Performance Related Pay

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The Value of HRM to Business -Performance Related Pay Word Count: 2942 Table of Content 1 Introduction 3 2 Literature Review 4 3 Case Study 8 3.1 Case 1-Performance Related Pay: What Makes a Successful Scheme? 8 3.2 Case 2 - Performance related pay: a case study of a small business. 10 4 Analysis 12 5 Conclusion 17 Reference 18 Introduction Human capital plays a vital role in providing the organisation with a valuable competitive advantage; in addition a reward and pay system concerning the employment relationship, is often viewed as a key method in obtaining maximum human capital, and thus a central part of managing a business. A reward and…show more content…
PRP assists organisations to encourage employees to give greater effort, as well as serves the purpose of attracting employees with a greater skill and higher drive to achieve (Booth and Frank, 1999). It has an effect on recruitment and retention of staff, as it provides an opportunity for people to receive additional income. Little (1991) believes that pay links cause and effect, therefore employees of PRP systems become committed to the organisation and improve their performance in order to be paid more. However, theory X and theory Y regarding the motivation indicate that the real motivator for the employee is the actual work itself (Fuller-Love, 1997). Moreover, Armstrong (2002) believes that remuneration is not the only motivator, or even an effective motivator. PRP links the individual, team and organisation’s performance together. The company sets targets for employees based on its overall objectives. However, PRP encourages employees to focus on their own objective. They seek their short-term fulfilment in order to gain supplementary pay, thus the organisations long-term objective will land up being ignored (Armstrong and Baron, 1998). Performance assessment plays an important role in PRP. Armstrong (2002) said: “Organisations cannot pay for performance unless they can actually measure it”. Assessing

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