequences. For example, a company may have had a compensation system which paid employees strictly according to their seniority. They may change to a system which pays sales staff according to how much they sell. Low-performing senior employees would doubtless object to having their income cut to match their performance level, while a high-performing new employee might prefer the new arrangement.
An international study by Schuler and Rogovksy in 1998 pointed out that cultural differences affect the kind of reward systems that are in used. According to the study, there is a connection between:-
- status-based reward systems (as opposed to achievement-based) and high uncertainty avoidance
- individual performance based systems and individualism
- systems incorporating extensive social benefits and femininity
- employee ownership plans with individualism, low uncertainty avoidance and low power distance.