A

SYNOPSIS

ON

PERFORMANCE RELATED PAYIn supervision of

Mr.GAURAV SAXENA

Submitted byNALIN KANT GUPTA

Enrollment no. 2007EIT031

In partial fulfillment for the award of the degree

Of

MASTER IN BUSINESS ADMINISTRATIONin

MANGALAYATAN UNIVERSITY , ALIGARH

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TABLE OF CONTENT

CONTENTS PAGE NUMBER

1. Introduction……………………………………………………………………03

2. Problem identification…………………………………………………………05

3. Need and significance of the work along with performance related

pay……………………………………………………………………………..06

4. Review of Literature…………………………………………………………..07

5. Objectives of Study…………………………………………………………....10

6. Hypothesis……………………………………………………………………..10

7. Research Methodology………………………………………………………...11

Research design…………………………………………………………..11

Sampling technique……………………………………………………....11

Sample size……………………………………………………………….11

Data collection……………………………………………………………12

Steps / Statistical technique for data analysis…………………………….12

8. Organization of the study……………………………………………………...13

9. Bibliography………………………………………………………………………………………………..14

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INTRODUCTION

Performance related pay is used by employers to reward employees on an individual and team

basis. It is used in parts of both the public and private sectors where it is often perceived to be a

way of giving an incentive to those at the top of their pay band or as a means of progressing

employees through the pay system. Pay increases are generally linked to individual or team

performance measured against targets or objective criteria. Contribution pay is a form of

performance related pay.

Performance-related pay (PRP) is a method of remuneration that links pay progression to an

assessment of individual performance, usually measured against pre-agreed objectives (‘classic’

PRP, also known as individual PRP or merit pay). Pay increases awarded through PRP as

defined here are normally consolidated into basic pay although sometimes they involve the

payment of non-consolidated cash lump sums.

While the focus of this factsheet is individual, consolidated PRP as a means of pay progression,

PRP can be defined more broadly to include many differing systems that link individual and

group performance to pay, including non-consolidated elements such as bonus schemes. CIPD

members can use our tool on developing bonus and incentive plans

PRP has grown in prominence since the 1980s as employers have increasingly sought effective

ways of driving high performance levels by linking employee reward to business objectives.

However, PRP has proved in some circumstances a rather crude instrument and the 1990s and

beyond witnessed a number of challenges to the theory. As some of the earlier schemes failed to

deliver the promised results, some employers brought in new or revised PRP schemes or moved

to new approaches altogether (for example, skills-based pay) while others have developed hybrid

schemes.3

If everyone in your organization was developed to meet the knowledge, skills, qualifications and

experience requirements of the job and were performing well, how successful would the

organization be?  The organization should at least be meeting it's business objectives.  This

simple statement is the reason why almost all of the successful organizations have a performance

management system.

Ashworth Black have had years of experience in designing and implementing successful systems

for organizations in different sectors, as well as training managers to develop the skills to use

them.  These systems are tailored specifically to meet the needs and culture of the organization

and whether or not the system is linked to Pay.  Competence or Behavior standards (e.g.

customer service, teamwork, leadership) can also be incorporated into these systems

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PROBLEM IDENTIFICATION

Most companies only make payments from their bonus schemes if certain hurdles are overcome:

Minimum targets for all factors – if these minimum targets are not reached then there is

no bonus pay out for these factors

Threshold profit level – most of the profit related bonus schemes fully or partly based on

financial measures include a threshold profit level that must be reached before any payments are

made.

Absence triggers – many companies have chosen to use “absence triggers” for bonus

payments e.g. employees at Marks & Spencer Group must have at least 96% attendance,

regardless of whether sales targets are being met, to receive a bonus payment from the scheme.

Management Discretion– organizations often maintain a degree of discretion over the

payment of bonuses e.g. the board of BP Grange mouth reserve the right not to make bonus

payments if a serious lapse, such as a major health and safety incident occurs on site. The

Managing Director of United Utilities Service Delivery can decide to make no bonus payments if

financial objectives or critical success factors are not met.

