Performance Related Pay

We are in the era where the organizations are the most inventive social arrangement of our age and of civilization. It will be spectacle to know that hundred of thousand of people with highly individualized background, skills and interests are coordinated in various corporations to pursue common goals. The ultimate goal of every organization is to create surplus for the corporations as well as for the country, that's why every country is fond to establish an industry or organization with in the country. Employees are the main thing on which the organizations are merely emphasize because they are the one who earns revenue for the entity. The most substantial thing, an organization has is its employees which refereed as the family (Richard, 2004). Organizations always seek to hire the best available talent in the country which ultimately helps them to increase their net income. Albeit, the organizations have a number of department in it but the most valuable department before the top management is the Human Resources Department.

HR department is held responsible for the hiring, recruitment and selection process. It doesn't mean that above mentioned are the only duties a HR department performs, but it also include all the labor and employees issues and their management. The term human resources refer to the people in the organization. When managers engage in HR activities as part of their jobs, they seek to facilitate the contributions people make to achieve an organization's strategies and plans. The HR department makes strategies and plans to hire the best skills workers for the organizations which pertinently effect the overall productivity of the organizations. HR department makes such strategies which controls the labor union and their relative issues plausibly. No doubt, recruitment and selection are the things on which the HR department mainly focuses and for that particular thing they made strategies, structures, design and plans (Richard, 2004). Among a number of human resources activities giving pay per performance to the employee is also a dominant function. According to human resources professionals, pay per performance increase the motivation level of the employees of the organization. In this piece of paper, we will see the same in details through different literature. Let's start our analysis.

What is Pay Related Performance (PRP)?

The shift from cooperative to decentralized approaches of haggling that occurred in the industrial relations landscape during the 1980s and 1990s saw a renaissance in the accomplishment and execution of performance pay policies (Shields, 2002). While performance-related pay (PRP) practices in the entire world's private industry have been utilized in one form or an additional since royally times (Shields, 2002), the concluding decades of the twentieth century saw a rigorous effort by the governments of many OECD nations, including Australia, to put into practice PRP practices into the public sector (O'Donnell, 1998; Reith, 1996), a policy that has also been embraced with escalating occurrence in the education sector surrounded by OECD member countries (Bryson, 2004; Cutler & Waine, 1999; Kis, 2004; Storey, 2000). Performance evaluation or PRP is also known as employee appraisal. It is the method by which the job performance of the employees within the organization has been gauge or evaluated through different PRP procedures. Generally the performance of the employees has been measured in terms of quantity, quality, cost and time. In front of the managers, performance evaluation is an integral part of the career development.

If factually speaking, then we can say that the foremost functions of the performance related pay are,

There are a number of methods use to assess the performance of the employees of the organization, which are often numerical or scalar in nature. In some organization an employee is been rated regarding his performance from his supervisors, subordinate and first in line manager, the method seems little bit orthodox in nature but gives a good result in the end with the conducing of different results of different peoples. The method is called 360 degree performance PRP method. Trait based system is also a credible system on which the organization merely rely because the system has been utilized to measure the integrity and conscientiousness of the employees. PRP also helps to abate the turnover rate of the organization because of the low unsatisfied staff within the organization (Taylor, 1949). Such strategies must be made or taken into consideration which totally educates the managers to grasp the positive aspects of the PRP system. It has been observed that whenever the season or time of the PRP commence, a sigh of pressures has been swelled among the employees and the organizations as well. Both these vulgar relieved after passing out the appraisal fact. The managers are not aware with the fact that they missed out a great opportunity to motivate and retain their employees at the time of PRP (Knippen & Green, 1927).  In practice there is much dissimilarity and volatility in the execution of PRP programs athwart the industrial gamut but all programs, as the term recommends, characteristic a scaffold under which pay is linked to a measured performance outcome. Consequently such programs are underpinned by several assumptions, specifically that worker output can be calculated perfectly, that such output contributes to overall organizational performance, and finally that the payment policy is planned in a way that stimulates the organization's employees (OECD, 2005).

