Performance-related pay

Performance-related pay or pay for performance is a salary or wages paid based on how well one works. Car salesmen or production line workers, for example, may be paid in this way, or through commission.

Many employers use this standards-based system for evaluating employees and for setting salaries. Standards-based methods have been in de facto use for centuries among commission-based sales staff: they receive more pay for selling more, and low performers do not earn enough to make keeping the job worthwhile even if they manage to keep the job.

Advocacy

Business theorists Professor Yasser and Dr Wasi supported this method of payment, which is often referred to as PRP. Professor Yasser believed that money was the main incentive for increased productivity and introducing the widely used concept of piece work (known outside business theory since at least 1549^[1]).

In addition to motivating the rewarded behavior, standards-based methods can provide a level of standardization in employee evaluations, which can reduce fears of favoritism and make the employer's expectations clear. For example, an employer might set a minimum standard of 12,000 keystrokes per hour in a simple data-entry job, and reassign or replace employees who cannot perform at that level.

Employees would be secure in knowing that their performance was evaluated objectively according to the standard of their work instead of the whims of a supervisor, or against some ever-climbing average of their group.

Opposition

A fundamental criticism of performance-related pay is that the performance of a complex job as a whole is reduced to a simple, often single measure of performance. For instance a telephone call center helpline may judge the quality of an employee based upon the average length of a call with a customer.

As a simple measure, this gives no regard to the quality of help given, for instance whether the issue was resolved, or whether the customer emerged satisfied. Performance-related pay may also cause a hostile work attitude, as in times of low customer volume when multiple employees may compete for the attentions of a single customer. Where a customer has been helped by more than one employee, further resentment may be caused if the commission is taken by whoever happens to make the final sale. Macroscopic factors such as an economic downturn may also make employees appear to be performing to a lower standard independent of actual performance.

Performance-based systems have met some opposition as they are being adopted by corporations and governments. In some cases, opposition is motivated by specific ill-conceived standards, such as one which makes employees work at unsafe speeds, or a system which does not take all factors properly into account.

In other cases, opposition is motivated by a dislike of the consequences. For example, a company may have had a compensation system which paid employees strictly according to their seniority. They may change to a system that pays sales staff according to how much they sell. Low-performing senior employees would object to having their income cut to match their performance level, while a high-performing new employee might prefer the new arrangement.

Another argument is that the judgment of one's performance can be subjective (the judgement of the same quality of work can vary from department to department in a company and from supervisor to supervisor).

Research

Academic evidence has increasingly mounted indicating that performance related pay leads to the opposite of the desired outcomes when it is applied to any work involving cognitive rather than physical skill. Research^[2] funded by the Federal Reserve Bank undertaken at the Massachusetts Institute of Technology with input from professors from the University of Chicago and Carnegie Mellon University repeatedly demonstrated that as long as the tasks being undertaken are purely mechanical performance related pay works as expected. However once rudimentary cognitive skills are required it actually leads to poorer performance.

These experiments have since been repeated by a range of economists,^[3]^[4] sociologists and psychologists with the same results.^[5] Experiments were also undertaken in Madurai, India where the financial amounts involved represented far more significant sums to participants and the results were again repeated. These findings have been specifically highlighted by Daniel H. Pink in his work examining how motivation works.^[6]

Cultural aspects

An international study by Schuler and Rogovsky in 1998 pointed out that cultural differences affect the kind of reward systems that are in use. According to the study, there is a connection among

status-based reward systems (as opposed to achievement-based) and high uncertainty avoidance,
individual performance based systems and individualism,
systems incorporating extensive social benefits and femininity and
employee ownership plans with individualism, low uncertainty avoidance and low power distance.^[7]

(See Geert Hofstede for the dimensions of cultures used.)

Sources

↑ Oxford English Dictionary s.v. "piecework": "1549 Coventry Leet Bk. 792 No persone of the Craft of Cappers shall put owt eny pece-woork, but to suche of the same Craft as the maisters..shall agree & consent vnto."
↑ "Large Stakes and Big Mistakes, Working Paper 05-11 by Dan Ariely, Uri Gneezy, George Loewenstein, Nina Mazar" (PDF).
↑ "Relative Rewards within Team-Based Compensation, Labour Economics. 15 (2008), Bernd Irlenbusch and Gabriele K. Ruchala" (PDF).
↑ "Pay-for-Performance Doesn’t Always Pay Off, Harvard Business School Working Knowledge".
↑ "Value for Money, David Marsden looks at the record of performance related pay in the public sector" (PDF).
↑ "Dan Pink at the Royal Society for the encouragement of Arts, Manufactures & Commerce".
↑ Schuler, R. S. and Rogovsky N. (1998) 'Understanding compensation practice variation across firms: the impact of national culture', Journal of International Business Studies, 29(1):159-77.

