Performance Related Pay Schemes – Can They Be Made To Work?
Employees who perform well should naturally receive more than their lower performing associates, right? An effective performance related pay (PRP) scheme should deliver benefits to both employer and employee since it is driven off the employee’s ability to earn extra for more effective performance in their job. It sounds intuitively right in theory, it looks good on paper, but the implementation of such schemes has proven highly problematic. What is a PRP scheme? The essential feature of a PRP (aka ‘appraisal related pay’, ‘pay for performance, ‘merit based pay’) scheme is that increases in pay are wholly or partially based on an appraisal of an individual’s performance against pre-agreed targets. This differentiates them from other productivity based systems such as payment by results or piece work.In most cases the bonus paid is a percentage of the annual salary to be paid out on top of regular salary the following year. Employee and manager will generally meet at the beginning of th