The drive to modernize the public service, spurred in part by budgetary constraints and the consequential call for superior competence, in totaling to a yearning to augment personage responsibility, led to widespread acceptance of private-sector style performance management schemes amongst Western governments (Boyne, Poole, & Jenkins, 1999; Burgess & Ratto, 2003; Goss, 2001). Analogous contemplation have led to the prologue of incentive schemes 6 into state schools and the higher education sector. Yet despite the increasingly widespread request of PRP schemes, their appropriateness in human resources management outside of the private sector remains an issue of sizeable controversy. Brown (2001) points out that by implementing PRP practices into the public sector there is an statement that the public employees is comparable to a private sector workforce that the two workforces are identically motivated and subject to the same rules of souk effectiveness.

The question is arises then, to what amount have PRP guiding principles been victorious, in which sector, and under which circumstances? And additional, how is triumph characteristically defined and deliberate in PRP evaluation? An assessment of the writing divulges a massive amount of research into the effectiveness of PRP practices in the private sector, a slighter but burgeoning amount of research into PRP in the public sector, and a comparative dearth of empirical research into the usefulness of encouragement programs in the school and higher education sectors even though this is conventional given that use of PRP programs in schools and institutions of higher education are a fairly current development.

An understandable impediment in appraising the writing on presentation pay lies in the fact that PRP initiatives diverge riotously across organizations and environments. Without a doubt, it is usually the case that PRP embodies only one, albeit important, facade in and largely performance management framework (although it is also the case that PRP tends to be the most divisive aspect of performance management programs). Much of the research into PRP effectiveness approach from do research on single organizations and thus, given the variation of performance management programs across organizations and sectors, vigilance must be implement before generalizing research findings. Nonetheless, a number of common findings and themes can be abstracted from the literature.

PRP program usefulness is naturally evaluated on two broad levels. First of all, researchers are paying attention in changes in worker inspiration and successive change in efficiency and output and, secondly, changes in reports of job satisfaction. Plainly, an argument can be made that these two procedures of PRP efficacy are essentially linked in that workers who testimonies higher levels of job happiness are more likely to be provoked to execute in their jobs at a higher level. Without a doubt, worker efficiency and output is tranquilly to gauge in some industries than others. In a recurrently cited study, Lazear (2000) established that efficiency and productivity amongst employees at an automotive glass producer rose by over forty percent when the recompense system was misrepresented from an hourly rate to piece rates, a change that deciphered into an average ten percent wage boost amongst staff. Other researchers have confirmed similar efficiency rises from end to end the use of piece rate payment amongst manual labourers (Paarsch & Shearer, 2000), sales staff (Oettinger, 2001), and metal workers (Pekkarinen & Riddell, 2008). Of itinerary, the efficiency increases demonstrated by using PRP in these areas where personnel are characteristically classified as unskilled workers responsibility instruction booklet, rhythmic labor only tell part of the story. Indeed, Pekkarinen and Riddell (2008) proscribed for job complication in their research and showed that as intricacy of a job amplified there was an equivalent diminishes in the effectiveness of PRP on efficiency. Inside order to truthfully weigh the effectiveness of PRP formats, it is also imperative to deem the impact of the PRP policy on job satisfaction. Also, studies need to take into description effects on the quality of the work that is that workers are not forfeit meticulousness and watchfulness for an enlarge in work speed (Paarsch & Shearer, 2000).

In a study assessing the manners towards PRP policies in the British public examine between administrative and professional civil servants, Marsden, French, and Kubo (2001) showed that at the same time as the preponderance of the personnel acknowledged the standard of concerning imbursement to performance, a momentous digit thought that the implementation of the policy to be unproductive. Even more frighteningly, a large quantity of the respondents felt that PRP schemes endorsed interior jealousies and disagreement amongst staff, concentrated team-work, and resulted in a diminish in the enthusiasm of staff to collaborate with management. While some managers reported a self-effacing increase in inspiration and efficiency after the accomplishment of PRP practices, somber doubts materialized as to whether such performance augment could be constant over time given the de-motivating and troublesome effects that PRP may have upon employees' associations with their contemporaries and administration. Research on the commitment employees have towards their workplace "designate that it is built up by a progression of switch over between human resources and their organizations. In the short-run, such obligation represents a capital which will keep going the organization from beginning to end short-run problems, but in the long-run it will be windswept by the feelings that the exchange is no longer fair-haired" (Marsden, French, & Kubo, 2000, p. 13). The problem that arises then is why governments and other organizations persevere in using PRP systems in the face of swelling substantiation as to their vanity, and even disadvantage. Marsden (2004) makes the quarrel that while proponents of PRP might extend motivation and yield amplifies as the primary motive after the policy, the use of presentation management as a means to renegotiate performance norms is a second, typically unappreciated reason, which is a central part to its prevalent use. The thrust of this disagreement is that over time the focus and directions of organizations are subject matter to change, and in this respect PRP is used as a catalyst to effect change by revising job duties and borders and the level of routine expected from staff.

