Prp Theories

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2.Literature review2
2.1Emergence of PRP2
2.2Concept of PRP3
2.3Relevant theories of PRP4
2.3.1Maslow’s hierarchy of needs & Herzberg’s motivational theory4
2.3.2Equity theory in PRP5
3.Case study6
3.1Case one: “Why Do Companies Use Performance-Related Pay for Their Executive Directors?” (Bender, 2004)6
3.2Case two: “Evaluating performance-related pay for managers in the National Health Service” (Dowling & Richardson, 1997)9
4.Analysis and Evaluation of PRP Theory in Business Organisations11
4.3Performance related pay theory in business organizations13
4.3.1Motivates employees and improve their performance14
4.3.2Facilitates change to organizational cultural14
4.3.3Encourages the internalization of performance norms15
4.4Problems of PRP in practice15
4.4.1Setting performance objectives16
4.4.2Assessment and ratings17

1. Introduction

Nowadays, Human Resource Management has become a strategic and coherent approach more than just managing the competencies and skills of employees in an organization. Armstrong (2002) noticed that HRM is much more focus on people not jobs, and so does business organization (Lewis, 1998). Yet, people have been placed as an important role of business. To this extent, this essay will take a critical look at PRP which is based on people, and also considered as an essential and sensitive part of the HRM in organizations today.

The paper starts with a brief review of recent literature which reports studies of PRP systems. It continues with describing two case studies related to the practical discrepancy to PRP theories. It goes on to our own independent critical analysis by comparing the PRP theories and practice in real world. Finally, there are conclusions being drawn about the appropriateness of PRP in a research environment.

2. Literature review

2.1 Emergence of PRP

Performance-related pay (PRP) emerged in the early 1980’s which attempts to relate individual performance at work to reward, aiming to motivate people ad develop performance-oriented cultures. Besides business organisations, some public institutions such as governments and universities also adopt PRP as an essential level for championing values. By comparing with other payment schemes, the PRP idea was whole-heartedly accepted by employers and played a much more positive effect on improving employees’ behaviour and organisations’ culture. According to the IPD research into performance management practices in 1997, 43 per cent of respondents had PRP; additionally, IBS research in 1998 showed that 61 per cent of answers satisfied their merit pay. These figures make it easy to see that PRP have been widely applied among organizations whatever businesslike or public facility (Armstrong, 2002).

There are a variety of reasons why organization may applied PRP. Armstrong and Murlis (1994) stated that ‘it is right and proper for people to be rewarded in accordance with their contribution’. According to Pilbeam & Colbridge (2002), there are a number of factors contributing to the emergence of PRP, which is identified in Figure 1.

The Thatcher legacy and ‘enterprise’ values in the public sector Increasingly competitive environment and concern with employee performance Unitary and neo-unitary employment relations perspectives

Reassertion of the ‘right to manage’ and increasing managerial control Influence of HRM demagogy & Strategic integration of reward Trends towards individualism and the weakening of collectivism Emergence of PRP

Figure 1: Factors contributing to the emergence of PRP (Pilbeam & Corbridge, 2002)

2.2 Concept of PRP

ACAS (1990) defined individual performance-related pay (PRP) as “a method of payment where an...
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