Analysis of Performance-Based Pay Schemes

This assignment involves analyzing the effectiveness of performance-related pay (PRP) schemes in boosting employee productivity and motivation across different sectors. The report examines existing research on PRP, its applications, and implications for organizational culture, human resource management, and employee performance. It also considers the relationship between PRP, labor productivity, and job satisfaction, as well as the potential challenges and limitations of implementing such schemes.

Running Head: Managing Human resources
Managing Human
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During 1990’s, the employees from private and public sector did put a strong significance on the
rewards paying for the good performance. For improving individualism and organizational
culture, incentives were also given. Armstrong once suggested that pay is always linked to the
performance measured by many particular objectives. For example: Target for sales or the
satisfaction of the customers. For these objectives, rewards are introduced by using quantitative
judgment (Suff et al., 2007). Performance related pay is extensively used in public sectors like
government or to the teachers etc. There are huge benefits of performance related pay that were
introduced by Armstrong. He also realized that PRP can be very helpful in motivating the
employees and eventually will help in giving success to the organization. It gives a push to the
managers for examining the progress of the goal of the department. This also helps to retain the
resources by rewarding them financially and in the reduction of the golden handcuff effect too.
Marchington said that it is usually difficult to find proof for determining success of the
performance related pay, however, it is broadly supported and practitioners have seen huge
amount of loyalty within resources. Its’ since few years, there has been an assessment of the new
ideas behind PRP (Bryson et al., 2012). There are new studies that say that PRP contributes a lot
to the organization and the performance of any individual. Lewis in 1998 found that in case if the
employees are in the agreement of the PRP and practice, they will get motivated in the much
better way in terms of the performance output. This essay focuses on performance related pay
and the benefits of it in terms of motivating the employees and retaining them. It also focuses on
the effectiveness that retail and manufacturing industry got by using performance related pay.
Employees always seek some rewards for their work done in the organization. Performance
related pay when is introduced with the any type of job, it makes the job much more attractive
for the employee as this helps the employee to perform better in order to achieve that pay which
is related to his performance. Recently, there has been this concept of involving performance
related pay to the private sector on the massively. Hence, compensation is tied to the
performance. In many countries which are developed in terms of the economies, there had been a
renewal of the PRP policies which are entertained by the government (Mensah & Dogbe, 2011).
With new view of the organizations of linking incentives to the performance, this process is
consistent. Compensation can be seen in various different perspectives by resources, society and
the managers. Society’s perspective about the compensation is the measurement of the equity or
the equal work for equal pay. For employees it is a return of the services they have done for the

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organization. Manager view compensation in two ways: as a huge expense and a possibility of
influencing the employee’s behavior and motivating them.
Compensation can be divided into two groups: intrinsic and extrinsic rewards. Direct rewards
consists of the protection programs, Pay for the time a resource has not worked such as leaves,
illness etc and perquisites. While the direct rewards include basic wages, performance based pay
and the living expenses. Armstrong observed that there started a trend towards PRP in the
manufacturing firms (Tonge et al., 2010). A manager’s biggest challenge is t o motivate his
employees. The success key of the organization is to only motivate the employees. Jones defined
motivation as the external force which determines the way of the person’s attitude and behavior
in the organization. He considered efforts, attitude and persistence as the important factors for
the motivation. Behavior of t he resource chooses the way for behavior, efforts scales up as to
how hard the resource is working and persistence happens when the resource continue to face the
difficulties rather than giving up (Bajorek & Bevan, 2015).
Theory of motivation’s usage revolves around the number of assumption and general ideas
shared in the theories. The main focus goes on the cognitive theory of the motivation which is
very valuable for the managers as compared to the need theories as cognitive theory provides the
real guidance on the methods of motivation.
Maslow’s theory of motivation: The Maslow’s theory suggests that human beings are motivated
by the requirements which are hierarchical in the order starting from the basic needs till the
higher order of needs (Jerome, 2013). These needs are sequenced by the humans starting with
affiliation, physiological, self-actualization and security. Once the needs are completed then the
motivation of the individual automatically comes down. It is said that someone’s frame of
reference is determined by the order of significance of their needs and culture of the society
which influences that reference frame. Hence, the application of Maslow needs comes to the
conclusion that the needs are not the same when it comes to different people of various
ethnicities and cultures (Kaur, 2013). Basically the conclusion that could be taken out is that this
theory only helps in providing general framework to categorize needs of various types.
Two-factor Theory by Herzberg's: Herzberg’s two factors are motivation and hygiene. Herzberg
stated that if the hygiene factors like job security, work conditions and pay are absent, then there

