The goal of this project will analyse the strengths and weaknesses of the three different methods of financial rewards; specific performance related pay, earnings related pay and skills based mostly pay. A wide range of research will be explored through newspapers, books, journals and business models and exactly how organisations tends to tackle these three methods, that will give a full insight on how these three spheres have impacted today's modern time, and how they are simply driven, that may then present the entire conclusion.
Financial reward is seen as a motivational factor, where employees may advantage, either from promotion or a bonus, maybe it's viewed as an appraisal system. 'Most empirical research on purchase performance systems has investigated clear-cut programs, that is, programs predicated on individuals versus collective performance or behaviour. Yet, many organizations pay employees utilizing a combination of different programs' (Gerhart and Rynes, 2003). By placing objectives and goals for a particular project, is to keep up employee's satisfaction at the job, where performance and production is improved.
Individual Performance Related Pay
'In modern times, performance-related pay (PRP) has been much more widely used as part of the human resource plans of organizations'. Both organisations along with its employees may gain performance related pay. 'It has typically been unveiled alongside other HR techniques within a package deal of measures, the aim of which has gone to increase the insight (both quantitative and qualitative) of staff to the development process' (Whitfield and Poole, 1997). The effectiveness of specific performance related pay is beneficial to its employees and the company itself. Performance related pay relates to the performance towards how well an activity is completed in the workplace by the individual, over obtaining may bring great results, whereas poor achievements at work may cost the organisation. Relating to (Lahdesmaki, 2008) 'Performance-related pay can help improve performance and promote organizational development when it's applied properly in the right managerial context'. Therefore, organisations utilize this method where it motivates individuals recognising they'll be rewarded towards their improvement and their contribution, which would then be integrated, hence the success of this organisation.
Individual performance related pay provides the incentive, which employees may then accomplish and achieve the task goals, with this been recongnised with an incentive. (OECD, 2005) says; 'Top management has generally accepted it and it is focused on its implementation. Employee organizations and unions have principally accepted the system. Employers in businesses feel that PRP is a very good incentive, as an instrument for organizational development. ' Therefore employers can obtain assistances from a small business structure for arranged goals, which would develop and enhance the output and the performance of employees. 'Earlier work has indicated that there is a positive relationship between PRP and cash flow' (Booth and Frank, 1999), and 'the recommendation is that this is because of the higher work work and/or ability of these on incentive pay' (Barkume, 2004).
Nonetheless, organisations benefit this kind of financial reward given to employees as understanding is increased, where employees know about their performance and also to enhance their productivity immediately associated to be rewarded. 'Furthermore, such models also dismiss that PRP is merely one kind of payment system aimed at increasing the contribution of employees to the production process' (McNabb and Whitfield, 2007)
Poor performance from employees can improve, with the awareness of an incentive for grabs. To the, satisfying employees with better performance aim for, where employers would keep a retain the most industrious employees then people that have low performed targets. As Barkume (2004) expresses call centers such as Carphone Warehouse offer fee to its employees because of the performance and exactly how much quantity is sold whereas other organisations such as Alliance Leicester, whose employees are monitored on their performance, thus they can be rewarded.
However as talents communicate the rewards; weaknesses remain as employees may face a low payout due to the low inflation local climate, as the pay may well not be as great. Matching to McNabb and Whitfield, 2007) 'The results signify that PRP techniques are costly for employers. They could help boost the input of individuals, but whether this produces better financial performance depends upon the comparative magnitudes of the costs and benefits'. It could perhaps be focused upon as a reward to work hard somewhat than developmental needs where employees are simply just doing work for the reward, regardless of the job role, connection to this, employees are likely to be de-motivated if goals are too complicated to accomplish.
(McNabb and Whitfield, 2007) claims that; 'Additionally, it might be that PRP functions simply as a distributive mechanism, satisfying the high-achieving more and the low-achieving correspondingly less than in non-PRP workplaces'. Specific performance related pay can be geared to over-skilled and experienced employees, whereas the unskilled and unqualified employees may find it difficult to continue trail then those further in front, which reduces pay collateral and make the organisation liable if rewarding is not managed fairly. Organisations may use performance related pay as a brief term for a particular task where employee's performance would increase, however when the compensation is outdrawn, the performance will decrease where employees will expect the same pay back to allow them to work effectively, which may even delay the cooperation. Finally, too much responsibility is relied on the supervisor or the manager as (Dickenson, 2006) says; 'The big problem with this, performance related pay in organizations, is that it is so totally disorganized, that your performance relies a lot on other people doing their job right that it's very, very hard to get a fair idea of what of work are you doing'. It really is suggest by Dickenson, (2009) that performance related pay may own an upper hand towards employee's performance, however performance can't be measured and predictions can only just be made towards the end of the year.
