Q: I am considering various bonus schemes for my staff and am wondering if I should introduce performance-related pay? What are the merits and pitfalls?
A: The issue of performance-related pay (PRP) has been the cause of much debate over the years. Some see it as a way of improving individual and organisational performance. Those against argue that PRP serves only to make the difficult job of managing reward even harder, suggesting that it is at best a short-term fix and at worst a long-term disaster. Others say that even if they thought it was good, they have not got the money to fund it.
PRP's objective is to increase the motivation of employees. Theories of motivation, however, tend to be against the concept of pay as a motivator.
It is better to view pay as a "recognition
rather than a "reward": within third-sector organisations, money is only one factor that contributes to employee motivation.
Before you adopt PRP, you must be clear about why you want to introduce it. Some organisations see it as the opportunity to address some of the issues of reward without having to recreate an entire pay and grading structure. Others use it to achieve a shift in culture - focusing on outputs that drive the organisation forward.
PRP should not be treated as a quick fix.
If it is to be implemented, the following measures may help:
A comprehensive survey on employee opinions needs to be carried out, and the results should be used to improve morale. Only proceed with PRP if you have commitment from everyone.
Make sure that personnel assessors are thoroughly trained. The best PRP schemes are simple to understand, fair and consistent. So, be very careful to translate the objectives of the organisation into meaningful and effective performance criteria.
If performance is to be rewarded, it must be defined and rewarded from the outset. Job definitions need to be clear with both individual employees and the employer aware of their roles.
Pay-outs need to be set at levels where they produce the desired motivational impact. Research has shown this to be between 10 to 15 per cent.
Details of the new scheme need to be clearly communicated to all employees, with clear reasoning as to why it is being introduced. From time to time, the scheme should be reviewed to maintain its value.
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