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would lay dissatisfaction always and if they are present then they will not lead to motivation as
well. Motivation factor includes nature of work, responsibility and recognition among others and
if they are present then they would be helpful in motivating the resources but in case of their
absence, it leads to the state of neutrality i.e. neither satisfied nor dissatisfied (Tan & Waheed,
2011). Herzberg also realized that being repetitive will not lead to dissatisfaction. For applying
this theory in the organization, there should be a two-stage process followed.
Firstly, the management must achieve the state of no dissatisfaction through addressing hygiene
factors and all this should include the improving of work conditions and fostering of impersonal
relation at work.
Secondly, when the stage of dissatisfaction occurs with the help of hygiene factors, motivation of
the employees can be achieved with introducing the motivators such as new opportunities for the
advancement of the resources and job redesigning for taking more responsibilities (Baah &
Amoako, 2011).
The most important strength of this theory is that the theorist made the clear path for the
managers so that they are able to apply this in practice using this two stage process.
Equity Theory: Stacy Adams stated that the most important factor for achieving motivation is to
strive for the fairness or equity. The starting point of this theory is the exchange place where the
resources give something such as skills or labor as their inputs and in return they get something
for it such as appreciation or pay. The centre point of this theory is that the person uses it to test
one self’s output balance (Aggarwal et al., 2014). Inequity occurs where one becomes aware of
the discrepancy with the reference of the other one. Equity theory given by Adams is hugely
regarded for it being simple and it stands up to the accuracy of the empirical tests. Rollinson
stated that all the tests have usually supported theorist Adam’s prepositions in the predictions and
Equity theory. Although, a few proofs have suggested that this theory even being deprived
economically when it comes to employee satisfaction, some resources proved to be very
productive. A conclusion can be taken out that the motivation economically can be greater that
the equity in organizations in which individuals were able to work better despite equity (Truong
& Khalifa, 2010).

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Goal-Setting Theory: Locke’s theory of goal setting is a proven theory in which there are
assertive proofs that the particular challenges and the specific goals always will improve the
work performance of the individual. Further explanation of this theory is that the effort which is
goal directed will always a function of the acceptance of the goal and the commitment which will
eventually lead to the performance of the individual. This theory sates that when the goal is
achieved by the individuals then intrinsic and the extrinsic rewards are always expected by the
resources and at least those rewards determine the level of the particular person’s satisfaction
(Bakar et al., 2014). A theorist pointed out that workplaces that are modern are usually organized
in terms of work and the theory does not address the goal setting theory when it comes to the
workplace. One more shortcoming of the theory is that it makes the employees drive towards
unethical practices in order to make them achieve their goals. Joint goal setting has shown
assertive response in the performance of the resources though (Lunenburg, 2011).
Effectiveness of performance related pay in Manufacturing Industry: Most firms offer resources
remuneration packages which directly link to performance related pay in terms of incentives and
motivation. Remuneration works within the workers of the manufacturing industry and it has
become a norm since a long time in this industry (Chet et al., 2014). There are various types of
payment incentives which include performance pay for the individual and the performance pay
for the group too. Each resource is worried about improving the efficiency and the productivity
of the firm. When an apt compensation which consists of the fixed payment and the variable
payment element is provided, it directly links to the productivity of the firm and its performance.
This process has proved to be very helpful in improving the productivity of the manufacturing
organizations. For the increment in the performance of the worker, pay is directly linked with the
hard work the worker does. This improves motivation within the workers and they work loyally
for the company and give their best for that reward. Incentives are also introduced which are
based on the performance of the worker. The more they work above their target, the more
incentive they will be getting at the end for their hard work. This will improve the productivity of
the company immensely. Performance related pay can easily improve performance in terms of
macro economy and gives the flexibility of employment to economic shocks. When the incentive
schemes are introduced, it automatically helps the company in understanding the allocation of
the high quality workers to productivity of firms which is high. Better organization performance
for longer term is directly associated with the share ownership schemes. PRP can be explained

