Performance-Related Pay

Human Resource Management

“In reality, there is no such thing as a fair and effective performance-related pay scheme”. To what extent do you agree with this statement?

The lack of fairness in relation to traditional performance related pay schemes is a common theme. In order to support this view, we will focus on the origins and motives behind the introduction of performance related pay within the public sector, its lack of impact on motivation and staff performance, the shift from performance appraisal to performance management, critique the appraisal process and finally discuss the democratisation of the appraisal process using the 360-degree system.

Performance related pay (PRP) has been on the rise within the UK and while its origins can be found in the private sector, the public sector has adopted various ranges of appraisal systems over the years. Government views the performance related pay systems as a means of improving public services. For example, the Inland Revenue (IR) scheme introduced performance pay in 1988, a merit pay which saw staff being awarded increments or range points. An award was based on judgement of staff performance made through a system of appraisals. The appraisal system included three stages, job plan, frequent review of achievements and individual performance rating by manager. A counter-signing officer was required to ratify the marks given prior to the award. The motive for the introduction of the Pay Agreement was to ensure that government was able to control the public expenditure. As a result a ceiling was set on the amount that IR could award each year.

Government perceived performance related pay as motivator and managers were using pay as an incentive to raise performance. However there is no direct correlation between better motivation and better pay. In instances where staff may have been motivated, they could have possibly encountered other stumbling blocks such as poor management, inadequate training and...