HRM
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management. Many earn well below the local minimum wage or average earnings. Most dependent workers work informally, without a proper employment contract. They are rarely organised or supported by formal trade ety motivation in practice - performance related pay Performance-related pay is a financial reward to employees whose work is: • Considered to have reached a required standard, and/or • Is above average •
Performance related pay is generally used where employee performance cannot be appropriately measured in terms of output produced or sales achieved. Like piece-rates and commission, performance related pay is a form of incentive pay.
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Whilst the detail of performance-related schemes varies from business to business, there are several common features:
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• Individual performance is reviewed regularly (usually once per year) against agreed objectives or performance standards. This is the performance appraisal.
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• At the end of the appraisal, employees are categorised into performance groups – which determine what the reward will be (if any)
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• The method of reward will vary, but traditionally it involves a cash bonus and/or increase in wage rate or salary.
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Performance-related pay has grown widely in recent years – particularly in the public
sector. This is part of a movement towards rewarding individual performance which reflects individual circumstances. According the Equal Opportunities Commission, a well-designed performance-related pay scheme would have the following elements: • Objective setting • Communication and understanding of objectives • Consideration of performance against objectives • Translation of evaluation into performance rating • A link between ratings and the determination of pay • A separate appeals procedure Disadvantages of Performance Related Pay There are several problems with performance-related pay: •
• There may be disputes about how performance is measured and whether an employee has done enough to be rewarded
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• Rewarding employees individually does very little to encourage teamwork
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• It may encourage unhealthy rivalry between managers