Why performance related pay

However, one of the findings from our Reward management survey is that performance-based reward is still widespread in the private sector. Not only that, but the measures used in performance reviews are still quite traditional. By contrast, recent innovations in assessing employee achievement such as peer assessment, degree feedback or external assessment are used rarely by our survey respondents. Even when such approaches are part of the review process, there's reluctance to use them for making reward decisions.

Read more on the findings on PRP from our Reward management survey. And in an era of tight pay budgets, it can be difficult to give those judged as high performers significantly more than those whose performance is seen as being good - see our performance management factsheet. Our report, Show me the money , highlights other issues with the operation of PRP.

PRP can send a message to workers about what achievements the organisation wants and is prepared to reward, although there are other non-monetary ways of doing this. Communication can also suffer as employees may feel constrained about having open conversations with their line managers in case this influences the size of their pay rise.

There is more widespread acceptance of the effectiveness of PRP in this respect, that people consider it right that higher performing employees should get more money, but there are some notable differences by sector.

Our survey on employee attitudes to pay found private sector workers more likely than their public sector counterparts to want their rewards to reflect performance. However, if pay for some individuals is not perceived as reflecting their performance, other employees may see this as unfair.

PRP typically uses a system based on consolidated pay progression within pay brackets attached to each grade, level or zone. However, for performance to be rewarded, an effective means of measuring that performance is needed.

Historically, this has been via performance appraisal , though some employers are now using less formal approaches to appraise success. Some systems allow for managers' discretion in translating these scores into levels of pay rise, while others determine increases through a formula or a matrix system linking each grade, level or zone to each of the performance categories. In the public sector, most employers give a basic percentage increase, with a small proportion including a performance-related element, typically for senior staff.

PRP most commonly covers managerial and other white-collar staff, with fewer extending coverage to manual or lower-grade workers. PRP varies internationally, for example, employers in France make greater use of merit pay than occurs in Great Britain. Ironically, this is partly attributable to the much more highly regulated employment background in France that leaves individual managers keen to exert some control over performance improvement via pay.

Nevertheless, in recent years there have been several high-profile initiatives such as the introduction of a PRP scheme for teachers, which some researchers argue has resulted in some discernible performance improvements.

When introducing PRP in a public sector setting, several distinct issues arise, including the potential difficulty of measuring individual effort in certain roles. Moreover, certain public sector workers are arguably more motivated by non-financial rewards that could be undermined by some forms of PRP. This was a particular issue in the lead-up to the financial crisis, as a number of big bankers exposed themselves and their organisations to massive risks to boost their end-of-year pay packets.

This led to the destruction of decades-old institutions and many redundancies for those lower down the business chain. Delivery workers, for example, are sometimes put on performance-related pay for the number of deliveries that they manage in a day.

That includes anyone feeling a little under the weather, anyone who has broken a bone, or is held back by any other kind of physical and mental condition. It also discriminates against anyone that is pregnant, or has a disability. This is illegal under the Equality Act of , and any employer that engages in this practice could find themselves in front of an employment tribunal pretty sharpish. This type of devalorisation could lead to mental health problems for workers later down the line.

Fundamentally, performance-related pay is just not a good way to reward employees for hard work. It encourages increased, unhealthy competitiveness and can often lead to burnout, as employees feel pressured to keep working harder and faster until they fall off the hamster wheel. If your employee adds value to your business and demonstrates a great attitude towards their work. If your employee shows progression. If your employee is going to leave.

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