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by the flow of the “high involvement management” practices in which the resources have the
power of decision making, in which they deserve incentives and compensation. Performance is
effective when the direct effect of the incentive occurs for the employees. The empirical proofs
support the PRP process as they indeed help in producing the high productivity and a better firm
and worker match (Lucifora, 2015).
Effectiveness of performance related pay in Retail Sector: When it comes to the retail sector of
organizations, there is always a need to motivate and retaining the employees because of the
demand of the manpower in this industry and for the employees in order to make them work
well. It is always important to give the reward package to the employees in order to expect good
performance from them. There is still a need to find more out about what exactly performance
and rewards in reality entails for having a good understanding of the whole process as to how it
works. To examine the performance and rewards, there are challenges faced by the companies
for fulfilling psychological contracts in between the employees who have very good
performance. Armstrong stated that PRP is a high motivator in term of the reward management
but also stressed as it should not just only be about money but also for the non financial rewards
that provides intrinsic and extrinsic motivation like involvement of the employee, trust and
partnership, transparency and mutuality etc. These both are the factors in the success of the
organization; hence, they should be in depth evaluation in retail industry. In case if the employee
is working in the retail sector, the output of the resource is always less as it is clearly dependent
on the customers who come in the shop (Ray, 2016). The firm should always try and give
performance related pay for the benefit of the shop and the productivity. In retail sector, the
performance related pay provides the managers and the workers great incentive efficiency and
the productivity. This eventually leads to the costs getting lower and helps the organization to
remain in the profitable and dynamic state. It also gives the workers a good feeling as they are
tied to a good fortune of the company which eventually helps the organization in making it easier
to put focus on the cost cutting. It will also boost the morale of the resources which will alow
them to be loyal with the company they are working for and will always work hard for
themselves as well as the organization (Pettinger, 2016).
This essay focusses on the Performance related pay that it is fair and always helps in motivating
the employees and other resources in the organization and has not bad effect on the team or the

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system. Organizations those are eager to adopt to the process of the performance related pay,
should have a clear objective for using it. They should be able to achieve trust and positivity
from the employees(Gilbreath & Harris , 2002). Attempts can be made via involvement of the
employees to allay fears if any and in case if they have any suspicion or mistrust towards the
company or the domain. Ample amount of preparations should be done before all this process.
Payment for the performance should be done as much possible and it should be based on the
amount of incentives instead of the rating. With the study of the theories of motivation in this
essay, the conclusion can be drawn that there are several factors which influence an employee’s
motivation: Work environment, supervision, responsibilities and feedback(Ball, 2012). To
conclude it can also be said that the use of PRP scheme can provide specific benefits when it
linked with the environment which is open and supported by equality(Jackson, et al., 2013).
Motivation is necessary for the organization to get more productivity out of the employees and to
bring the motivation, it is necessary to have something luring by the resource’s side so that they
can push themselves to work hard to get that reward. Performance related pay is one of the best
schemes which not only helps the organization but also the employees by giving both a very
good result in the end. At last it can be said that it is always a win-win situation for the company
and the employees.

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