Performance-Related Pay in Government

This assignment requires an analysis of performance-related pay (PRP) in the context of government employment. Students are tasked with evaluating the effectiveness of PRP in driving positive outcomes for public sector performance. The analysis should consider various perspectives, including the potential benefits and drawbacks of PRP, its impact on employee motivation and morale, and any challenges associated with its implementation in the public sector. The assignment draws upon a range of academic sources and online resources to support the analysis.

STRATEGIC
HUMAN RESOURCE
MANAGEMENT

Table of Contents
ASSIGNMENT 1.............................................................................................................................1
Critically evaluate the extent to which individual performance related pay can stimulate
higher level of performance from employees.............................................................................1
Circumstances in which PRP works best and in which it does not work well............................4
Different issues in PRP...............................................................................................................6
CONCLUSION ...............................................................................................................................8
REFERENCES..............................................................................................................................10

ASSIGNMENT 1
Critically evaluate the extent to which individual performance related pay can stimulate higher
level of performance from employees
To link performance with pay scales is something which any employer desires to attain.
Job positions with performance related pay (PRP) draw employees who possess the high
capability and inspire them to give their best efforts and contribution (Suff and Reilly, 2007). In
the past few years, there is an increasing trend specifically in private firms towards linking
rewards with the performance of employees for the accomplishment of objectives. It has been
increased because rewards system motivates employees which lead to improving the
performance of employees. It affects things because enhancement in employee’s performance
leads to improving the productivity in business (Jain, 2014). Therefore, pay scales are linked
with performance. In several developed nations, there has been a rising interest in PRP, which is
promoted by the government (Bryson and et. al., 2013). For critically evaluating the extent to
which individual performance-related pay can stimulate the high level of performance of
employees, it has been assessed that performance related pay increases morale and improves
performance which in turn leads to increased operational outcomes. This is good because by
increasing morale and performance of employees firm can easily enhance sale and
profitability(Park, Min and Chen, 2016). However, it should be taken into account that this
scheme can be taken in use as a method for employing goal setting policy in an organisation. It
can be said that bringing performance linked pay-scales is valid for the execution of goal setting
in public organizations (Washko, 2016). This can be said as an essential benefit of applying
performance linked pay (Hayek Thomas, and Montalvo, 2016). Moreover, application of PRP
gives an opportunity to redefine the set norms of organizational performance. This effects
organization because changes need to be made in firm’s norms which are not easy as it consumes
time and employees need some duration for adopting changes.
However, Bryson and et. al., (2013) argued that employees may also get discouraged if
the targets, which are set, are tough to attain. If they are unable to attain tough target then is can
demotivate them to work hard for getting pay for performance.
This is argued because if target is tough then employee unable to work hard for
accomplishing the goals Performance related pay is placed by some companies who want to
reward employees on an individual or team basis. (Sriyan de Silva, 2016.). The process of
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performance related pay is dependent on the quality of judgment made by management.
Nevertheless, another Hopp and Zenk (2012) argue that it is an effective method for handling
bad performance and productivity. Apart from that, it is helpful to retain employees in the
organisation (Hopp and Zenk, 2012). Still, the counter statement becomes a weak point from the
perspective of employees. One may argue that performance related pay could reduce the
engagement of trade unions as the emphasis shifts from collectivism to individualism. It affects
union and it is important for them to redefine their own roles as collective representative. This
effect trade union because in collectivism people are integrated behind the common bond. Here
if the employee gets pay according to their performance then they may not like to work for the
common goal. This effect individualism because trade union works hard for all employees On
the other side, the introduction of performance-linked pay is favored as a necessity to the modern
business scenario. It is defended with the fact that management takes use of this scheme to set its
goals and objectives (Frey, Homberg and Osterloh, 2013). It makes improvement in productivity
and performance of staff. One may argue that introducing performance related compensation in
any enterprise is implemented for encouraging fairness and equivalence along with the rewards
this was argued by Ammi and Fortier, (2017). However, criticism of performance-linked pay-
scales suggests that it makes the reduction in pay equity and can make the firm responsible for
expensive equivalent pay challenges if it does not operate in a fair manner (Daley, 2012). Also,
the performance appraisal procedure can be influenced due to the emphasis on financial rewards
instead of developmental requirements of staff. This is bad for the company because it needs to
pay financial reward which leads to impact the profit of the firm.
