Is performance related pay (PRP) really a motivator for employees and is it an effective way for organisations to gain and retain high performing staff. This is questionable especially as organisations differ in size, organisational culture (therefore differing needs), the ability and/or resources to manage an effective process to support PRP. This study will explore whether performance bonuses offer a win-win for both the organisation and the employees, using primarily the public sector, with reference to the private sector.
“PRP was the ‘big idea’ of the1980s, embraced enthusiastically by many employers as the holy grail of driving high performance” as stated by CIPD (2010). Today it is seen as more than just a tool to drive performance; organisations are using PRP to link individual performance to business objectives and gain commitment.
Business strategy is a key driver for organisations in the private sector as it provides them with competitive advantage, therefore they have the need to retain and motivate employees to perform against their objectives. The public sector, on the other hand, has the need to align staff commitment to deliver local government agendas. In order for the business strategy to be effective employers need to ensure that employees are committed and motivated to achieving the organisation goals, but as we can see these goals can vary depending on the sector and more so, on what the organisation is trying to achieve. So organisations need to identify a pay strategy, which helps them to align the objectives with their employees. The question is, does PRP work for both sectors in motivating employees?
In the private sector the pay determination is generally determined by management with the notion that if individuals perform well against their KPI’s (key performance indicators) they will be rewarded with a bonus based on the market worth and the success of the business. However the public sector, in many cases, still remains to have a pre-determined pay structure with incremental pay progression and grading systems as shown in the example for Slough Borough Council in appendix 1.
Old pay and new pay are concepts that are used to distinguish between contemporary and traditional reward systems (Gilmore pg 171). The local authority, Slough Borough Council use the old pay system.
Graded pay is not particular motivating as everyone gets it and the incremental increase is not of a substantial amount to gain higher performance from staff. Therefore, the question has to be asked, whether it would be beneficial for the public sector to introduce PRP? Richard Crouch, head of HR and organisational development at Somerset County Council, warned performance-related pay could encourage "the pay bill to creep up" in the long-term and there would be "a substantial cost in administering and applying performance-related pay in the public sector to reduce its subjectivity" because government work would not be easy to measure (Barker, 2010:1). This highlights a number of issues particularly the fact with spending cuts becoming an ever-increasing need, this sector cannot afford to implement PRP.
Furthermore, a pay strategy including PRP would push staff to work towards targets rather than focusing on providing a good public service, which is primarily the objective of the public sector. Although financial rewards in this setting could help employees to work more effectively rather than to work harder, by encouraging employees to focus on key objectives, lets face it, if people were primarily interested in financial rewards they would not have joined this sector. Making a difference to other peoples lives and the surrounding environment is more important.
Additional, it would be very difficult to measure performance;...