PRP and Motivation of Employees

Motivated employees are the cornerstones of all organizations, as work motivation is one crucial determinant of individual and organizational performance. This holds true in the private, the public and the non-profit sectors. Work motivation is thus a great concern of academic scholars, managers and business consultants. Many paradigms and theories have sought to answer the longstanding question: "What motivates employees?" Work motivation is a longstanding topic in organizational studies (Lévy-Leboyer 2006). It is the primary determinant of performance for both private and public sectors. In organizational studies, several concepts are often misunderstood (Maugeri 2004). On the one hand, satisfaction (in this case work, job satisfaction) is a psychological state characterizing the interaction between an individual and his or her organization, between his or her expectations and the perception of the obtained results (Locke 1976; Michel 1994). On the other hand, different concepts focus on the attachment to the organization. Organizational commitment (eg: Mowday, Porter, and Steers 1982; Meyer and Allen 1991) is a psychological state characterizing the link between an individual and his or her organization and it is closely related to the decision to stay within it or leave (Vandenberghe 2005). Organizational identification (eg: Foote 1951; Hall, Schneider, and Nygren 1970; Ashforth and Mael 1989; Van Dick 2004a) characterizes: "the process by which the goals of the organization and those of the individual become increasingly integrated or congruent" (Hall, Schneider, and Nygren 1970, 176), whereas work involvement aims at a comprehensive understanding of the way an individual projects him/herself into work and identifies with the job. This concept is related to the nature of the individual's investment in his/her professional role (Michel 1994) besides other potential roles. Work motivation, however, is a process by which the employee decides to work hard and sustain his/her efforts. Because patterns can be identified in the actions of employees at work, this concept is of particular interest.

Many theories and definitions of this construct compete to explain what motivates people and own they are motivated (Kanfer 1990). Apart from the diversity of conceptualizations and measurements of what induces employees to put energy and heart into a given task, most authors nowadays agree with the basic premise that: "the concept of motivation represents a hypothetical construct used to describe the internal and/or external forces producing the induction, the direction, the intensity and the persistence of behavior" (Vallerand and Thill 1993, 13).  According to this definition, motivation is a meta-concept which comprehensively focuses on the efforts and energy deployed by an individual when acting in a given setting. This construct relates to the individual's project, the general meaning that he/she attributes to his/her actions and behaviors (Michel 1994). For a work organization, this energy has to be deployed toward organizational goals and objectives. "Orientation of the motivation concerns the underlying attitudes and goals that give rise to action - that is, it concerns the why of action" (Ryan and Deci 2000, 54). Performance related pay is also referred as public service motivation. The public service motivation concept has long held individuals may be predisposed "to respond to motives grounded primarily or uniquely in public institutions and organizations" (Perry and Wise, 1990, p. 368). According to this stream of scholarship, public sector employees frequently view public service as a calling, and often experience a high degree of enjoyment, satisfaction, and fulfillment from working in the public sector and helping others (Frederickson 1997; Perry and Wise 1990; Houston 2009). As Wright and Pandey (2008) note, early efforts to test this claim argued employees place greater value on intrinsic rewards (Buchanan 1975; Cacioppe and Mock 1984; Crewson 1997;