On the flip side of this evaluation, it is considered that the lower level employees in an
organisation may like this kind of scheme and take it as an opportunity for their growth in roles
and development of their careers (Frey, Homberg and Osterloh, 2013). It also gives incentives in
a direct manner to the staff for attaining stated goals and objectives, their contribution and efforts
are given with a recognition with a concrete reward. This is bad for the organisation because a
company cannot pay the financial benefit to each and every employee which directly impact the
profit of a company. Yet, it can be argued that performance related pay is an obstacle in fostering
team spirit and collaboration in an organisation. It is bad because due to performance related pay
employees not work in a team they only focus on their own performance instead of supporting
others in a team. It is narrowly focused as rewards are made with a short-term quantitative
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objective (Barnett and Salomon, 2012). On the other hand, it is asserted that a cordial and
smooth performance oriented culture in an organization can be developed if it is introduced. It is
supportive for the culture, current values, and innovation in the organisation. It is helpful for the
organisation in enhancing the performance of employees It is also analysed that performance
linked incentive supports and facilitates the implementation of general strategies in an
organization due to the clear-cut structure of goals and objectives. In addition, it attracts
knowledgeable and talented employees who have expectations that their abilities, talent, and
qualifications will be appropriately rewarded (Performance Related Pay: Are You Doing it
Right, 2015).
However, this means that the counter-argument in this evaluation becomes a weakness that
there is a threat that workers can build expectation of an additive pay-out every year. This can
negatively impact their morale and performance. This can damage the organisation because
employees may not work hard and company overall performance get down. (Bryson and et. al.,
2013). When there is situation of low inflation in a country, then this scheme may not prove to be
beneficial. It is so because company may not earn enough profit to provide financial reward to
employees. The focus and dedication of employees increase with performance-linked pay. If an
organisation adopts an effective individual performance-related pay system then it increases the
possibilities of highly motivated staff as they see that there is a close relationship between their
performance and the amount they are paid with. This in turn gets beneficiary for the organisation
because it decreases the rate of staff turnover (Daley, 2012). On the contrary, it is asserted that
pay for performance scheme is too much subjective because it leads to inconsistent assessment of
performance of staff and then it is ineffective which creates discontentment in the employees.
Workers who perform well, will start performing poorly when they get their increased bonus or
salary which leads to inconsistent performance which is one of the significant weak point of this
scheme (Hopp and Zenk, 2012). This impact company because company unable to deliver
quality product to its customers
This is further supported by an argument that monetary benefits are the major drivers, which
can increase productivity and performance of workers. On the other hand it can be stated that
reward lead to enhance and improve the employee performance. If employees are provided with
rewards for their best performance, it will motivate other employees to improve their
performance in order to get the same (Gerhart and Fang, 2014). In addition to this, standard-
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based ways provides a standardisation level in evaluating employees which may reduce fear of
favouritism in staff and makes the expectation of employer very clear. Apart from that,
employees will feel secured as they know that their performance will be assessed objectively as
per the work standards rather than on the basis of desires of their superiors. It is also beneficial
on the part of employees as it may increase their level of job satisfaction. They enjoy their tasks
and activities in an environment where their performance and productivity is rewarded in a fair
appropriate (Gerhart and Fang, 2014). This increases positively in their behaviour and attitude.
It is better for the organisation because employee will work hard and they behave in positive way
with each other and customers.. It is better for the organisation because its productivity and sale
will be increased which lead to enhance profits
Circumstances in which PRP works best and in which it does not work well
The situation in which performance related pay will prove to be effective are elaborated
here:
 High attrition rate: Attrition is a situation in an organisation when there is a gradual loss
of workers. In simple terms, comparatively high rate of attrition is very problematic for
firms (Suff and Reilly, 2007). This may be due to several reasons such as poor or partial
treatment, unfavourable working conditions or low pay scales and many more. This can
be due to retirement or elimination of an employee from the organisation. It is major
problem in any organisation, which needs to be solved with proper care and attention,
otherwise it can harm the bottom line of organisation (Knies and et. al., 2015). In such a
circumstance, pay for performance can be a good option for firms to retain their staff
when this type of situation arises. This may prove to be a good method for retaining them
as it will inspire them to be with the firm which respects and considers their performance
and contribution and then pay in accordance to it.
However, in some situations this scheme does not work effectively, these situations are
mentioned below: Low inflation rate: If an enterprise operates in a country, which is going through high
inflation, then this type of scheme does not works. This scheme needs high amount of
resources, efforts and money to make it effective. When inflation rates are very low it is
not possible for the employer to pay such heavy amounts. Thus, it may prove ineffective
in this kind of situation (Hopp and Zenk, 2012).
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 Poor financial condition of organisation: When the firm is suffering from losses then
performance related pay cannot be applied; there are ups and downs in the business. It is
not necessary that the fiscal condition of an organisation is always good and stable.
Therefore, this scheme may not work in this kind of situation (Gerhart and Fang, 2014).
Different issues in PRP
There are different issues for Performance-related pay in different context such as small and
large organization, different generation of employees in term of rate, public and private sector
etch. Some of these are discussed below:
According to the author Bryson and et. al., (2013)Performance related pay issues faced by
different employees who work in different in small or large organization but different is this that
issues are of different kind . Performance related pay is a financial reward for employees who
work effectively and efficiently for the organizations. In small organisation, issues such as
employee were not payed as they work for achieving success. Along with this, performance
related pay could be financial or non-financial. Hayek, Thomas and Montalvo, (2016) state that
some of the small business adopted the pay for performance but they are unable to measure the
performance due to unavailability of resources for measuring the performance . Then they are
unable to judge who performs better in the organization. It gives rise to pay by making own
decision without measuring its. This affects employees and demotivate them, which lead to
impact goal and objective in the future. This will put a huge impact on company because
employees feel that discrimination is done with them which will make them demotivated to work
hard by which company’s productivity will get affected.
