Performance-Related Pay and Employee Motivation

This assignment delves into the relationship between performance-related pay (PRP) and employee motivation, examining various academic studies and theoretical frameworks. It considers the impact of PRP on individual and organizational performance, exploring both positive and negative aspects. The analysis draws upon scholarly articles, books, and online resources to provide a comprehensive understanding of this complex topic.

Strategic Human Resource
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The term strategic human resource management (HRM) is generally an approach to
manage human resources which supports the long term goals of business. The strategic HRM is
basically concerned with analysing opportunities and threats which are present in external
environment and according to that it formulates strategies (Boeri, Lucifora and Murphy, 2013).
The present essay will help to understand the concept about strategic human resource
management. Further, this essay also includes the concept about performance related pay (PRP).
In this context, how motivation is linked to the individual's PRP is also described in this essay. It
also helps to understand the impact of motivation and contextual issues which are faced at the
time of deciding PRP in the organization.
Performance related pay is basically a salary paid which is based on the performance
level of employees. In an organization, PRP is usually a financial reward to the employees and in
this, their work should reach at above the average or at required standard. It is also known as a
merit pay because performance level of individual is considered for their salary. As per the
Agwu, 2013, “ The process of performance related pay is a remuneration method which is linked
with both the performance and motivation because through this method, employees would feel
motivated to perform their best. By implementing PRP method in the organization, working
quality and skills of the employees would be increased” (Agwu, 2013). However, Armstrong and
Taylor, 2014 stated that “There are basically three main objectives of this performance based
system. First objective is that by linking pay scales to the performance, it motivates employees to
perform best. Further, it also helps to build high performance based culture in the organization,
so, it is the second objective that encourages organization to adopt this system. Third objective is
that, in organization the employees who perform better gets the better monetary awards, so, they
will be motivated toward work” (Armstrong and Taylor, 2014). But in contrast, Banfield and
Kay, 2012 said that complex process of performance measuring is now reduces to the simple
methods with the help of this PRP system.” (Banfield and Kay, 2012). According to Boeri,
Lucifora and Murphy, 2013 “Employees in the organization tend to work even harder as reward
system and pay scales are tied up with their performance” (Boeri, Lucifora and Murphy, 2013).
Bregn, 2013, also stated that “Performance related pay helps to increase the productivity of both
the employees and organization. It also helps to develop a working environment in which lower
level of supervision is needed because all the employees perform their best to get high monetary
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rewards” (Bregn, 2013). Buller and McEvoy, 2012, defines that “PRP conveys message to all the
employees of organization that their management believes in high performance level and for this,
they are prepared to pay high salary scales to employees. The author concluded that, organization
which adopts this PRP system is basically considered as a performance oriented organization”
(Buller and McEvoy, 2012). In contrast, Amstrong, 2006 critiqued that this performance related
pay system also demotivate few employees in the organization when their performance is not
fairly judged and further, it also lowers their pay scale” (Amstrong, 2006). in the same wayit is
also evaluated by the samwe author that performance related pay leads to increase competition
among aemployess that some time forces them to perform unethical practices (Performance
Related Pay, 2011).
