What Are the Benefits and Problems of Performance-Related Pay Systems for Both Employees and Employers? Essay

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Performance-related pay (PRP) grew during the 1980s and 1990s due to the decline in Payment by Results (PBR) schemes. PRP looked beyond traditional PBR incentives, they reward individual contributions based on performance rather than on effort. These incentive schemes can filter throughout an organisation to motivate manager’s right through to the manual workers.

This essay will try to outline the benefits and drawbacks of the PRP method for employers and employees using case study examples particularly the education sector where PRP has been or could be effective. We shall also investigate the numerous forms of PRP and whether they are successful payment methods. PRP can be used for both Individuals and Groups, therefore
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Another problem put forward for employers is that measuring an employee’s performance can be an arduous task. This issue has been discussed with the recent moves by the government to promote PRP for nurses, doctors and teachers. “All these groups fear that the difficulties associated with measuring their performance will lead to subjective and possibly unfair judgements being made by their assessors” (Journalists of the BBC, 1994, cited in Torrington & Hall, 1995: 609). These specific types of employment are particularly difficult to measure, for example the education sector, although you can measure performance on grades the difficulty is that not every school is the same. All schools have varying class sizes and some are located in poorer regions so you can expect performance of these students vary; therefore the teacher cannot really be measured on the students grades compared to schools across the country.

The process of performance appraisal is subjective, therefore prejudice may occur, and judgements maybe formed through what is known as the ‘Halo Effect’, where we “draw a general impression about an individual based on a single characteristic” (Redman & Wilkinson, 1999: 38), another factor the employees could be subjected to is the ‘Contrast Effect’, where the assessor makes comparisons between other employees they have encountered.

A problem that