Profit Related Pay
Profit related pay can be an element of reward where in co-operation will ascend and descend mutually for the staff and the organisation. The prospect is that such method would improve employee's job satisfaction and determination and is seen as a wage substitution. 'The proven fact that workers might be paid in part out of revenue has been growing since the middle-1980s across OECD countries along with the growth of international competition and fast technical change' (Amisano and Del, 2004) Income related pay is either a given bonus because of the organisations performance or by receiving a share based on the performance of the organisation; for example John Lewis employees have a talk about in the company performance. Corresponding to (Robertson, 2007) 'At the John Lewis Partnership, which employs 64, 000 staff, for example, profit sharing remains central to its collaboration ethos'.
'The advantages of new work techniques that are supposed to increase staff performance, versatility and involvement with organizational goals has often been from the intro of new settlement systems, such as pay for competencies, performance related pay and income showing' (Handel and Gittleman, 2004). Handel and Gitleman (2004) explained that profit related pay can be equally as add up to performance related pay, however occupation differences have an impact on the types of rewards, job-role (such as nursing, teachers and communal workers) haven't any impact on income sharing as specific job role is at a set salary whereas major organisations have to execute to increase revenue and out compete competition.
With an identical interaction between performance related pay; earnings related pay includes the organisations performance. For instance, if John Lewis sales increase and earnings increases, then employees are rewarded the stocks due to the performance of the company. As (Robertson, 2007) state governments; 'Last 12 months, John Lewis Collaboration paid out 106m through its system, which equated to a 14% supplementation to personnel' annual salaries'. However, a weakness behind revenue related pay is due to John Lewis recital of course, if the performance diminishes, therefore the organisation profit will reduce or at worst, the outcome would lose its turnover, subsequently the employees would go through a cut down towards their pay. Matching to Estrin and Bradley (1992) they have investigated John Lewis profit sharing, which have not made a lot of a significant difference towards employee's performance; this is based on employees' knowing of the conditions and conditions of the contract and really should be familiar with the sort of financial incentive, which depends on the earnings of John Lewis and the total amount of profit distributed is received.
According to Ogden (1995), Alpha Water was one the many first private limited companies that introduced earnings sharing, initially such financial pay back had not been represented as a reward; employees carried out their job-role as regular as for Alpha Drinking water, competition with other major water companies was at risk, therefore performance had to be increased and productivity needed to be elevated. 'Plans could also encompass a variety of computational formats with, for example, payment differing by amount, entitlement and the revenue level of which payment is brought about' (Ogden, 1995) Therefore the employees continued their job-role as standard, as accomplishing to a uncertain company, which had exceptional competitors. In comparison to this and John Lewis, which is a major department store with a higher profit figures in '09 2009, employees are prepared to perform harder due to the realisation on the amount of share that may be received from John Lewis. GlaxoSmithKline (2009), one of the major pharmaceutical company offers a income related pay system where it offers talk about save and show incentive to the employees, only when employees consider buying shares with GSK, they will get the same amount of reduced show by GSK as an incentive without tax.
Profit related pay can be seen as an advantage for John Lewis employees, as they receive a share mainly predicated on the company performance, whereas GSK offer these rewards only to the employees when they purchase shares. Profit related pay can either increase or reduce employees pay depending on the success of the company, where reward can be considered a huge amount or almost nothing.
Skill Established Pay
Skill founded pay could be observed as a remuneration system where employees are paid wages on the foundation towards the number of skills they can be assessed to own and even requirements they have obtained. As (Silva, 1998) states; 'Skill-based pay systems are best suited to corporations which depend on a high level of skills, and where labour costs stand for a relatively small part of total costs, unlike in labour rigorous industries'. Nevertheless the pay back in learning a new skill to execute an activity is highly motivating as employees are encouraged to learn furthermore without paying for this course and also to perform on the job they are doing while training. 'Skill-based pay (SBP) is a speedily spreading pay development that compensates for the range, depth and types of employee skills, rather than for the jobs employees perform' (Dong-one, 1999) However skill based mostly pay is the motivation to learning for the average person themselves and the company, which requires employees to learn new skills, which brings the strengths towards job satisfaction where by rewarding to learn, could support the intrinsic job role, therefore motivation is increased, however weaknesses do stay as learning might not exactly be associated towards pay but the individual curriculum vitae is offered the learnt skill. For example, an individual may be working in the human source sector and received skill structured pay to carry out a CIPD course; the training will then improve their current knowledge, where they can perform further tasks.
