Strategic Human Resource Management. Performance-Related Pay Systems Essay

Strategic Human Resource Management. Performance-Related Pay Systems - Essay Example The paper tells that within a modern business environment, employers must balance the needs of the business with the requirements of the employees. Human Resource Management (HRM) is an important aspect of this, where employers organise and develop strategies for working with their employees. Many employees work inefficiently, as they have no desire to perform well for the company. This comes from the fact that what is good for the company is not necessarily the same as what is best for the employee. Businesses are generally aiming to make the highest profit possible, while employees are working for the money that they need to live. Performance-related pay is a system in which the company attempts to align the interests of the employees with the interests of the business, by providing employees with incentives to work hard. The exact form of the system differs substantially between different companies, with some offering commission-based pay, some paying employees a certain rate per unit produced and others paying based on team performance. There are many other variations of performance-based pay and it is a popular means of increasing overall output for a business. Performance-related pay is common in Britain and has been used for government employees as well as many large companies. However, despite the popularity of the system, current research is questioning whether performance-related pay is actually effective. Evidence suggests that this may be a mechanism that is useful in some circumstances, and counterproductive in others. The need for performance-related pay In the standard work environment, people work because they need the money, not because they have a strong loyalty for the company. While some individuals may strive to put in effort to make sure that they perform well and that they are an asset to the company, most are content with doing the minimum that is required of them. Because the success of the company does not directly affect their pay che ck, most people have no interest in how well the business does. Research suggests that compensation is the most effective driver of motivation, behaviour and attitude within the workplaces. While forms of compensation vary, money has been shown to be the most influential . Consequently, the money that employers pay their staff members plays a crucial role in maintaining relationships and the development of motivation. Pay is an essential component of the relationship between employer and employee. For the employer, it is an important component of the costs of the company and is used for bringing in new talent as well as maintaining the current labour force. For the employee, pay is used as a way of paying for living expenses, and also represents how valued he is by the employer. A person who receives a higher wage feels that what they do is important, and may put in more effort as a result. In contrast, people who feel that they are being underpaid often do not work hard, and tend t o have low morale which further decreases productivity. The traditional method of wage distribution has been non-performance-related, and pay increases have been related to a range of aspects, such as minimum wages, seniority, the cost of living or the need to retain staff. However, this system does not encourage skill development or employees to work at their maximum potential. Additionally, under this system pay rises were often associated with promotions. This can be difficult, as a person must be promoted in order to receive a pay rise and the number of positions present in a company is limited. Increasing an individual’s pay acts to reinforce positive behaviour, making it more likely that the behaviour will be repeated. Within a company, there are often many individuals that perform the same role, however they differ in terms of knowledge, experience and performance . For a business to remain competitive, it is important that their employees work to their maximum pot