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Performance Related Pay Schemes Essay

1232 words - 5 pages

Most upper-management and sales force personnel, as well as workers in many other jobs, are paid based on individual performance related pay [PRP], which is widely perceived as motivating effort and enhancing productivity relative to non-contingent pay schemes. Some examples of PRP come in the form of sales or target based commission. Car salesmen or production line workers, for example, may be paid in this way.
What better way to drive people to work harder, be more focused, and more efficiently, one may ask, other than to offer them a special dangling carrot: more money for hitting specific company targets? The idea may seem perfect and intuitive. Managers want their employees to pull out ...view middle of the document...

It could even offer a rent or franchise scheme and the A would put in the optimal amount of effort.
It is in such a way that the PAT advocates the general idea of PRP. It should be noted however, that when A are risk-averse, they prefer to avoid such performance based schemes as it means the taking on risks and uncertainty which ex vi termini they do not like.
The equity theory of Adams [1963] suggests that the organization not only look at the design of incentives for one agent, but also ensure that the design is fair or equitable for all those that matter. He argued that one is motivated to act in situations which one perceives to be inequitable or unfair. Equity is based on the simple ratio that the reward over inputs should be the same as that of others in the organisation. Equity theory has simple implications for management practice. For one, it is important to recognize that employees compare pay, and inequity quickly generates predictable resentment that cannot be good for CC from the perspective of the organisation.
With PRP there is the additional difficulty of finding a system that accurately and fairly measure the performance and output of workers. A fundamental criticism of PRP is that the performance of a complex job as a whole is reduced to a simple, often single measure of performance. For instance a telephone call centre helpline may judge the quality of an employee based upon the average length of a call with a customer. As a simple measure, this gives no regard to the quality of help given, for instance whether the issue was resolved, or whether the customer emerged satisfied. Performance-related pay may also cause a hostile work attitude, as in times of low customer volume when multiple employees may compete for the attentions of a single customer. Where a customer has been helped by more than one employee, further resentment may be caused if the commission is taken by whoever happens to make the final sale.
Vroom [1964] developed the first expectancy theory of work motivation, based on three concepts: valence, instrumentality and expectancy. Instrumentality and expectancy are both known as subjective probabilities that the agent assigns, as this is done from the agents’ own perspectives. This can be compared to the idea of a stochastic relationship between effort and output/sale for example, under the PAT. Valence is the perceived value or preference of the outcome. This cumbersome explanation can be expressed within the concise expectancy equation:
F = V . I . E, where F is the force of motivation to work hard.
It may be argued from this perspectives...

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