performance-related pay


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performance-related pay

a PAY system where part of an employee's pay is based on his or her performance. It is based on the principle, common to all PAYMENT BY RESULTS, that the opportunity to increase pay will act as an incentive to employees to work harder or more productively. At its simplest, performance-related pay may take the form of an annual cash bonus based on a simple subjective assessment of employee performance over the previous year. Most large organizations take a more systematic approach and attempt to base performance pay on more objective criteria. One approach, often used with clerical staff, is to observe employee behaviour, e.g. the number of telephone calls answered within a specified time period. A more common approach is based on systematic PERFORMANCE APPRAISAL. Typically a set of objectives will be agreed between the employee and the manager: the employee's achievement of these will be reviewed a year later, and an assessment made of his or her performance. Often this is expressed on a scale ranging from ‘very good’ to ‘very unsatisfactory’ (or similar) known as a merit rating. The performance pay is attached to the merit rating. The resulting payment may be an annual bonus, a percentage addition to monthly salary, or an extra increment. This payment may be made in addition to an annual cost of living pay increase or in place of it. Those deemed to be performing badly may be denied not just the performance supplement but also a cost of living increase.

The use of performance pay has been increasing in recent years, especially in the public sector (see CITIZENS'CHARTER) and particularly amongst white-collar and managerial employees. In most cases, however, it forms a relatively small portion of total pay. It has been associated with moves towards limiting the involvement of trade unions in pay determination, and is often introduced hand in hand with PERSONAL CONTRACTS. It is often criticized on the ground that good performers do not need financial incentives whilst financial penalties demotivate rather than incentivize poor performers. In any case poor performance may be due to factors other than lack of commitment or ability in individual employees. A further problem with performance pay systems is their tendency to encourage DISCRIMINATION against female employees and those from ethnic minorities.

References in periodicals archive ?
The offer included performance-related pay based on appearances and the option for a free transfer next summer.
Adjusted operating profit - the company's preferred profit measure - increased 87% to USD109 million from USD58 million, driven by revenue growth and operating leverage, as well as a one-off benefit from the reduction in variable performance-related pay in the period.
Although half of the respondents conceded performance-related pay schemes could help foster best performance, nearly two-third thought such systems could invite people to "exaggerate or otherwise falsify their measures".
The central bank has informed minister for Public Expenditure and Reform, Brendan Howlin, that it is working on introducing a 'flatter' organisational structure and include 'performance-related pay progression.'
The "cost-effectiveness" condition for performance-related pay requires that stimulant strategy planners have an elaborate grasp of the prime concerns of the consumers being assisted.
They should be on performance-related pay, then we may at least get a few wins.
At the upper management level the performance-related pay depends on corporate operating figures, such as the company's operating profit or return on investment
NUT members voted to take action over changes to pensions, performance-related pay and "unsustainable" teacher workloads - with a survey showing the average primary school teacher is now working nearly 60 hours a week.
INTRODUCTIONA performance-related pay scheme is a remuneration system whereby the reward for an employee is partly dependent upon the employee's own performance and/or on the performance of the company as a whole.
She added: "There is no compelling evidence that performance-related pay works."
I AM not a teacher but when I worked I had experience of performance-related pay and found that it did not work and is very divisive, which is why employers are in favour of it.