The author argued that Ammi and Fortier, (2017)On the other hand, in large organizations there
is a large number of the employee who faces issues relate to performance related pay due to lack
of reward policy.
Monetary reward which is provided to employees is for limited period of time and thus, it
should be given after regular intervals to motivate the staff to work effectually. These are some
of the reason which lead to pay in performance related fails, and there are some problems and
issues which are faced by employer and management from circumstance which are as follows.
Firstly, in organization if inadequate criteria for measuring the performance is used, or method
used for measuring performance not understand or communicated properly then it impact work
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of employees (Sriyan de Silva 2016). Secondly, inappropriate performance appraisal system not
able to meet meet the objective of the reward system. (Gleeson, Kelleher and Gardner, 2016).
For example, implementation of performance related pay for promotion purpose help in getting
motivated employees. On the other hand normal appraisal system should not be used by
management for identifying the performance pay for each employees. Finally, the lack of
attention on the regular feedback of performance of employee give rise to ineffective pay for
performance (Frey, Homberg and Osterloh, 2013). It provide negative impact on employee’s
performance due to which employees unable to get effective pay for their performance (Daley,
2012).
As per the view of Hayek, Thomas, and Montalvo, (2016) the non-recognition sometime
dependent on the outside factor for the control of employees that is exchange rate, recession and
management decision. There are two benefits related to pay in first it relates to employment. If
there is the increase in basic pay then it can transfer to a profit related to pay otherwise employee
need to hire another employee on fixes wage cost or in less wage. The performance related pay is
the best method which helps organization in for accurately measuring the performance of the
individual. Further, it leads to improving in organizational performance (Bryson and et. al.,
2013). While if the organisation recruits new employee then it impacts the quantum of old
employees. The second benefits are that the increase in earning through the support of
performance related pay scheme benefits employee as well as organization. Knies and et. al.,
(2015) state that It benefits employees because they can easily fulfill their basic needs, on the
other hand, it motivates employee which lead to improving company’s productivity and
profitability.
Another problem related to performance related pay is that it is not easy to measure the
performance of each employee. In different industries, there are the different type of problems
like reduced sales and revenue due to inefficient services are given by de-motivated employees
(Park, Min, and Chen, 2016). The fact is that it is difficult to measure the performance of
employees fairly and it can cause dissatisfaction among workers at the workplace and thus, they
render poor quality services (Gerhart and Fang, 2014). Apart from this, it can be effective in
industries where job performance is easy to measure and when the bonus is the major part of
salary amounts (Daley, 2012). This is in the case of the financial industry, sales position and
recruitment because in this type of job it is easy to understand that pay for performance is part of
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wages and employees performance must be maintained so that extra wages can be earned. The
performance related pay appear much more objective in these industries because it is
traditionally accepted (Sriyan de Silva 2016). On the other hand, in some industries performance
related pay is not an effective tool because of the all reason that is listed above. As it can be
stated that PRP lead to job dissatisfaction for some of the employees because they feel inequality
in the system.
There are two primary flaws in most pay for performance system that is the overweight
transaction is short-term benefits as opposed to long-term benefits (Frey Homberg and Osterloh,
2013). It can create the unhealthy rivalry between employees and it also leads to impact the
performance of employees within the organization. If short-term transaction is done then it leads
to impact long-term benefits of employees. (Washk, 2016). Secondly, there is a reduction in
employee performance due to under-rewarded and insignificant performance of individual in
successful business. Employee would not perform well if they do not get monetary or non-
monetary benefits for their performance. This affect the productivity and profitability of business
(Mossialos, Wenzl and Anderson, 2016). This shows that if any organization implements the
performance related pay then it needs to use appropriate tool for measuring the performance of
employee. Along with this, performance related pay helps in the retention of employees for
longer period of time (Hayek, Thomas and Montalvo, 2016). It works in different situations that
are discussed above, which are high attrition rate and recruitment rate. If there is an effective
performance related pay structure in place then the organization is able to attract highly skilled
candidates.
CONCLUSION
From the above discussion, it can be concluded individual performance related pay can
stimulate the high level of performance of employees. Moreover, it has been assessed that
performance related pay increases morale and improves performance which in turn leads to
increased operational outcomes. The performance appraisal procedure can be influenced due to
the emphasis on financial rewards instead of developmental requirements of staff. It is also
asserted that pay for performance scheme is too much subjective because it leads to the
inconsistent assessment of the performance of staff and then it is ineffective which creates
discontentment in the employees. Employees will feel secure as they know that their
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performance will be assessed objectively as per the work standards rather than based on desires
of their superiors.
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