As per the Cerasoli, Nicklin and Ford, 2014 “The term motivation among employees is a
big challenge for the manager of organization because it is a key factor which encourages
employees to work hard to achieve their both the personal and professional goal” (Cerasoli,
Nicklin and Ford, 2014). However, Chen, Williamson and Zhou, 2012 defines that motivation is
basically a psychological force which determines employee’s behaviour and according to that
behaviour, employees put efforts to accomplish the task. In this context, author linked the
behaviour, efforts and performance to the motivation” (Chen, Williamson and Zhou, 2012). The
author Cummings and Worley, 2014 also concluded that implication of several motivational
theories in the organization helps to increase the performance of employees. In the organization,
if performance related system is adopted then these motivational theories would be more helpful
for employees because high level of performance than high reward system they would get”
(Cummings and Worley, 2014). But, in this contrast, Faisal, Mook Lee and Shoham, 2015
critiqued that this PRP system has also caused the jealousies among employees which in last
declines the morale of few employees in the organization” (Faisal, Mook Lee and Shoham,
2015). According to the research paper of Fisher, 2005 it has been concluded that “Individual’s
performance related pay contributes in enhancing the effectiveness and productivity of
organization and for this PRP system, many managers and employees are in favour” (Fisher,
2005). As per the Jackson and McNamara, 2013 “An individual’s performance related pay
system is defined as a system of pay progression in which every individual receives financial
rewards according to their success points and performance level. The author stated that this
system has linked the performance and pay with each other along with linking the individual's
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personal goal with the organizational goal” (Jackson and McNamara, 2013). The research paper
of Jackson, Schuler and Jiang, 2014, described that this PRP system also origins the hostile work
attitude in employees because to attend a single customer, many employees would compete with
each other. With this author concluded that sometimes this system may lead to opposite of the
expected and desired outcomes” (Jackson, Schuler and Jiang, 2014). However, Lucifora and
Origo, 2015 that performance related pay system could be defined by merit pay, commission and
incentives etc. in the organization. ” (Lucifora and Origo, 2015).As per the study of Mello, 2014
analysed that this system places additional pressure upon the employees to perform good in any
condition and it also creates many conflicts among the employees because of competition”
(Mello, 2014).
The research of Murphy, 2015 analysed that “At the time of economic recession, the high
performed employees are not rewarded and promoted which in last results that many employees
leaves the organization in the presence of performance related pay” (Murphy, 2015). The O'Neil
and Drillings, 2012 also agreed that through this PRP system, workers and employees are
controlled of reward system. Further in this contrast author stated that this PRP system improves
the individual performance but it gives adverse effect on team work. Because each employees
would try to proof themselves in which they forget to work as a team” (O'Neil and Drillings,
2012). As per the Rowland, 2013, it is described that sometimes this system is not used at
appropriate place where it is very hard to analyse the performance of individual and improves the
performance. In this context, author also said that presence of this system in organization also
creates the unreasonable levels of success criteria to measure the performance level of
employees” (Rowland, 2013). According to the Agwu, 2013 “The implementation of
performance related pay system in organization, employees starts to only focus on the level of
financial rewards but on the development needs. The author also included in his research paper
that employees could be de motivated in case if there targets are not achieved up to the expected
result and further it would affect their pay scale” (Agwu, 2013). In the contrast to this author,
Shields, Brown and Plimmer, 2015, stated that the performance related pay system provides the
direct incentives for employees in organization to achieve the work targets. In the research study
author described that a good performance related pay system would give the reward to best
performer but in contrast author also defined that this process completely relies on the judgement
quality of authorized person. In this that authorized person has to always made the fair
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judgement to all employees” (Shields, Brown and Plimmer, 2015). Further in this context, Takao
and Naomi, 2015 defined that “This PRP system is a very effective method to deal with the poor
performance employees because with the help of this method, poor performer would also feel to
work hard and get the reward. For this purpose, employees would be more dedicated towards
their work” (Takao and Naomi, 2015). Along with these it also influences employees to perform
beyond their limits.
As per the Murphy, Lucifora and Boeri, 2013, “The presence of two factors such as
performance and motivation are very essential for the success of this performance related pay
system in the organization. When the performance of employees increased then in same way
productivity of organization also increases in a positive and effective manner” (Murphy,
Lucifora and Boeri, 2013). The Truss, Mankin and Kelliher, 2012 critiques about this system that
“In organization when same level employees receives the different rewards while they were
working hard equally on the project. In this situation the PRP system may develops the serious
dispute between both employees. The author also concluded that it is very difficult to fairly
identify the performance and contribution of each employee while they are working on same
project” (Truss, Mankin and Kelliher, 2012). However, Van, Halstead and Altberg, 2015
describes that there are few reason for introducing the performance related pay system in the
organization because this system attracts right type of applicant and it also conveys the message
to every one that organization only supports the persons who are dedicated towards their work.
