Reward and Fairness Issues in Performance Related Pay
1. Introduction
Performance related pay (PRP) is a financial rewarding system which is directly associated with the work accomplishment of employees. It seems that the basis of this process is cash or bonus payment: employees will be awarded cash or bonus when they achieve a greater performance. In the late 1980s and early 1990s, the system of payment by performance was widely applied in both private and public sectors in many organizations in the United Kingdom. Brown and Armstrong (1999) claimed that there are more than 50 percent of the UK companies had implemented this method to motivate their employees during that time.
However, in fact, Kohn (1993) indicated that there are not quite much research existing which explicitly indicates that performance related pay is an effective procedure to encourage employees to improve their work. Furthermore, there are even some studies indicating that this system could be a de-motivator when workers distrust it.
This article will explore the ineffectiveness of performance related pay from two perspectives and then try to provide possible solutions as well as evaluations for managers who are facing similar problems. The first perspective is the reward issue which may not attract employees to work harder. This problem may occur as a result of the different expectation of each individual in rewards. Secondly, the fairness issue, the transparency of organizations to measure their employee performance could cause the curiosity among employees. Once employees feel unfair, the PRP system will become meaningless. 2. Reward Issue
Performance related pay relies on the expectancy theory that the sufficient size of rewards can motivate people (Wood and Maguire, 1993). When organizations apply this concept to the payment system, which is a financial reward, they have an assumption that workers may improve their performance if a high amount of salary or bonus is offered in return. However, according Brown and Armstrong (2000),
Performance related pay (PRP) is a financial rewarding system which is directly associated with the work accomplishment of employees. It seems that the basis of this process is cash or bonus payment: employees will be awarded cash or bonus when they achieve a greater performance. In the late 1980s and early 1990s, the system of payment by performance was widely applied in both private and public sectors in many organizations in the United Kingdom. Brown and Armstrong (1999) claimed that there are more than 50 percent of the UK companies had implemented this method to motivate their employees during that time.
However, in fact, Kohn (1993) indicated that there are not quite much research existing which explicitly indicates that performance related pay is an effective procedure to encourage employees to improve their work. Furthermore, there are even some studies indicating that this system could be a de-motivator when workers distrust it.
This article will explore the ineffectiveness of performance related pay from two perspectives and then try to provide possible solutions as well as evaluations for managers who are facing similar problems. The first perspective is the reward issue which may not attract employees to work harder. This problem may occur as a result of the different expectation of each individual in rewards. Secondly, the fairness issue, the transparency of organizations to measure their employee performance could cause the curiosity among employees. Once employees feel unfair, the PRP system will become meaningless. 2. Reward Issue
Performance related pay relies on the expectancy theory that the sufficient size of rewards can motivate people (Wood and Maguire, 1993). When organizations apply this concept to the payment system, which is a financial reward, they have an assumption that workers may improve their performance if a high amount of salary or bonus is offered in return. However, according Brown and Armstrong (2000),
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