Reward-Performance-Related Pay

The contribution of rewards in firm productivity, performance and competitive advantage is undeniable in the changing world. However, debates about pay systems have been going on for more than 125 years. Choosing a suitable pay system seems difficult for managers.

There are many payment systems and methods available to help managers to generate best interests, such as time-based pay,etc.

Performance-related pay first emerged in the 1980s as a new reward approach. This fashionable approach is commonly used in the private sector as a strategic pay scheme. It can be simply defined as the payments to employees with related to their performance. Its key aim is to motivate employees and improve firm performance and productivity.

Reasons for using performance-related pay (PRP)?

• Improve productivity and firm performance

• Improve motivation

• PRP give great power to managers and reduce trade union influence.

• A way to distinguish the good performer from the bad and to reward them accordingly.

• Attracting and retaining good performers

However, those benefits of PRP seems difficult to achieve and idealistic. There are some problems related to PRP:

1) There is much doubt about whether performance-related pay actually does anything to do with performance.

2) Since performance related pay usually rewarding employees individually, it is difficult to encourage teamwork.

3) Performance depends on other factors such as job autonomy, job flexibility, working with the �right’ colleagues,