Performance-Related Pay

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Canterbury Business School

Working Paper Series

The Characteristics of Performance Related Pay Schemes

Dr Mark W Gilman Canterbury Business School

Working Paper No. 59 March 2004

THE CHARACTERISTICS OF PERFORMANCE RELATED PAY SCHEMES

Mark W Gilman

Dr M W Gilman Canterbury Business School University of Kent at Canterbury CT2 7PE Tel: 012227 823797 E-mail: m.g.gilman@ukc.ac.uk

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Abstract Despite the growing amount of literature on performance related pay (PRP) schemes there is still very little, which examines the organisation of the schemes on a comparative basis. This paper does so by examining the nature and characteristics of those establishments with PRP schemes from the WIRS90/WERS98 data followed by an examination of the schemes of 16 different companies from various sectors of the economy. The examination of the WIRS data highlighted certain distinctive features portrayed by establishments with PRP. A closer examination of the schemes, however, highlights that similarities on paper disguise many of the practical differences, while the similarities in practice are masked by the different rhetoric and terminology utilised by the companies.(112 words)

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Introduction Arguments concerning PRP usually revolve around whether the schemes actually work or not. Very little work looks at the organisation of schemes in order to highlight any similarities or differences. In order to understand their purpose and whether they are successful one must first understand the subtleties of such schemes. Building on attempts at generating richer material on the operation of PRP schemes (Kessler & Purcell, 1992) this Paper aims to do just that by: • • examining the patterns of use (i.e. the characteristics), and examining the structure of schemes (i.e. the detail).

In doing so the paper will also seek to address the nature of PRP as an integrated part of HRM systems. It will achieve this by firstly examining data from the Workplace Industrial Relations Survey 1990 (WIRS90) and the Workplace Employee Relations Survey 1998 (WERS98). It will identify the characteristics of those establishments with PRP and whether there are in fact any significant differences between the average PRP establishment and average non-PRP establishment. For example, Kessler (1995) argues that although change to pay systems is nothing new, what is novel is the use of PRP, in conjunction with other HRM techniques, to support the process of organisational transformation. More particularly, it is said to be part of a strategic approach to the management of employees - performance management - linking their jobs and performance to the main goals and objectives of the organisation (see Storey and Sisson 1993).

Being linked so closely to HRM one would expect to see certain features and identifiable differences present within establishments utilising PRP. For example, products and markets have a significant role in the type of control strategies

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utilised by organisations (Edwards 1986). Is there a change in the organisation and its work reflecting the fact that employees become valued and flexible members of the company; a consequent individualism of the employment relationship relying more on consultation mechanisms and less on collective bargaining with trade unions; a change in the organisations administration systems to reflect the above; and finally, if everyone is pulling in the same direction are there any indications that such companies have better relations at work and above average performance? The analysis produces results that highlight some distinctive characteristics about establishments utilising PRP.

Secondly, it will examine the main characteristics of schemes in 16 case study companies and the circumstances under which they have been introduced or developed. Unravelling a trend towards performance management highlights some marked differences in the ways that schemes are utilised and applied. The...
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