Performance Related Pay
ESSAY ON PERFORMANCE-RELATED PAY
1. Introduction
Performance-related pay (PRP) is a financial rewarding system that links pay awarded to the work output of employees (CIPD, 2013). It is connected directly to individual, group and organisational performance (Armstrong, 2005). In the late 1980s and early 1990s, performance pay scheme became prevalently used in both private and public sectors in UK organisations, where it is perceived to be a motivation tool.
2. Theories about PRP
As Thorpe and Homan (2000), the role of incentive pay in employee motivation nearly sets up on psychological theories. Locke and Latham (2004) define motivation as internal factors that impel action and to external factors that can act as inducements to action. The theories of motivation provide a solid theoretical basis for the study of the use of financial rewards for stimulating employees to higher levels of performance for the achievements of organizational objectives (Schuler, 1998). Expectancy theory and equity theory offer the fundaments for performance-related pay.
2.1 Expectancy theory
Expectancy theory is relied on expectations that people bring with them to the work situation, and the context and the way in which these expectations are satisfied. In other words, there is greater scope to understand how employees may require to be treated differently and to interpret why employees do not necessarily respond in a mechanical way to changes in, for example, the level of pay (CIPD, 2013). Vroom’s expectancy theory---VIE assists to understand the motivation through three elements:
• expectancy – Employees perceived that they possessed the necessary skills to do their jobs at least adequately;
• instrumentality– Employees perceived that if they performed their jobs well, or at least adequately, they would be rewarded;
• valence – Employees perceived the rewards offered for successful job performance to be attractive (Arnold and Randall et al, 2010). According to the
1. Introduction
Performance-related pay (PRP) is a financial rewarding system that links pay awarded to the work output of employees (CIPD, 2013). It is connected directly to individual, group and organisational performance (Armstrong, 2005). In the late 1980s and early 1990s, performance pay scheme became prevalently used in both private and public sectors in UK organisations, where it is perceived to be a motivation tool.
2. Theories about PRP
As Thorpe and Homan (2000), the role of incentive pay in employee motivation nearly sets up on psychological theories. Locke and Latham (2004) define motivation as internal factors that impel action and to external factors that can act as inducements to action. The theories of motivation provide a solid theoretical basis for the study of the use of financial rewards for stimulating employees to higher levels of performance for the achievements of organizational objectives (Schuler, 1998). Expectancy theory and equity theory offer the fundaments for performance-related pay.
2.1 Expectancy theory
Expectancy theory is relied on expectations that people bring with them to the work situation, and the context and the way in which these expectations are satisfied. In other words, there is greater scope to understand how employees may require to be treated differently and to interpret why employees do not necessarily respond in a mechanical way to changes in, for example, the level of pay (CIPD, 2013). Vroom’s expectancy theory---VIE assists to understand the motivation through three elements:
• expectancy – Employees perceived that they possessed the necessary skills to do their jobs at least adequately;
• instrumentality– Employees perceived that if they performed their jobs well, or at least adequately, they would be rewarded;
• valence – Employees perceived the rewards offered for successful job performance to be attractive (Arnold and Randall et al, 2010). According to the
Cited: in: Milkovicn, G. T. & Newman, J. M. (2005). Compensation, 8th edition. McGraw Hill. Moday, R, T. (1991). ‘ Equiti theory predictions of behavior in organisations’, in R. M. Steers and L. W. Porter(eds). Motivation and Work Behaviour. 5th edition. New York: McGraw-Hill. Kessler, I. (2005). 'Remuneration systems ' in Bach, S. Managing Human Resources: Personnel Management in Transition. 4th edition. London: Blackwell. Schuler, R.S. (1998). Personnel and Human Resources Management. 3rd edition. Toronto: West Publishing Company. Thorpe, R. and Homan, G. (2000) Strategic Reward Systems. Prentice Hall. Whitfield, K. and Poole, M. (1997) ‘Organizing Employment for High Performance’, Organization Studies, 18(5): 745–64.