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Human Resource Management Essay Under what conditions is a group performance related pay scheme likely to fail? Should organisations employ only individual PRP schemes? Performance related pay (PRP), or merit pay, as it is often called, can be defined as the explicit link of financial reward to individual, group or company performance, or any combination of the three. In simple words, this means that the better the individual, group or company performs, the higher the financial reward will be for the worker. This reward can be in the form of a pay-rise, bonus, benefit such as a company house or car, or any such financial incentive that will in effect, motivate the employee to work even harder, and produce even better results. There are also different fixed types of PRP schemes, such as commission, profit-related pay, piece-rate (which is a more primitive method, as compared to the now modernistic methods that have been incorporated into management). PRP schemes are often categorised into three stages; The nature of the performance criteria, how performance against such criteria is assessed, and how this assessment is linked to pay. In accordance to these three approaches, it is possible to differentiate between individual schemes, and group approaches. This brings us to the focus of the discussion, which questions what could bring about the failure of group PRP schemes. This could come about due to many reasons. Some of the more basic ones being that particular members of the group might not be motivated, or hard-working enough to put in that effort in order to reap the benefits. Thus, due to certain individuals, the whole group could end up losing out on that financial gain. Normally when employing group schemes, it is specifically aimed at project completion, or some other such activity. The incentive normally given to the group in these situations, is in terms of either profit-sharing, or share ownership schemes. These normally provide the workers with a sense of producing enhanced performance, or showing strong commitment to the completion of the project. Other ways in which group PRP may fail is due to workers not getting along well together, or not communicating well with one another. This could be due to reasons such as some of them getting higher profit shares than others, or along other lines, some of them wanting to lead the group, or show their leadership abilities in order to impress their superiors. Also, it can divide the workforce into those supporting the plan, and those against it, which can then go on to create adversarial relationships. High levels of competition can be formed within the group. Offering financial incentives is a motivational tactic employed by the managers of firms, however, as Maslows hierarchy suggests, workers have other needs as well. Once their financial needs are satisfied, they move on to needs such as social, esteem, and self-actualisation. They need to feel that they belong, and they need to feel comfortable in their work environment. Offering them these financial rewards might make some of them feel as though they are robots, working just for money. This brings in Taylors theory of Scientific Management. He said that workers are robots, and as long as you pay them and satisfy their basic needs, they will work. However, this brings about dissatisfaction. In this sort of scenario, PRP could fail as well. The following table is an indication of the different PRP schemes, and how they function; Types of PRP schemes Nature of Performance Criteria How Performance is Assessed How Performance is Linked to Pay Individual PRP schemes Individual results, either in terms of inputs or outputs By individual appraisal with a superior, often against mutually agreed targets Either by a predetermined bonus or by movement within an incremental salary band Group PRP schemes Group or company performance, either in terms of profit or project targets According to a pre-determined formula based on company results for a specified period In terms of a regular bonus or various forms of share options applicable to all those involved in the scheme This brings us to individual PRP schemes. This is a system, which fulfils a number of functions that are relevant to organisational effectiveness. It has some features which are very favourable; Firstly, financial gain to the company is a prospect, since this system reduces the fixed pay-bill. This is done by the company paying out only based on what they get back in return, that is quality goods. Secondly, it is an effective method in terms of recruiting, and retaining because of the assumption that it will be attractive to quality employees, and unattractive to poor workers, whom the firm would be glad to part with. Also, it is a fairer method of payment, this being because it does not reward both, high and low performers equally, but only rewards them based on output, or productivity. Lastly, it is held to focus effort where the organisation wants it, strengthening the performance, planning process, and generally encouraging a performance-oriented culture, emphasising results rath er than effort. There are many advantages of an individual PRP scheme, as well as many failures. Firstly, the advantages are that individual differences in job performance are great enough to be worth the time and effort it takes management to measure and relate pay to them. Also, the pay ranges are wide enough to allow for significant base-pay differences among employees on the same job. Management is able to validly, and reliably measure individual differences in job performance. Another advantage is that the appraisers are skilful in employee performance planning and appraisal. The organisations culture supports performance-based pay. This can be said because it works out to be more cost-effective, as well as to be more production effective for the firm. A very important benefit of using this system is that the level of compensation technology in the organisation is reasonably high, the pay structures are equitable and competitive, and management knows how to relate pay to performance. Because of the well-carried out appraisals, the level of trust between the managers and employees is high. Individual PRP schemes also allow for the worker to put in their best, because it is a form of motivation. Offering financial incentives makes the worker work harder, and longer, and at the same time, by offering profit sharing as an incentive, it helps maintain the feeling that they are still a part of the firm, and are a contributing factor. They get a sense of belonging, and thus are comfortable in their work environment, thus making them work harder and better. Individual PRP schemes also allow mangers the will to manage, that is, the willingness to establish and communicate performance criteria and standards and the willingness to make tough human-resource decisions. Although these individual schemes have a lot of advantages and benefits, they also do have some points of failure. This could be due to the fact that the factors that encourage success, could also result in a preoccupation with the task at hand, and do not relate individual performance to the larger company objectives. This leading to the smaller things being accomplished, but the big picture of the company, and the goals that they set not getting achieved. PRP works against creating a climate of openness, trust, joint problem solving, and commitment to organisational objectives. This is again in terms of specialisation taking place. The worker will concentrate on only his specific task at hand, and the rest of the company objectives will get left behind. On the other hand, group schemes provide the chance for the company objectives on the whole to get achieved, as well as the smaller tasks simultaneously being carried out. Also, as mentioned earlier, individual PRP can also divide the workforce into those supporting the plan, and those against it, which could create adversarial relationships within the workforce. As one can see, there are advantages and disadvantages to both, individual and group PRP schemes. I dont think it possible to be able to generalise and say that one is better than the other, and that firms should use only one or the other. It mostly depends on the type of goal the firm is setting, what they want to achieve, and how they want to achieve it, which can help decide which system to use when. PRP schemes on the whole, are being used so far and wide these days by firms, and it is essential to the overall success, and progress of the firm, that they know when to use which type of scheme. Thus, I think it is not possible to say that organisations should employ only PRP schemes, I think it mostly depends on the situation, and the goal to be achieved. BIBLIOGRAPHY: 1. Hendry, C., Human Resource Management A Strategic Approach to Employment, Butterworth-Heinemann Ltd.: 1995 2. Goss, D., Principles of Human Resource Management, Routledge: 1994 3. Storey, J., Human Resource Management, A Critical Text, Routledge: 1995 4. Towers, B., The Handbook of Human Resource Management, Blackwell Publishers Ltd.: 1996