'In lenders and airlines, for example, skill-based pay can be used to encourage visitors to work in areas where manpower is most needed at a given point of the time due to customer moves'. (Silva, 1998) Therefore skill founded pay was created to promote learning and is adapted in additional practical areas within the company where more than one task can be executed and the current performance is exceeded as a specific knowledge or skill needs to be discovered to do a certain role. Therefore, organisations may purchase performance; if higher skill is increased, then this would create an improved performance, which improves development, as well as rewarding the average person.
The strengths of skill centered pay would improve the team's efficiency and desire, where efficiency and performance is increased. It will assist the company as employees will have a more rapid adaptation to changes because of their skills, that will allow employees to solve the problems rather than wait for others to solve the situation. Also, determination to goals and objectives are met quickly hence, self esteem from job enrichment and making do it yourself decisions when covering for an absent staff temporarily. Improved skills would help to advance the productivity in problem solving along with employed in a team, where set deadlines are found quicker as further skills have been adapted. Therefore qualification might not be necessary if the worker have already the skill sets to perform the work and are suitable for do a multi-skilled position well enough, rather than the type of employee that has the correct qualification. Overall it saves the company expenditure, alternatively than going through the recruitment process, whereas this can be done internally.
Skill based mostly pay may be beneficial for an company and the employee's performance, however weaknesses remain as an employee may have to change their change habits or work as time passes for training, this then cost the organisation to provide charge for employees that will have to teach working out or a institution to review the course or training required. (Silva, 1998) suggests that 'Skill-based pay is specially steady with knowledge-based work. It includes generally been regarded as improper in highly automated situations where employees have little influence on functional performance. To runs best in relatively small locations with only about 500 employees'. If necessary, skills may be asked to be learnt; in this case employees may lack excitement to learn and could want to remain in their current role. On the other hand employees may choose to gain a skill due to the increase of the pay and so only.
'The supervision of the machine is complex, both in regard to certification of skills acquisition and repayment. Therefore, unless administered properly, the costs can outweigh the output and flexibility increases' (Silva, 1998) As a result; it provides a significant occurrence for the organisation is the average person have never performed than expected. Silva (1998) viewed the potential risks in skill founded pay and the impacts it could have on employees and the organisation. Employees that reach maximum level of skill will tend to be de-motivated even with extra pay according to Silva (1998). Without enthusiasm can occur where skill diagnosis difficulties, which involves the timing of the analysis required such as training, which may be time-consuming.
Adopting this kind of financial incentive may have its strengths and weaknesses; however it is employed and performed for most reasons. Skill based pay provides employees the capability to learn new skills, that will assist the organisation's performance and success by keeping cost in recruitment. In the current era, skills scarcity is an enormous predicament as organisations seek to find skills as an important matter to do the right job, however teaching employees within the organisation is at the advantage towards saving the price tag on recruitment process, by teaching the average person within the company as cost is kept and employees are benefited, because they are fully aware of the business enterprise environment.
Financial rewards are applied within organisations, especially the three analysed; specific performance related pay, earnings related pay and skill established pay will be the important for both organisation and employees. The strengths of financial rewards is highly trustworthy on how it has been applied as the exact process must be studied upon before introducing such types of financial reward, however the weaknesses are defined if the right practice is not applied.
Financial reward is an important, debatable constituent for organisations and its own employees. Organisation objective is to save cost by any means expense but maintain a better performance from employees, whereas employees seek to earn extra more from the company. It is an obvious fundamental for employee's lifestyle as their contribution and responsibilities to perform their job effectively and expectation should be met because of the hard work, however such specific performance related pay as well as skill based pay and profit relative pay is all beneficial to employees as performance and productivity is increased, thus determination is increased and cost is manufactured, as well as kept. However on the other palm, employers and their organisations match a significant part of the cost by giving these types of financial rewards as the organisation will advantage itself, if the accurate procedure is applied.