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History, Relevance in Todays Market - Essay Example

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PERFORMANCE RELATED PAY: HISTORY, RELEVANCE IN TODAYS MARKET, AND HOW ORGANISATIONS CAN USE IT EFFECTIVELY By INTRODUCTION: Human resource is one of the most important assets and resources for the organisations…
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History, Relevance in Todays Market
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In this regard the most famous and widely used method is of Performance Related Pay (Brown & Armstrong, 1999). In order to better understand the concept of Performance Related Pay, it will be beneficial to first comprehend the meaning of the performance. Performance means the output or end result given by any party or person. In the reference to the performance of the employees, it is perceived to be the fulfilment of the task or job responsibility which is measured on the basis of standards set for different factors like accuracy, time, cost etc.

PERFORMANCE RELATED PAY: Performance Related Pay (PRP) is the method used by the organisations in order to directly relate the pay or reward with the performance of the employees. It is strongly believed that the increased or additional pay increase the motivation level of the employees and they strive to give high performance. In this method several bonuses and pay levels are directly linked with the appraisal or assessment of the performance of the employees in comparison to the objectives and standards. . It can be further divided into straight piecework and differential piecework. 2. Merit pay: it is further divided into fixed incremental scales, merit bars, percentage increases, merit bonuses, and cafeteria benefits. 3. Profit Sharing: profits sharing or sharing incentives plans are provided to very limited and loyal employees of the organisation in order to retain them and motivate them to give high performance.

In this system the employees are awarded with some shares of the organisation in response to their outstanding performance and output. 4. Commission: in this system the employees are provided with a certain percentage of commission in relation with the amount of work done or sales made. Usually commission is used to increase the motivation level and performance of the sales team. RELEVANCE OF PERFORMANCE RELATED PAY IN TODAYS MARKET: It is important for the organisations to include and consider the prevalent economic condition in the process of designing the pay system or scheme.

Most of the analysts are of the view that the concept of the Performance Related Pay is no more effective and relevant for the organisations in view of the recent economic downturn and crisis. On the other hand, according to another school of thought organisations have become more concerned about the overall cost and setup of the pay structure and compensation. In order to justify the cost of the pay and compensation structure, organisations are striving to linking this cost with the benefits derived.

As a result, these organisations are widely using the method of Performance Related Pay (Brown & Armstrong, 1999). Apart from the economic crisis, increasing globalisation and free trade across the economies of the world have

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