Individual Performance Related Pay

INTRODUCTION

It is a system used by human resources management of a company to reward performance of employees which takes into cognizance the quality of performance on the job. This approach is used to motivate employees and to channel their effort towards meeting the organizational goals. It could be financial or non-financial depending on the organization. According to (Armstrong 1999, 640) ''performance related pay relates pay progression (increase to base rate) or bonuses to the assessed performance of individuals``.

ADVANTAGES

The following advantages of individual performance related pay were given by (Mckenna and Beech 2000, 256)

1. Incentive are linked to meeting target or objectives as well as to the quality of performance as perceived by superiors

2. Where employee's performance can be measured and the amount of money available to reward performance is sufficient to motivate effort, it saves money if the organization targets rewards on those who perform.

3. High performance are attracted to performance related pay culture in the knowledge that pay is linked to productive effort and that poor achievement is discouraged.

DISADVANTAGES

Despite having some advantages, Individual performance related pay has some disadvantages which could affect the overall productivity of an organization. They are

1. Performance related pay is based on the assessment of individual performance which may be inconsistent and unfair. Sometimes it may be difficult to measure performance that will be fair to all.

2. It could have adverse effect on team work because it nature is individualistic. Employees may want to disregard teamwork because they are trying to get addition pay.

3. Open communication between managers and subordinate could be discouraged, because subordinate are less likely to divulge information on personal shortcoming just in case such disclosure act to their disadvantage. (Mckenna and Beech 2000, 256)

4. Poor performing employees may be discouraged. They need to be motivated and encourage for the best interest of the organization.

5. Performance related pay can lead to 'short-termism' the pursuit of quick result rather than paying attention to the achievement of long term strategic goal. (Armstrong 1999)

REQUIREMENT FOR EFFECTIVE PERFOMANCE RELATED PAY

In order to achieve an effective performance related pay, certain conditions need to be met which are listed as follows:

1. The pay package is competitive and fair.

2. Those who appraise performance are skillful in conducting appraisal.

3.