Further in this context author also stated that motivation is main factor for the employees
performance. In case if employees are not motivated and dedicated towards their work them their
performance level and productivity would be decreased after some time and in last it would also
affects the performance of employees. In this authors describes the employees as an important
assets of employees” (Van, Halstead and Altberg, 2015). In the research paper Jackson, Schuler
and Jiang, 2014, it is said that “At the time of adopting the performance based pay system, the
also has to implement the motivational theory in organization for the good result. With the help
of both these system and theory organization would be able to attain their objectives and goals in
more effective and efficient way” (Jackson, Schuler and Jiang, 2014). According to Murphy,
Lucifora and Boeri, 2013, “The PRP is basically a pay which varies according to the
performance of employees and organization. The author agreed that this performance related
pay system is associated with grades, performance, salary structure and competence ratings in
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organization. In research author concluded that PRP system is based on qualitative and
quantitative measures and n this payments are mostly done on the annual basis” (Murphy,
Lucifora and Boeri, 2013). As per the Cerasoli, Nicklin and Ford, 2014, describes that “With the
success of performance based pay system in organization there are few contextual factors which
were associated with it. The author includes that performance appraisal, high level trust and
reward system are the factors” (Cerasoli, Nicklin and Ford, 2014). According to the research
study of Chen, Williamson and Zhou, 2012, analyse that this PRP system sometimes gives the
negative impact on the employee's attitude and motivation. The author also evaluates that this
cited system is suited where responsibilities of job are fairly measurable and concrete. According
to research author also perceives that in some organization employees understands that
implementation of PRP system is not fair for the pay scales. For this perception author evaluates
the few reasons such as lack of transparency for employees, lack of trust, lower level of
organizational trust and leadership etc.” (Chen, Williamson and Zhou, 2012). In the research
paper of Agwu, 2013, describes that “There are only few firm that pays the employees more and
assumes that paying more would work as a motivator factor and it would encourage them to
work hard. In this regard author also analysed that there are few issues which are faced by the
organization in the implementation of PRP system. In this the issues are such as difference in
occupation, skills and ability etc. The author also observes that merit pay is the only method of
PRP system which focus on the long term basis. The author also describes that there are two
major issues such as occupation and individual difference. In this regard difference of occupation
means if all employees are awarded by single merit system in performance level are equally
measured then it would be not correct because there are three level such as top, middle and lower
level in organization. Working efficiency and abilities are different of all employees and
according these employees perform their work.” (Agwu, 2013). However, Stazyk, 2012, also
agreed with this statement that all individual employees are different because when they enter in
organization there inputs such as skills, education and view points towards work are different.
The author said that if any type of bias present in organization then employees may feel that
performance levels are not fairly judged” (Stazyk, 2012). As per the Performance Related Pay,
2011, The problem of PRB is also based on the decision process of employee's supervisor. It
includes that if there is lack of trust among employees towards the supervisor then they would
not accept his judgement criteria of performance. In this case assumption of supervisor would be
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questioned by the employees. The research demonstrates that it is very critical for all employees
to accept that appraisal process is fair” (Performance Related Pay, 2011). In the research paper
Van, Halstead and Altberg, 2015 stated the reasons which are related to the pitfalls of PRP
system. According to author, pitfalls are such as decreased co operations, motivation , equity and
increased the higher level of control. The research includes that when employees are paid on
their performance basis then quantity of intrinsic motivation in employees were reduced by the
payment which they received. Due to the presence of high level of pressure, employees could not
be able to perform their work efficiently” (Van, Halstead and Altberg, 2015).
CONCLUSION
With the help of this essay it is articulated that strategic human resource management is
an approach to manage human resources which supports the long term goals of organization. The
present essay helps to understand the concept about performance related pay system. It also
includes the merits and demerits of this system in organization. It includes the description about
motivation and performance, further the present essay helps to understand the link between both
these factor in the PRP system that how these factors are essential (Performance Related Pay,
2011). It also covers the impact of motivation on employees which helps to improve the
performance level of employees. Further in this context, it also includes the several issues which
are faced by the organization at the time of implementation of PRP system. The essay also
covers that PRP system has both advantage and disadvantage. It describes that according to PRP
system, employees are paid according to their performance level. The fair judgement about
measuring the performance motivates the employees to work even more hard.
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REFERENCES
Books and Journals
Agwu, M.O., 2013. Impact of Fair Reward System on Employees Job Performance in Nigerian
Agip Oil Company Limited Port-Harcourt. British Journal of Education, Society &
Behavioural Science, 3(1), pp.47-64.
