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Reasons behind initiating PRP system

and its failure in HP.

Answer: Pay-for-performance is a motivation concept in human resources, in whichemployees receive increased compensation for their work if their team, department or

company reaches certain targets (Wikipedia the free encyclopedia 2012). In the early 1990s,

HP authorized a diverse set of thirteen different alternative pay programs where in some

extents they were all kind of pay for performance programs to improve their business. In the

article, there is a research of five pay-for-performance initiatives of those thirteen sites. The

results of these five sites are illustrative of results for HPs lager data set of thirteen initiatives

(Beer & Cannon 2004, pp. 5-7).

There were many reasons to initiate the pay for performance system in the different sites of

Hewlett-Packard. They were initiated by the local divisional managements rather than the

management of HP (Beer & Cannon 2004, p. 6). Some of the basic reasons were:

High commitment culture: HP had a reputation of high-commitment company. The

trust between management and employees was good. So it was thought that high-

commitment cultures make it easier to implement pay-for-performance system (Beer &Cannon 2004, p. 6).

Improving performance and to achieve particular goal: The foremost managerial

goal of introducing pay-for-performance system was to improve performance rather than

any deep philosophical commitment. In some sites like PRCO Loveland and The

Workstations Group, it was initiated to achieve particular goals (Beer & Cannon 2004,

pp. 8-13)

Reinforce learning and adaption: the system was intended to motivate employees to

learn new skills on an ongoing basis to create a continuously learning workforce and

being capable of adapting to new situations (Beer & Cannon 2004, p. 8).

Self managed teams: Teams themselves were managed to divide up their works and

were managed to a set of business objectives. There were focus on self managed team

performance rather than individual performance (Beer & Cannon 2004, pp. 7-8).

However, the initiative of pay for performance actually did not go well and eventually the

managers abandoned the thoughts which was resulted the program as a failure. There were

many reasons to discontinue the program such as:

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Hard to set the performance standard: It was hard to set the standard by maintain the

right balance between paying out enough as motivator and paying out too much. So

when the company thought they are paying out too much and the performance level

should be readjusted, the trust and high-commitment culture of HP was in danger (Beer

& Cannon 2004, pp. 8,13)

Hard to redistribute talent across teams: As performance was the key indicator, high-

performer teams refused to admit anyone to their team who were below of their level of

competence. So it was hard for managers to redistribute the talents (Beer & Cannon

2004, p. 18)

Not that motivational: Managers of the sites said that the pay system did not actually

motivate employees to work hard or learn. In addition, 70% of the workstations

employees felt that they would have worked just as hard without the incentive program.

And overall, it was not motivational in the high commitment environment (Beer & Cannon

2004, pp. 9,11,16)

Bitter experience of employees: Some employees thought that the program was a

bribe from the company to achieve the goal that they were already motivated to reach

and they felt insulted by the fact (Beer & Cannon 2004, p. 10).

Cost versus benefits: Some sites like CMS had limited payout budget and paid the

employees less than the designed structure; it raised questions about the program and

damaged its credibility. Also the managers found it less cost effective than other

alternative tools like training, supervision etc (Beer & Cannon 2004, pp. 10,13).

Unable to communicate clearly: The managements were over optimistic about their

cost saving and productivity gain, and the employees were over optimistic about their

additional pay, and neither group was particularly explicit in communicating their

expectations (Beer & Cannon 2004, p. 14).

HP had never used pay for performance systems as a primary tool of motivation before1990s. The local managements requested to introduce the program without the pressure of

outside forces. However, they did not think about the strong negative reactions of the

employees. They were also ignorant about the fact that performance of high-commitment

cultures typically do not rely on individual and group pay for performance system as a

motivator. Along with these, lack of establishing appropriate performance metrics,

implementation problem, lack of communication, etc. led to the decision of discontinuing the

experiments with alternative pay-for-performance programs (Beer & Cannon 2004, pp. 6, 11,

16-18).

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References

Beer, M & Cannon, M. D. 2004, Promise and peril in implementing pay-for-performance,

Wiley InterScience, vol. 43, issue. 1, pp. 3-48. Retrieved March 15, 2012, from

Wiley InterScience database.

Wikipedia the free encyclopedia (2012, March 17). Pay for performance (human resources).

Retrieved March 15, 2012, from

http://en.wikipedia.org/wiki/Pay_for_performance_(human_resources)