Benefits And Challenges Of Performance Related Pay

Introduction

The performance related pay (PRP) is used by the most of the companies in the world as a method of remuneration. The organizations provide financial rewards to the employee or individual I the context of performance and known as the performance related pay. The PRP is a form of cash bonuses or basic pay increment given to the individual (s) when assessment of performance is conducted within the organization. It is usually employed with an organization to improve the performance of the employees and as the agreed objectives. Therefore, this report will discuss about the benefits and challenges of of using performance related pay in order to motivate employees.

Benefits of using Performance related Pay to Motivate Employees:

In motivation of employees always assures productivity and growth of the company in the market because they increase their own performance and morale in the workplace and give full efforts to increase the value of the business. A company achieves its business objectives easily when employees improve their performance and increase the productivity in the company. In order to motivate employees to increase their performance, multiple motivational strategies are used by the companies to make its possible (SFA, 2016). Therefore, performance related pay to motivate employees has several benefits for the companies. 

The performance related pay to motivate employees provides benefits to the company as improving individual productivity and performance on the priority basis. Additionally, PRP also helps the management to deal with poor performance of employees and focus on achieving efficiency in the organizational activities on the priority basis. The benefits of using Performance related Pay to motivate employees can also be seen as retaining staff in the company for a long time and taking advantage in regular work without giving them training again (SFA, 2016). Apart from this, the benefits of using performance related pay to motivate employees can also be determined as achieving defined work targets of the company in the market.

In most of the situations, the organizations can also achieve its sales target in the market because motivated employees would work hard to fulfill the needs and expectations of the company. The performance related pay motivates employees to contribute in getting competitive advantage of the company than its rivals through their continuous efforts to attract more customers to purchase the products. The employees contribute a healthy performance based culture at the workplace because of PRP in which they meet the requirements of daily target of the company (Easy Metrics, 2022).

The benefits in the case of performance related pay that incentivizes employees, they work harder, faster and more productively in the company. The quality and outcomes of the company strengthens the company performance across a range of business activities in which marketing, sales, and improvement of brand image in the competitive market can be seen on the priority basis. The individual performance of the employees expends more effort and increases their output with organizational overall outcomes (Easy Metrics, 2022). At this stage, the performance related pay that motivates employees ensures their engagement to work together more directly with the goals of the company.

The employees’ engagement is aligned in the company to perform better with the help of performance related pay. The efforts of the company to take incentive of PRP at the large level, it can take direct actions to fulfill the needs and expectations of the employees. Providing compensation to the employees in its PRP creates advantage of improved productivity and reduced expenses in business operations. These benefits of the company also reduce the financial burden on marketing and promotion of the products (Easy Metrics, 2022). Apart from this, the company can also receive advantage of reduced supervisor oversight and co-operational work culture within organizations.

Challenges of using Performance related Pay to Motivate Employees:

There are multiple benefits of using Performance related Pay in the organization when motivating employees. However, PRP is not free from challenges to motivate employees and achieve expected outcomes. The main challenges of using PRP to motivate employees are increasing work pressure when setting too hard work to achieve and too much reliability on quality adherence by company management. The performance related pay to motivate employees also face challenges as reducing pay equity in the company and making it liable to costly equal pay in the case of not operated fairly (Pettinger, 2016). The challenges of using PRP to motivate employees are also associated with performance appraisal process because it reduces the development needs of the employees ad affect the financial reward of the company.

Further, organizations also face challenges in PRP that can be seen as lack of team spirit and co-operation because every employee sometimes try to take lead through increasing performance more than others. Therefore, a competitive environment can be possible at the workplace where employees try to take advantage of PRP from others. The performance related pay is generally made by the organization in a short-term quantifiable goal that is too narrowly focused decision and employees ignore to perform better after knowing this offer (Pettinger, 2016). Challenges to the company for PRP increases pressure to maintain every year because employees expects additional payout in this scenario.

The use of performance related pay has also potential pitfalls that create challenges to make it successful in the company. The PRP skews the efforts of an employee when the aspens of the work are measured and incentivized. The negligence of equally important areas makes difficulties to the PRP where issues of quantity over quality can be possible. At this stage, unhealthy competitiveness is also possible in the organization due to PRP that can increase in the level of risk-taking related to performance indicators. In most of situations, performance related pay of a company leads to a drop off in motivation of the employees (Clover HR Ltd, 2021). This is generally associated with middle or low performers in the company. When a candidate is already facing challenges in demanding job, the performance of such employees related to PRP dishearten them for a long-time.

At this stage, the success rate of PRP is challenging to motivate employees in the market in which short-term quantifiable goals of the company can be a detrimental effect on performance of the employees. The performance related pay also increases the mental pressure to the employees and lower performing employees can lose their jobs. They can also get nothing for improvement opportunity at personal and professional level (Clover HR Ltd, 2021). Therefore, the productivity of the company cannot be expected more because of increasing discrimination among employees in measuring performance and pay for it.

Conclusion

After discussion about the benefits and challenges using performance related pay to motivate employees, it can be stated that a company achieves its business objectives easily when employees improve their performance and increase the productivity in the company. The performance related pay to motivate employees provides benefits to the company as improving individual productivity and performance on the priority basis. The benefits in the case of performance related pay that incentivizes employees, they work harder, faster and more productively in the company. The performance related pay to motivate employees also face challenges as reducing pay equity in the company and making it liable to costly equal pay in the case of not operated fairly. The PRP skews the efforts of an employee when the aspens of the work are measured and incentivized.

References

Clover HR Ltd. (2021). PERFORMANCE RELATED PAY – CAN BUSINESSES BENEFIT? Retrieved from: https://www.cloverhr.co.uk/performance-related-pay-guide/ 

Easy Metrics. (2022). Benefits of Pay for Performance. Retrieved from: https://www.easymetrics.com/benefits-of-pay-for-performance/

Pettinger, T. (2016). Performance related pay. Retrieved from: https://www.economicshelp.org/blog/20374/labour-markets/performance-related-pay/

SFA. (2016). The advantages and disadvantages of Performance Related Pay. Retrieved from: https://ibecsfa.newsweaver.ie/ibecsfa/1j9c2hc2usd