Monday 26 March 2018

Performance Related Pay (PRP) - Part 1 of 2


Part 1 – Background and Advantages (28/3/2018)
Part 2 – Challenges and a snapshot of the components to consider for a successful PRP system in your organisation that is ‘robust’ (4/4/2018)

Part 1 – Background and Advantages
PRP systems were introduced as long ago as 20 years in many countries, but many of these systems were not well designed and results were therefore erratic.

The assessment of competencies, as well as the achievement of performance targets, provides a more rounded view of an individual’s contribution to business goals. Many organisations now assess performance based of both inputs and outputs, reflecting the move to contributionrelated pay.

Examples of the “inputs” can be years of service, the type of job function and the length of time in the current job, attendance, team effort, demonstration of culture/values, qualifications, experience, competencies, the complexity of the job and the like.
Examples of ‘outputs’ can be the standard time to do a job function, a certain number of quality approved items, the achievement of a certain production target and others. In more service orientated organisations, outputs could be the completion of certain tasks within a time period, alignment with a quality standard, customer satisfaction, and the like. 

Today’s thinking is measuring employee’s inputs and outputs, not activities, as these don’t lead to improvements in productivity.

It is necessary to develop a culture of inputs and outputs that are SMART- Simple, Responsible, Measurable, Realistic and Time related, for a successful PRP system.

However with many workers just trying to survive in the current South African climate, money is still a successful motivator, and is sometimes seen as a symbol of external status and internal recognition.

PRP is moving towards, pay based partially on individual performance, and also part of a team performance, linking it to productivity, instead of year on year increases linked around CPI or some other yardstick.

In designing a PRP system one has to be careful of not infringing upon the “Equal Pay” aspect in the Employment Equity Act. Yet, different wages or conditions can be paid to people doing the same work, substantially the same work, or, interchangeable work as long as there are valid reasons for doing so. A scoring system based on several criteria must be consistently applied to all staff for the differences to be “justifiable ".

So what does a “robust” PRP system look like? One where a remuneration package is made up of as many as 4 components, with several “input” items and one or more “output” items. The makeup and weighting of which will differ from client to client and different by industry type.

PRP systems need to be differently structured for the public sector, including NPO’s and the private sector. They need to be different for manufacturing industries, knowledge based industries, service orientated industries, and consideration of Sectoral Determinations wages as well as Bargaining Council Agreements.

There are many objectives of an effective PRP system.

For example: The maximising of employee engagement - having staff who are engaged with a business rather than actively disengaged and just coming to work because they need to earn a salary. This can be achieved because staff have a greater sense of participation by identifying “inputs” and having measurable “outputs” thereby giving  a greater sense of contribution/control which in turn encourages staff ‘buy in’,  commitment and staff retention. Recognised Prior Learning (RPL) can significantly assist employees who have the experience, but not the formal qualifications, to improve their scoring on one of the input items.

Annual employee performance appraisals are fast becoming an outdated review system and are often being replaced with a ‘simpler but smart’ performance feedback sessions, which can be done several times year, or even monthly, for maximum relevance.

Because Sectoral and Bargaining Council determinated pay applies in different industries the base pay for certain categories of work function need to be accommodated in the PRP system, with employees not earning less than the stipulated amount. Engaged and higher productive employees will then benefit from their efforts.

At Diverse Human Resources we take a different approach to annual increases and thirteenth cheques, and Performance Appraisals that are only done once or twice a year. 
We are working on PRP with several clients to implement systems that are specifically designed for their unique requirements.

In part two to be posted on the 4th April, we will discuss the challenges and potential pitfalls of an incorrectly structured PRP system and also explain some criteria to develop a successful one.

We would love to hear from you on this important topic.