Effectiveness of Individual Performance Related Pay System in Improving Employee Performance

STRATEGIC HRM

Introduction
In the field of Human Resource Management (HRM) Individual Performance Related Pay or
IPRP is comparatively a new addition. In this system, human resource department of the
organizations manages the payment scale of the employees by linking the progression of salary
of the employees with their performance standard (Gärling et al. 2017). The system is also
known as merit pay system. This essay is focused on the critical evaluation of the effectiveness
of IPRP system in the context of improving employees’ performance standard. Along with that,
the essay will also identify and analyze the circumstances in which the IPRP system does not
work properly. The essay will use some published articles to get reliable information about IPRP.
Critically evaluating the extent to which the individual performance related pay or IPRP
can stimulate higher levels of performance from employees
In an article, Dr. Mark Bussin has mentioned that Individual Performance Related Pay is the
payment system that can vary based on the performance of the individual employee, team or the
company. Dr. Mark Bussin has also clarified that high performance is the standard that everyone
tries to achieve in all the activities in their life (Humancapitalreview.org 2018). In the same
article, it has also been indicated that IPRP system is applied on the people, who are associated
with the competence rating, grades or salary structures. It is not like the incentive system of the
company. In the other words, IPRP system can be defined as the rating system that has direct
impact on the payment size of the employees (Humancapitalreview.org 2018).
Nuckols (2017) has mentioned that IPRP system creates a strong relationship between the reward
system and performance level of the employees. At the same time, the IPRP system also helps to
meet the strategic objectives of the business. In this context, Bryson et al. (2017) argued that
IPRP system influences the individuals towards superior performance level at their workplace
and it sends clear message to the individuals, who are non-performer within the organization.
Therefore, the argument made by Anselmi et al. (2017) is clearly indicating that IPRP system
can stimulate the performance levels of the employees to the higher extent. On the contrary,
Shields et al. (2015) commented that the effectiveness of the IPRP system is limited to certain
organizational position of the employees. Hence, it is an argumentative matter whether or not the
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IPRP system has any positive impact on the performance standards of the employees at every
organizational level.
According to Tayeh et al. (2015), the IPRP system is very effective in the sectors like,
manufacturing sector and financial sector because in these two sectors, the payment and
promotion of the employees depends mostly on their individual performance standards. On the
other hand, Bellé (2015) commented that use of IPRP system is more in the developed countries
than the developing countries because in the developed countries the employees are highly
motivated by their payment scale than the employees in the developing countries.
In a study done by Paul Suff, Peter Reilly and Annette Cox, it has been mentioned that the IPRP
system was first introduced in UK during 1980s and the primary aim of this system was to bring
some cultural change within the organizations and encourage the employees towards the
achievement of high performance level (Employment-studies.co.uk 2018). In the current
scenario, IPRP system is one of the key rewarding strategies in many organizations. Critically
analyzing the IPRP systems in the organizations, it can be mentioned that the system is
nowadays a strategy of motivating the employees. In support of this, the argument of Meker and
Barlas (2015) can be mentioned, in which it has been claimed that IPRP system brings better job
satisfaction to the employees.
However, Ogundeji et al. (2016) stated that the effectiveness of IPRP system depends on the
infrastructure of the company. The infrastructure must be supportive enough for achieving better
level of effectiveness. Moreover, the IPRP is also organization specific. The IPRP system of an
organization may not work in other organization. Therefore, it is difficult to identify the right
design for the effective IPRP system (Anselmi et al. 2017). At the same time, it has also been
identified in some organizations that IPRP system stimulates the performance of the employees
on temporary basis, but it cannot develop a performance-based culture within the organizations.
For example, Starbucks has implemented the IPRP system; however, the management of the
company still faces many complaints due to the negligence of the employees (Gärling et al.
2017). It clearly indicates that the employees of the company are not accustomed with
performance-based culture or it can also be stated that IPRP system failed to motivate the
employees towards performance improvements.
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