The Concept of Individual Performance Related Pay and Its Impact on Employee Performance

Running Head: HRM
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Human resource management
4/20/2019

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The essay brings about the discussion on the concept of human resource policies, processes
and practices and other factors in the implementation of HR strategies in organisations. The
discussion will describe the Individual performance related pay and how it stimulates higher
levels of performance from employees. The concept of Performance related pay (PRP) refers
to managing pay by linking salary progression to the assessment of individual performance,
measured against the predetermined objectives. In addition, the essay will mention positive
and negative factors, which will motivate workers or employees in the organisation. These
aspects will be discussed taking into account the aspects such as type of occupation, the
standard of income and values in a country and individual differences and others (Noe et al.,
2017). In the later part of the essay, the factors governing relationship between line managers
and human resource managers or personnel, and strategies to enhance relationships. Thus, the
readers will gain an understanding of the concepts of performance pay and the resultant
employee performance in organisations, with the use of scholarly published resources (Van
Wingerden, Derks and Bakker, 2017).
Reward and Performance Management
Organisations show high degree of commitment towards reinforcement of the reward
practices aligned with the HR practices, and goals of the organisation to retain employees.
Efficient reward practices help in attracting the result driven professionals who can thrive or
succeed in the performance based environments. The research has stated that an effective
reward system should be linked with the performance development system that focuses on
the performance-based pay. Therefore, the below section of the essay will describe the
concept or element of individual related performance pay in the organisation (Van De Voorde
and Beijer, 2015).
Performance related pay
Performance related pay is defined as financial reward given to the employees whose work
has found higher than the expected performance or predetermined standards. The method of
performance related pay is used when the employee performance cannot be measured in
terms of the output produced or sales achieved. In every organisation, individual
performance is reviewed and measured regularly, (usually once per year) against the set
objectives or standards of performance, called as performance appraisal. The methods of

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rewarding the performance of employees may vary but it is generally done through cash
bonus and increase in the salary or wage rate (Lucifora and Origo, 2015).
PRP or performance related pay, as a method of compensation is accepted as the effective
management practice in the modern organisations. It acts as powerful motivator of the
employee performance, and ensures high productivity and growth of employees in the long-
term (Ren, Fang and Yang, 2017).
In business organisations, employees tie or link the performance of employees with the
financial incentives and give rewards for their extra efforts with more pay. This encourages
them to work hard with full commitment and attain stated goals and objectives during a
particular time-period. Therefore, it has been analysed that IPRP, or performance related pay
to an individual stimulate higher levels of performance to certain extent. Pay is a central
element in the employer-employee relationship and is influenced largely by the factors
external to the relation of employee and organisation. These elements or influenced includes
government of the country, legal structures, legislations, competitors, and the economic
conditions (Kuvaas et al., 2016).
The research in the western modern organisations has illustrated about the meaning and
significance of the concept of performance related pay to the employees. Pay for performance
is based on the notion that reward affects behaviour that leads to positive performance of
employees. Pay for performance is explained in context to the expectancy theory, and the
theory assumes that increased efforts will lead to increased performance. Therefore,
employees must consider the fact that if they will commit to the organisational goals and
objectives, it will enhance outcomes or level of performance (Nyberg et al., 2018).
IPRP is linked to the aspect of intrinsic motivation, as better pay or salary to the employees
create positive impact on their behaviour, leading to increased performance in the
organisation. For ensuring high or competitive compensation to the employees, it has found
that a fixed pay system is one of the effective methods used in the organisations. In a fixed
pay system, an individual’s pay is originally determined at the time of recruitment and
selection and continues to increase with an annual pay raise given for each service. To review
the aspect of individual performance related pay it has been analysed that individual
performance related pay also leads to better collaboration amongst employees (Marler and
Parry, 2016). This would further build to a healthy performance culture and helps managers
to deal with the poor performance and other issues. Employees in any organisation will