Performance Related Pay
Performance related pay means being paid based on higher performance in the work environment. This may mean by hitting targets or by taking on responsibility outside of your job description. Performance related pay can form a main part of a performance management review.
Reasons for Performance Related Pay
Performance related pay is usually given in sales roles where targets must be met on a monthly basis. As this type of payment method will usually be paid as an addition to an employee's salary it is an opportunity for an employer to maintain employee retention and recruit new talent. A simple way of evaulating performance related pay is with a football players salary, if he scores a goal or keeps a clean sheet, then a performance bonus will be paid on top of his weekly earnings.
This tried and tested method of remuneration can also be cost saving for a company as it allows them to pay lower salary workers a basic rate then an employee can make the rest up with higher productivity.
Types of Performance Related Pay
Performance related pay can be issued in a variety of ways, in cash as part of an employees commission package or for reaching a target. Another method of PRP may involve issuing gift vouchers such as childcare or leisure vouchers. This can often be a very cost effective method of performance related pay in the long term. In addition, offering share options can lure talented employees and will give them an incentive to stay with the company.
Benefits of Performance Related Pay
Performance related pay structures have had a proven track record when it comes to productivity and motivation, most likely the highest benefit of a performance related pay scheme will be an increase of overall sales for the company. However, employers will also benefit from an increase in skills their employees will possess as part of the scheme.
Critics of these type of reward schemes would argue that it can be hard to measure performance related pay if an employee is not part of a target driven role, an answer to this would be a skills based scheme, however this may be difficult to distinquish a 'cut off' point at where an employees stops learning a new skill.
If you would like more information about how Love2reward can assist with the performance related pay scheme in your organisation, then please talk to us today.
Alternatively, why not take a look at our other articles on the topic of performance management: