What Are the Benefits and Problems of Performance-Related Pay Systems for Both Employees and Employers? Essay Example
Performance-related pay (PRP) grew during the 1980s and 1990s due to the decline in Payment by Results (PBR) schemes. PRP looked beyond traditional PBR incentives, they reward individual contributions based on performance rather than on effort. These incentive schemes can filter throughout an organisation to motivate manager’s right through to the manual workers.
This essay will try to outline the benefits and drawbacks of the PRP method for employers and employees using case study examples particularly the education sector where PRP has been or could be effective. We shall also investigate the numerous forms of PRP and whether they are successful payment methods. PRP can be used for both Individuals and Groups, therefore companies need to find the most suitable for their organisation, and the essay shall explore the pros and cons of both.
Firstly I shall investigate the advantages of using PRP for the employers. The most recognised advantage of PRP for the employers is motivation. It has been suggested by F. W. Taylor that the employees are motivated to make as much money as possible, consequently when using a piecework method of PRP employees are going to produce products faster to make more money therefore increasing the productivity of an organisation. It has been suggested that adopting PRP can induce greater effort and it attracts more able workers (Lazear, 1996, cited in Booth & Frank, 1999). Booth & Frank (1999) made an integrated model that encompassed the sorting and effort effects of PRP. They estimated the earnings effects of PRP to underlying productivity differences. Cutler & Waine (2004) studied PRP in schools and found that in the early assessment 68% of the teachers characterised the impact of PRP on their morale as negative, but later on in the assessment this dropped to 38%. This represents the positive attitude employees have towards PRP. PRP is also beneficial when the firm has a flatter hierarchy with fewer promotional
This essay will try to outline the benefits and drawbacks of the PRP method for employers and employees using case study examples particularly the education sector where PRP has been or could be effective. We shall also investigate the numerous forms of PRP and whether they are successful payment methods. PRP can be used for both Individuals and Groups, therefore companies need to find the most suitable for their organisation, and the essay shall explore the pros and cons of both.
Firstly I shall investigate the advantages of using PRP for the employers. The most recognised advantage of PRP for the employers is motivation. It has been suggested by F. W. Taylor that the employees are motivated to make as much money as possible, consequently when using a piecework method of PRP employees are going to produce products faster to make more money therefore increasing the productivity of an organisation. It has been suggested that adopting PRP can induce greater effort and it attracts more able workers (Lazear, 1996, cited in Booth & Frank, 1999). Booth & Frank (1999) made an integrated model that encompassed the sorting and effort effects of PRP. They estimated the earnings effects of PRP to underlying productivity differences. Cutler & Waine (2004) studied PRP in schools and found that in the early assessment 68% of the teachers characterised the impact of PRP on their morale as negative, but later on in the assessment this dropped to 38%. This represents the positive attitude employees have towards PRP. PRP is also beneficial when the firm has a flatter hierarchy with fewer promotional