Encouraging High Performance Levels by Linking Performance to Pay

Encouraging high performance levels by linking performance to pay

Whether or not PRP is a good motivator is arguable. According to critics, it is often the underlying improvements in performance management that have the greatest impact on bringing about positive developments, rather than the associated pay enhancement.

Embedding an entrepreneurial or high-performance culture across an organisation

PRP can help to send out a message in this respect, although there are other (non-monetary) ways of communicating the need for high performance

The notion of equity or fairness

There is more widespread acceptance of the effectiveness of PRP in this respect, that it is right and proper that employees who perform better at work should be rewarded more highly.

Disadvantage:

Identification of development needs

A major concern for HR practitioners is that the linking of pay awards to the performance review process may inhibit an open and honest discussion of an individual’s training and development needs. One solution is to separate the pay review aspect of performance measurement from the broader performance/development review, for instance by holding separate meetings some weeks or months apart

Time-consuming nature

The processes associated with PRP can be very time-consuming. In general, it is important to allow sufficient time away from day-to-day duties for managers and employees to be able to engage in the PRP process effectively.

Undesired impacts on employee behaviour

Poor objective setting can lead to undesired behaviour changes – for example, a focus on short-termism or unwillingness to engage in teamworking – as employees try to achieve their individual PRP awards for the year. The aim should be to design objectives carefully to avoid such effects, for example by ensuring that they encourage high performance in the long term.

Performance-related pay is not a silver bullet: for this approach to succeed, effective arrangements must be in place...