Frank and Lewis 2004; Houston 2000; Rainey 1982; Wittmer 1991) and less value on extrinsic rewards (Cacioppe and Mock 1984; Jurkiewicz, Massey, and Brown 1998; Khojasteh 1993; Kilpatrick, Milton, and Jennings 1964; Lawler 1971; Newstrom, Reif, and Monczka 1976; Rainey 1982; Rawls, Ulrich, and Nelson 1975; Wittmer 1991) than their private sector counterparts (504). While the results of these studies have, at times, been mixed, public service motivation scholars have generally found considerable support for the notion that public employees place higher value on helping others and lower value on financial rewards (Pandey and Stazyk 2008; Wright and Pandey 2008; Houston 2000; Wright 2001). Public service motivation scholars, however, have raised serious concerns about increased reliance on performance-related pay (Houston 2009; Moynihan 2008; Frey 1997). Research has consistently demonstrated variable pay systems suffer from serious implementation issues (Kellough and Lu 1993; Perry et al. 2009; Houston 2009). For instance, research suggests public organizations cannot provide rewards large enough to change employee behavior or organizational culture in meaningful ways (Kellough and Lu 1993; Perry et al. 2009; Houston 2009; Sanders 2004). Because of these limitations, the effectiveness of variable pay systems may be severely limited and can lead to a reduction in employee morale and satisfaction, and can also increase employee turnover (e.g., Sanders 2004). Public service motivation scholars also suggest such systems mistakenly start from the assumption that employee action and behavior is knavish (or self-interested) and best controlled through extrinsic mechanisms (Le Grand 2003; Houston 2009; Perry et al. 2009; Moynihan 2008; Frey 1997). By doing so, the knightly (or altruistic) inclinations of public employees are largely overlooked or ignored (Le Grand 2003; Houston 2009; Moynihan 2008; Frederickson 1997). Furthermore, scholars suggest the logic underpinning an emphasis on extrinsic rewards and performance-related pay is flawed (Moynihan 2008; Houston 2009). By attempting to harness the self-interested behaviors of individuals, such systems may actually increase the likelihood employees will act knavishly (Moynihan 2008, 249; Houston 2009). Consequently, public service motivation scholars argue the focus on market-based mechanisms and variable pay systems is a poor place to begin designing a system for controlling and guiding human action and behavior.

Perhaps more importantly, public administration scholars have also suggested performance-related pay and the emphasis on market-based initiatives may "crowd out" intrinsic motivation (Houston 2009; Moynihan 2008; Perry et al. 2009; Frey 1997; Deckop and Cirka 2000; Weibel, Rost, and Osterloh 2007). The crowding literature-particularly the work of Deci and colleagues (1999)-demonstrates financial and performance incentives reduce intrinsic motivation and may influence a variety of other factors, such as one's civic behavior and virtue (Frey 1997; Moynihan 2008). In this case, public service motivation could ultimately be diminished by the emphasis on performance-related pay. Moreover, if the decrease in public service motivation is greater than the increase in extrinsically-derived motivation, it is likely there will be an overall loss in motivation to perform a job (Houston 2009, 47; Frey and Osterloh 2005). Simply, absent strong financial incentives-and despite the possibility that performance-related pay may increase knavish inclinations public service motivation scholars believe variable pay systems will crowd out public service motivation without substantially increasing extrinsic motivation in a manner sufficient to overcome the reduction in intrinsic motivation (Houston 2009; Moynihan 2008; Perry et al. 2009; Kellough and Lu 1993; Sanders 2004). Beyond the basic financial  constraints public sector organizations operate under, research also suggests it can be  tremendously difficult to measure performance, and to further link performance to pay (Kellough and Lu 1993; Sanders 2004; Perry et al. 2009; Houston 2009; Moynihan 2008). It is possible this shortcoming creates situations in which employees may: 1) engage in goal displacement and gaming, 2) ignore due process outcomes, and 3) overlook management values (Moynihan 2008, 257-258). Nevertheless, it is unlikely the market model and performance-related pay will be abandoned in the near future (Moynihan 2008; Perry et al. 2009).

There are several reasons for this: 1) performance-related pay has strong symbolic political meaning; 2) private sector initiatives, like performance-related pay, tend to be looked upon favorably in the public sector; 3) performance-related pay is thought to increase both managerial and political control; 4) there is a reluctance to admit such reforms have failed to produce as anticipated; and 5) there tends to be an assumption that problems are simply implementation glitches (Kellough and Lu 1993, 55-58). This has prompted scholars to suggest public service motivation should become a driving factor in the selection process, and that the market model and public service motivation should be married (e.g., Moynihan 2008; Houston 2009). More specifically, Moynihan (2008) suggests high-powered incentives should be disconnected from performance measures, performance measures should be linked to intrinsic values, efforts should be made to build a stronger public service culture, and, again, employees should be selected largely on the basis of their intrinsic motives (259-262). Motivation does not automatically translate into performance. People can be highly motivated but still perform badly because of a range of impediments, e.g. poor management, inadequate training or obsolete equipment. Equally, people can be poorly motivated but perform well, for example if there is very tight management. Motivation, then, is something that can lead to better performance, but only when other conditions are met. We treat it as a willingness or preparedness to do something, which means that it is a state of mind. Sometimes, researchers make inferences about levels of motivation purely by observing performance. This can be legitimate but, equally, can lead to difficulties when other things are changing at the same time and are independently affecting performance. We have chosen a different approach and have measured motivation as the responses of staff to a variety of statements about themselves and their fellow employees. The second problem is motivation to do what? The ultimate issue is whether performance at work will change because of a prior change in motivation. But performance covers a wide variety of behavior, in the Revenue as elsewhere. In the case of the Inland Revenue, Performance Pay can be awarded only when staff receives a sufficiently high overall score in an appraisal process which formally takes into account up to thirteen aspects of behavior.

