Assessing The Performance Related Pay Systems Commerce Essay Essay

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Performance Related Pay is a sort of a payment system which relates the rewards and wages with the public presentation of an employee. It includes incentive payments, merit wage, etc. Performance Related Pay is besides known as Variable Compensation. Variable -Compensation plans are customized in such an order that, as said before, the public presentation of the employees depicts their incomes. It does non depend on his/her appellation in an organisation. These plans are designed to actuate persons and groups that contribute efficaciously, as they differentiate between performing artists and non -performers.

Many companies believe that a variable – wage plan enhances productiveness and motivates employees. The American Management Association, based on a survey of 83 companies, concluded that grudges had dropped by 83 % . absenteeism by 84 % and lost – clip by 64 % , after variable wage plans were introduced in these houses. Variable wage plan is besides one of the employee engagement plans. Such plans make employees responsible for their ain wage bundles, through their public presentation and part. This motivates them better their public presentation.

Some constituents of variable compensation programs are the production inducements, net income sharing, addition sharing fillip, etc. These are different systems of honoring an employee or his public presentation. Variable wage besides motivates single workers to work efficaciously in groups. Variable compensation is paid at different degrees, the worker degree, the director degree and the group degree.


There are assorted types of public presentation related wage. It can be in different signifiers and as the name suggests, all of them is straight or indirectly relates to the public presentation of the employee. Different sorts are: –

( 1 ) Performance Wage: The procedure of supplying a fiscal or financially mensurable wages to employees linked straight to single, squad or organisational public presentation.

( 2 ) Individual Performance – related Wage: Any wage strategy which relates the award of a basal wage addition or an single hard currency fillip to the consequences achieved by an person.

( 3 ) Merit Pay: A common name for strategy which relates single base wage additions to the consequences delivered by each person, most normally through an single assessment of public presentation and award of a public presentation evaluation.

( 4 ) Wage for Contribution: A diverse, comprehensive, high engagement and flexible attack to pay, which employs a assortment of trim vehicles to honor the accomplishment of important concern, squad and personal ends, and how those ends have been achieved.

( 5 ) Competency – related Wage: Competence can be defined as the cognition, accomplishments and behaviour of an person that contribute to a worker ‘s public presentation. The competences of the best acting employee are identified vis – a – six the occupation and the employee is compensated for these competences that he/she brings to the occupation. The other employees are besides compensated based on these competences. For illustration, to implement the competence – based wage system in a bank, the best officer is selected and the features that contribute to his public presentation are identified. In this instance, allow us state, the officer ‘s cognition of IT, his being client – oriented and his ability to pull off a crisis state of affairs, set him apart. Once these competences are identified, all the officers are compensated based on the extent to which they demonstrate these features.

Most typically these systems relate the basal wage degree and addition of a individual to their demonstrated degree of competency in making their occupation that is the needed accomplishments, behaviours and properties which they need to expose in order to execute extremely. It relates wage to how good person does their occupation.

( 6 ) Bonuses/Variable Wage: Non – repeating hard currency ball – amounts related to the public presentation achieved by an person, squad and/or organisation.

( 7 ) Wage at Hazard: These strategies involve employees giving up a proportion of their fixed base wage or base wage addition, in return for the chance to accomplish higher wage degrees harmonizing to the public presentation of their concern. Correspondingly, if public presentation marks are non achieved, their basal wage is really reduced.

( 8 ) Net income – sharing Schemes: Schemes which portion a proportion of a company ‘s net income with employees, on a common footing.

( 9 ) Gainsharing Schemes: Bonus strategies which portion a set proportion of any public presentation additions made above an in agreement degree, for illustration, in the labour productiveness of a mill, straight with employees. The higher the degree of public presentation, the greater the addition for both the organisation and employees.

Professionals AND CONS

Performance related wage has many advantages and disadvantages. Let us take an illustration of the inducement pay programs. “ Incentive rewards relate net incomes to productiveness and may utilize premiums, fillips or a assortment of rates to counterbalance for superior public presentation ” .

The advantages of inducement programs are as under

1. The work survey which is done before presenting a pay inducement program brings about betterments in methods, work – flow, adult male – machine relationship and so on.

2. Employees quickly portion all such jobs with direction which retard their net incomes. Management becomes more watchful in countries such as flow of procedure stuffs, equal spares, care of equipment, etc.

3. Employees are encouraged to go advanced in the sense that they are induced to happen new methods to increase their productiveness.

4. Employees need lesser supervising as they are disciplined and responsible.

5. There are good human dealingss in the house as the workers are satisfied with higher net incomes and direction with increased productiveness.

6. There develops a feeling of cooperation between the workers and the direction. The morale of the workers in increased.

On the other manus the public presentation related wage has many disadvantages every bit good. Jealousies may originate among few of the workers because some are able to gain more than others. In the instance of group – inducement strategies, the workers who are fast in their work may be dissatisfied with those who are slow. Where heavy work is involved, older workers are likely to be criticized for being excessively slow.

One of the biggest troubles with incentive wage system ( a portion of public presentation related wage ) is that puting up of piece rates and/or fillip rates is clip devouring and rather a debatable 1. If in instance the rates are fixed rather low, workers may non be satisfied and may be unhappy. The workers would work under huge force per unit area. On the other manus, if in instance the rates are fixed rather high, workers may be merely interested in increasing the productiveness as that would increase his/her income every bit good. That would increase his/her public presentation in productiveness footings but non in footings of quality, etc.

Trouble besides arises in finding the standard public presentation. Many organisations follow a safe path to repair the criterions which is normally the norm of past old ages ‘ public presentation. Past public presentation may non be the ideal footing for repairing production norms.

Since fixing incentive strategies is such a complex concern, directions normally outwit their employees. For case, the period over which inducements are collectible is an of import factor in finding how much a worker earns.

There is an ethical dimension to incentive payments as good. It is unfair to pay excess to the employees when they are already paid their usual rewards and wages. If an employee is paid for eight hours a twenty-four hours, he or she is expected to demo better public presentation for the twenty-four hours. To demo increased production, excess payments are non necessary. There are besides cases where inducements lead to corruptness. Supervisors and workingmans fall in custodies, false production figures are recorded and incorrect clip engagements are made in order to enable employees earn enhanced inducements. The loot is subsequently shared with the supervisors who colluded with the employees in the fraud.

Incentive payments are linked to employees ‘ public presentation. A standard public presentation is set for employees. The existent public presentation is so compared with the criterion, and depending upon the grade of efficiency, inducements are fixed. Unfortunately, these criterions themselves become ceilings on productiveness of employees. Workers would be happy to achieve a public presentation near the criterions, and may non endeavor to traverse them.

One of the statements for inducements is that they motivate employees for higher public presentation. This statement seems to be indefensible traveling by Herzberg ‘s theory of motive. Harmonizing to Herzberg, money is a hygiene factor which, when provided, will assist take dissatisfaction. For motive to take topographic point, other incentives like chances for accomplishment and disputing occupation, must be provided in add-on to adequate fiscal wagess.


Potential booby traps like the 1s stated as disadvantages do non intend that public presentation related wage programs should non be implemented. Rather, they suggest that such programs are more effectual when implemented as a portion of a comprehensive direction plan aimed at maximising end product by tapping the possible and committedness of employees.

Performance related wage, hence does non truly work practically. And if it does, it ensures many drawbacks associated with it.

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