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NEED AND SIGNIFICANCE OF PERFORMANCE RELATED

PAY

Performance related pay (PRP) has been revived as a ‘new idea’ in recent years in connection

with workplace reform and enterprise bargaining. Yet it has been tried many times in the past

without achieving the increases in efficiency promised by its advocates. The challenge for PRP is

to establish a pattern of pay which is seen as fair by employees, which uses reasonably objective

measures of performance, which can stand the strain of change, which sustains the object of the

system, is not too large a portion of the pay packet and is not too costly to administer. If a

‘conventional’ view of fairness is maintained in relation to PRP, the net returns may not be

sufficient for the majority of employees. Much depends on whether a new concept of fairness is

emerging which accepts differential increases based on performance rather than the rate for the

job

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REVIEW OF LITERATURE

This paper examines and summarizes research into performance-related pay. It was undertaken

as part of the Teachers' Incentive Pay Project, currently in progress at the University of Exeter,

which is a study of the introduction of threshold assessment and performance management for

teachers in schools in England and Wales. The paper examines research into the effects of pay on

employees’ behavior and considers the claimed benefits and disadvantages of performance-

related pay, both generally and with particular reference to the teaching profession. Proponents

of performance-related pay claim that it improves the motivation of employees and assists in the

recruitment and retention of high quality staff. Disadvantages include: neglect of unrewarded

tasks; disagreement about goals; competitiveness; lack of openness about failings; cost and the

possibility of demotivating those who are not rewarded. Performance-related pay has long been a

feature of teachers' remuneration in the US, where it has usually been promoted in response to

national crises perceived to be rooted in educational failure. Traditionally, most US merit pay

schemes for teachers have not been long lasting. This paper considers research into a variety of

US schemes, including studies of the conditions under which they are found to succeed.

Performance-related pay works best in situations, in which there are easily measured outcomes,

such as in manufacturing, but the outcomes of teaching are many and varied and there have been

problems related to measuring teachers’ effectiveness. The paper reports claims by Odden (2000)

that measuring teachers’ performance is now more feasible and that, therefore, the time is right

for the introduction of performance-related pay for teachers.

2.Pay accounts for a very large fraction of public expenditure, and therefore its potential use to

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motivate performance has long attracted interest. Its long-established predecessor, ‘pay forgrade’, was widely thought to take people’s motivation for granted. Although administrativelysimple, to most employees, it offered only a small number of seniority-based pay incrementswithin grades coupled with limited opportunities for promotion. The Megaw Inquiry intoCivil Service Pay (Megaw, 1982 §324) mentions that pay for performance had beenconsidered by the Priestley Commission in 1956, and rejected on practical grounds, but takenup again by a series of government pay bodies, before it became one of the keyrecommendations of Megaw in 1982. Thus although recent debates have tended to associatethe principle of linking pay to performance with the radicalism of Margaret Thatcher and JohnMajor, concern about the underlying issues has a long history. Moreover, interest has not beenconfined to the UK. A major OECD study (OECD, 2005) shows that many OECD countrieshave experimented with different methods of linking pay to performance in recent years, aswell as with many different ways of implementing it. Therefore, if we are to understand theparadox behind the question implicit in the title, we need to look for longer-run concerns thanthe passing political ideologies of different governments.3The Megaw inquiry provides a good starting point because it gave the final push toimplementing performance-related pay systems on a wide scale in the British public services.It summarised the key arguments in their favour put forward in the evidence it received. Inthemselves, they offered nothing particularly radical or new. It would be desirable to have a‘more effective means of rewarding good performance and penalising poor performance’ thanpromotion and downgrading. It was inequitable to reward good and poor performanceequally. The limited number of promotions in the Civil Service meant that they could not beexpected to motivate the majority of staff on their own. Finally, many private sectororganisations operated successful performance-pay systems (Megaw 1982, §326). The firstthree arguments identify the decision problem as dealing with a reward system that wasfailing to motivate public employees, and whose inequities could quite conceivablydemotivate them. The final argument really takes up the practicalities that had led thePriestley Commission to reject linking pay to performance: if private firms, which arethemselves often large bureaucracies, can operate such reward systems effectively, then surelythe practical problems are soluble.4The emphasis in Megaw, as in much subsequent discussion of performance pay, has focusedon individual employees, their incentives, and equity considerations. There is anotherimportant strand in the theoretical literature on performance, from organisational economics,namely the structure of principal-agent relations within large sections of the public sector. It isargued for example by Tirole (1994) that the multiple demands on government organisationsoften lead to a lack of clarity in organisational goals. Multiple principals, or in the language of5politics, multiple stakeholders, mean that large government departments responsible foradministering a wide range of services often face contradictory goals, and that demands fromone set of stakeholders often override those of others part-way through the process ofimplementation. Clarifying the role of the principal was really the job of the Ibbs, ‘NextSteps’, report which started to tackle the idea that the government machine should berestructured into a set of bodies each with a clearer and more limited set of goals (Efficiency