Amstrong, M. 2006. Performance Management : Key Strategies and Practical Guidelines.
Kogan Page, London. UK.
Armstrong, M. and Taylor, S., 2014. Armstrong's handbook of human resource management
practice. Kogan Page Publishers.
Banfield, P and Kay, R 2012. Introduction to Human Resource Management. Oxford University
Press, Oxford.
Boeri, T., Lucifora, C. and Murphy, K.J., 2013. Executive remuneration and employee
performance-related pay: a transatlantic perspective. Oxford University Press.
Bregn, K., 2013. Detrimental effects of performance-related pay in the public sector? On the
need for a broader theoretical perspective. Public Organization Review, 13(1), pp.21-35.
Buller, P.F. and McEvoy, G.M., 2012. Strategy, human resource management and performance:
Sharpening line of sight. Human resource management review, 22(1), pp.43-56.
Cerasoli, C.P., Nicklin, J.M. and Ford, M.T., 2014. Intrinsic motivation and extrinsic incentives
jointly predict performance: A 40-year meta-analysis. Psychological Bulletin, 140(4),
p.980.
Chen, C.X., Williamson, M.G. and Zhou, F.H., 2012. Reward system design and group
creativity: An experimental investigation. The Accounting Review, 87(6), pp.1885-1911.
Cummings, T. and Worley, C., 2014. Organization development and change. Cengage learning.
Faisal, A. M., Mook Lee, S. and Shoham, A., 2015. Behavioral Ambidexterity: The Impact of
Incentive Schemes on Productivity, Motivation, and Performance of Employees in
Commercial Banks. Human Resource Management, 54(S1), pp.s45-s62.
Fisher, J. G., 2005. How to run successful incentives schemes, Kogan Page. London, UK.
Jackson, G.T. and McNamara, D.S., 2013. Motivation and performance in a game-based
intelligent tutoring system. Journal of Educational Psychology, 105(4), p.1036.
Jackson, S.E., Schuler, R.S. and Jiang, K., 2014. An aspirational framework for strategic human
resource management. The Academy of Management Annals, 8(1), pp.1-56.
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Lucifora, C. and Origo, F., 2015. Performance-Related Pay and Firm Productivity Evidence
from a Reform in the Structure of Collective Bargaining. ILR Review,
p.0019793915570876.
Mello, J., 2014. Strategic human resource management. Nelson Education.
Murphy, B., 2015. The impact of reward systems on employee performance (Doctoral
dissertation, Dublin Business School).
Murphy, K.J., Lucifora, C. and Boeri, T. eds., 2013. Executive Remuneration and Employee
Performance-Related Pay: A Transatlantic Perspective. Oxford University Press.
O'Neil, H.F. and Drillings, M. eds., 2012. Motivation: Theory and research. Routledge.
Rowland, C., 2013. Managing team performance: saying and paying. International Journal of
Organizational Analysis, 21(1), pp.38-52.
Shields, J., Brown, M. and Plimmer, G., 2015. Managing Employee Performance & Reward:
Concepts, Practices, Strategies. Cambridge University Press.
Stazyk, E.C., 2012. Crowding out public service motivation? Comparing theoretical
expectations with empirical findings on the influence of performance-related pay. Review
of Public Personnel Administration, p.0734371X12453053.
Takao, K.A.T.O. and Naomi, K.O.D.A.M.A., 2015. Performance-related Pay and Productivity:
Evidence from Japan (No. 15088).
Truss, C., Mankin, D. and Kelliher, C., 2012. Strategic human resource management. Oxford
University Press.
Van, S., Halstead, M. and Altberg, E., Yellowpages. Com Llc, 2015. System and method to
merge pay-for-performance advertising models. U.S. Patent 9,202,219.
Online
Performance Related Pay, 2011. [Online]. Available through: <http://www.ecommerce-
now.com/images/ecommerce-now/PRP.htm>. [Accessed on 8th February].
Dr. B. S., 2007. [Online]. Available through: Individual Performance Related Pay (PRP).
<http://www.humancapitalreview.org/content/default.asp?Article_ID=292>. [Accessed on 8th
February].
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