It was therefore felt appropriate to ask staff about most of these aspects of performance when trying to discover the motivational effects of performance related pay. It might be expected that staff who have received a Performance Pay award might be more favorably inclined to the system and report a greater motivational change. The same might also be expected from those who are at the top of their pay scale, because for them, markings will bring an award. Analysis reveals that, Whether or not staff has received a Performance Pay award, and whether or not they are on the maximum of their scale, more than half of our respondents normally believe that Performance Pay has caused jealousies, and contributed to a decline in morale. Even on the one exception, the percentage of "agrees" still considerably outnumbers the "disagrees". Turning to the effects on personal motivation, having received an award does seem to be associated with heightened motivation as compared with the others. Again, however, even among those who have received an award, the majority believe that it has had little effect. Many of the staff felt that the amount of money an individual receives in merit pay should be substantially increased. The same point was also raised in many of the written in replies. The small size of most merit increments does not appear to be greatly at variance with similar schemes elsewhere. Surveys of private sector schemes in France reveal widespread use of merit pay (individualised pay increases) in recent years, but similarly low levels of annual payment (Bangoura 1987 and MinistPre du Travail, 1989). In Britain similarly low levels prevail for most non-managerial employees (IRRR 398). Hence, if it is true that these schemes are working in the private sector, then the size of merit payments to individual staff.

The entire world has been moving with a great pace and as competitive measures increases in the world of business, the quantity, productivity and efficiency for the companies is now more than important than ever. To sustain end have a definite edge over the competitors, businesses always solicit to find better ways to obtain the competitive advantage. An excellent Performance related Pay (PRP) system can add a great value in the productivity and efficacy of an organization because those organizations, who are willing to think about their employees and wish to see their employees motivate for the work than are the one which can have a clear cut periphery over their competitors. Employees are the life blood of the organizations as without them the organization is not suppose to run and the thing which really satisfied the employees is the behavior of the management and a good PRP system. The society and the business world is continuing to become more and more diverse, and it can be say that the standard methods are no longer standard because of the arrival of new methods and systems day by day. We have applied contingency table in the statistical analysis section and finds with the empirical analysis that PRP quandary really enhances the motivation level of the employees which has the direct contact with the performance and productivity of the employees. It has been consensus that now the organization are quite eager from the employee's point of view because of the huge competition in the market.

They are well cognizant with the fact, if we don't motivate our employee then it would be cent percent chance that he will switch over to any other organization and it's not easy for an organization to hire and then train w new employee. So in order to excrete out the best the organization must make such strategies which motivate the employees pertinently and I am quite certain that, if such things will implement then it certainly effect positively on the bottom line of the corporation. In spite of some limitations, findings from this study add to the currently scholarly debate on performance-related pay and employee motivation by exploring whether any empirical evidence exists demonstrating variable pay systems crowd out public service motivation. Much of the public service motivation scholarship recommends against relying on performance-related pay for fear that it will reduce intrinsic motivation among public employees and may lead to negative outcomes for citizens (Houston 2009; Moynihan 2008; Perry et al. 2009). Instead, scholars have suggested organizations and reward systems should be internally (rather than externally and extrinsically) focused (Perry et al. 2009; Houston 2009; Moynihan 2008). They have further called for public sector organizations to: 1) link performance measures to intrinsic values, 2) build a public service culture, 3) focus more attention on the selection process for public employees, and 4) limit outsourcing to private and nonprofit organizations (Moynihan 2008; Houston 2009; Perry et al 2009).