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Unit, 1988).

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Under most current systems of a salary scale, teachers are rewarded for the number of years spent teaching and the number of tertiary degrees, rather than their performance (2000a). For this reason, many analysts believe the salary scale system determines teacher compensation on incompletecriteria. For example, Hoerr (1998) argues that any non-merit-based system is unfair for exceptional teachers because they are judged on inefficient criteria. This will cause, it is argued, talented teachers to leave the education system because excellence is not fairly rewarded (Odden, 2001). Only whenperformance is rewarded and teachers command salaries equal to the private sector without having to progress up an arbitrary salary scale, will the best talent be attracted and retained (Solomon and Podgursky,

2001).

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OBJECTIVE

Find out the factors which affect the performance pay scale.

How many organization who are using performance based pay scale

.

HYPOTHESIS

Numbers which are affecting the performance.

There are many organizations that are using this performance related pay.

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RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

Research methodology is the systematic way to solve the research problem. It gives an idea

about various steps adopted by the researcher in a systematic manner with an objective to

determine various manners.

RESEARCH APPROACH

The research worker contacted the respondents personally with well- prepared sequentially

arranged questions. The questionnaire is prepared on the basis of objectives of the study. Direct

contract is used for survey, i.e., contacting employees directly in order to collect data.

SAMPLE SIZE The study sample constitutes 40 respondents (approx).

SAMPLING DESIGN During my research i used probability sampling in which stratified random Sampling is used.

COLLECTION OF DATA

Most of the data I will collect from primary data through questioner, where I and the respondent

operate face – to – face.

RESEARCH INSTRUMENT

The researcher has used a structured questionnaire as a research instrument tool which consists

of open ended questions, multiple choice and dichotomous questions in order to get data. Thus,

Questionnaire is the data collection instrument used in the study

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Data collection

For any study there must be data for analysis purpose. Without data there is no means of study.

Data collection plays an important role in any study. It can be collected from various sources. I

have collected the data from two sources which are given below:

1. Primary Data

Personal Investigation Observation Method Information from correspondents Information from superiors of the organization

2. Secondary Data

Published Sources such as Journals, Government Reports, Newspapers and Magazines etc. Unpublished Sources such as Company Internal reports prepare by them given to their analyst &

trainees

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ORGANIZATION OF THE STUDY

Chapter 1: Introduction (Introduction, problem identification, need and significance of the work along with managerial understanding and applicability, review of literature, objectives of study, hypothesis, research methodology, organization of the study, limitations)

Chapter 2: Conceptual framework of the study(In this chapter, I will understand the mechanism of performance related pay)

Chapter 3: Data analysis and interpretation(In this chapter, I will analysis the truthiness of my hypothesis by different techniques discussed in research methodology to show employees satisfaction also finds out some new facts and figures regarding data and also efficient approach or effective way for employee’s satisfaction)

Chapter 4: Finding and conclusion(In this chapter, I will summarize the findings from analysis and conclude the answers for my objectives of study.)

Chapter 5: Suggestion and recommendation along with future implication of work(This chapter will describe the suggestions and recommendations for future studies.)

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BIBILIOGRAPHY

1.http://www.english-magazine.org/index.php/business-english/924-

performance-related-pay-business-english.html

2. http://www.peoplemanagement.co.uk/pm/subjects/performance-

management/performance-related-pay/

3. www.hr-survey.com 4. www.employeesatisfactions.com 5. www.hrsolutionsinc.com 6. www.hr-survey.com 7. http://www.wsc.co.uk/content/view/2058/29/

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