Performance Related Pay (PRP) - Part 2

In Part One of PRP we provided some background as well as indicated some advantages.

In this blog, we will mention the challenges and provide a snapshot of the components to consider in a PRP system in your organisation that is “robust”.

Challenges:

It is widely acknowledged that, in the past, where PRP systems have not been very effective it was where insufficient attention was taken of the organisation’s unique characteristics, its culture and the reward scheme’s relationship with the business strategy and ‘people management’ practices.

Also, some of the main challenges have been around ineffective implementation, poor management and poor communication of the purpose, rather than poor design of the system.

Effective planning, clearly defining and jointly agreeing the scheme’s objectives; providing training; communicating with the whole workforce on the scheme’s operation are crucial to its success.

The competence and training of line managers is needed to provide honest and ongoing feedback on performance, and they need to feel that they ‘own’ the PRP system for real success.  

If the system is based too heavily on the outputs to drive pay, this can be risky in that it can lead to inappropriate behaviours, such as focus on short term goals that attract financial reward, and customer service may be negatively affected when striving for these goals. In addition it may encourage individual behaviour at the expense of teamwork.

It may demotivate if the goals are too hard to achieve and the rewards insufficient, but discussions around under‐performance, can be conducted in a positive way if managed properly.

It may demotivate people who have over‐estimated their own level of performance, affect creativity and intrinsic motivation.

Another challenge is that i may be seen ‘discriminatory’, by rewarding the high performers, and identifying poor performers who do not receive the same rewards, which may demotivate the poor performers – however this may be rectified through an effective counselling process.

Snapshot of the components to consider in a PRP system in your organisation that is “robust”.

A PRP scheme is only as effective as the performance management system on which it rests and the competence and quality of line managers to manage the system. Performance standards must be measurable, applied fairly and consistent.

Paying for performance goes against the grain of some of the public and Non Profit Organisations as it is not so straightforward to set clear targets and with pay restraints (NPO’s), this makes a PRP system that is too heavily weighted on outputs, more difficult to control and ensure fairness.

Performance management should have a  series of interconnected, two way discussions which take place throughout the year and which overlap – such as performance planning, defining expectations, objective‐setting, reviewing performance, providing feedback, assessing performance and rating performance.

The main objective being to increase skill acquisition, as well as reward the achievement of agreed objectives and contribution to business goals.

Because of year on year increases, many companies are becoming less competitive as they cannot necessarily pass on these increases to their customers and so margins shrink.

The saying “you can’t do today’s jobs with yesterday’s methods and be in business tomorrow” is resonating more and more like the truth for many companies.  

With economic growth very low for the foreseeable future in South Africa and in many of the countries throughout the world where we export to, “managing costs effectively might be the most important item of all”, and partly linking increases in remuneration to increases in productivity, just makes good business sense.

So, contact us at Diverse Human Resources to discuss how a Performance Related Pay system can be structured for your company and how employees without certain formal qualifications can benefit from the Recognized Prior Learning process to improve their scoring within this system.

We would love to hear your views on this important topic.

   

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