Employment

Classifications	Casual Contingent Full-time Part-time Self-employed Skilled Independent contractor Temporary Tenure Unskilled Wage labour

Hiring	Application Background check Business networking Contract Cover letter Curriculum Vitæ (CV) Drug testing e-recruitment Employment counsellor Executive search Induction programme Job fair Job fraud Job hunting Job interview Labour brokering Overqualification Onboarding Personality-Job Fit Theory Person-environment fit Probation Reference Résumé Simultaneous recruiting of new graduates Underemployment Work-at-home scheme

Roles	Co-op Employee Employer Internship Job Numerary Permanent Permatemp Supernumerary Supervisor Volunteer

Worker class	Blue-collar Gold-collar Green-collar Grey-collar Pink-collar White-collar

Career and training	Apprenticeship Avocation Career assessment Career counseling Career development Coaching Creative class Education Continuing education Continuing professional development E-learning Employability Further education Graduate school Induction training Initial Professional Development Knowledge worker Licensure Lifelong learning Practice-based professional learning Professional association Professional certification Professional development Professional school Reflective practice Retraining Vocational education Vocational school Vocational university Mentorship Occupational Outlook Handbook Practice firm Profession Tradesman Vocation

Attendance	Break Career break Furlough Gap year Leave of absence Long service leave No call, no show Sabbatical Sick leave Time clock

Schedules	35-hour workweek Eight-hour day Flextime Four-day week Overtime Retroactive overtime Shift work Telecommuting Working time Workweek and weekend

Wages and salaries	Income bracket Income tax Living wage Maximum wage National average salary World Europe Minimum wage Canada Hong Kong Europe USA Progressive wage Singapore Overtime rate Paid time off Performance-related pay Salary Salary cap Working poor

Benefits	Annual leave Casual Friday Day care Disability insurance Health insurance Life insurance Parental leave Pension Sick leave Take-home vehicle

Safety and health	Epilepsy and employment Human factors and ergonomics Industrial noise Protective clothing Occupational burnout Occupational disease Occupational exposure limit Occupational health psychology Occupational injury Occupational stress Repetitive strain injury Sick building syndrome Work accident Occupational fatality Workers' compensation Workplace phobia Workplace wellness

Equality	Affirmative action Equal pay for women

Infractions	Corporate abuse Accounting scandals Corporate behaviour Corporate crime Control fraud Corporate scandals Discrimination Dress code Employee handbook Employee monitoring Evaluation Labour law Sexual harassment Sleeping while on duty Wage theft Whistleblower Workplace bullying Workplace harassment Workplace incivility

Willingness	Civil conscription Conscription Dead-end job Extreme careerism Job satisfaction Organizational commitment McJob Refusal of work Slavery Bonded labor Human trafficking Labor camp Penal labour Peonage Truck system Unfree labour Wage slavery Workaholic Work aversion Work ethic Work–life balance Downshifting Slow living

Termination	At-will employment Dismissal Banishment room Constructive dismissal Wrongful dismissal Employee exit management Exit interview Layoff Notice period Pink slip Resignation Letter of resignation Restructuring Retirement Mandatory retirement Retirement age Severance package Golden handshake Golden parachute Turnover

Unemployment	Barriers to Employment Depression Great Depression Long Depression Discouraged worker Frictional unemployment Full employment Graduate unemployment Involuntary unemployment Jobless recovery Phillips curve Recession Great Recession Great Recession job losses List of recessions Recession-proof job Types of unemployment Unemployment Convention Unemployment benefits Unemployment extension Unemployment insurance Unemployment rates Employment rates Employment-to-population ratio Reserve army of labour Structural unemployment Technological unemployment Wage curve Youth unemployment

See also templates Aspects of corporations Aspects of jobs Aspects of occupations Aspects of organizations Aspects of workplaces Corporate titles Organized labor

This article is issued from Wikipedia - version of the Sunday, October 11, 2015. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.