TYPES OF PERFORMANCE RELATED PAY SCHEMES.

TYPES OF PERFORMANCE RELATED PAY SCHEMES.

The following are the forms of performance related pay: –

  • Individual Bonus
  • Group Bonus/Team based pay
  • Profit sharing
  • Executive bonus schemes
  • Competency based pay

INDIVIDUAL BONUS SCHEME.

This is merit pay or bonuses based on the achievement of individual objectives or targets.  There may be levels of bonuses as follows: –

  • On only just achieved the target.
  • Completely achieved the target
  • Significantly exceeds the target.

Advantages.

  • Reward immediately payable for work done.
  • Bonus can constitute both reward and incentive for future performance.
  • Payment not perpetuated as part of base pay, which appeals to many people.
  • It does not interfere with the salary structure.

Disadvantages.

  • Difficult to apply for people whose jobs have less tangible results e.g. administrator.
  • Encourages more of individual rather than team effort.
  • It may divert people’s attention from the innovative and developmental aspects of their work.
  • Difficult to establish a fair and consistent relationship between results achieved and the level of the reward.
  • Difficult to discriminate fairly between those on long-term projects (e.g. research) and those with short-term and more visible objectives.

GROUP BONUS/ TEAM-BASED PAY SCHEMES.

These are bonuses that are related to team objectives or targets.  This scheme provides rewards to teams or groups of employees carrying out similar and related work, which is linked to the performance of the team.  Performance may be measured as: –

  • Satisfactory completion of a project
  • Completion of a stage of the project
  • Achievement of a group target.

Team pay is paid in the form of a bonus, which is shared amongst members in proportion to their base rate pay.

ADVANTAGES OF TEAM PAY.

Team pay can: –

  • Encourage effective team working and cooperative behavior.
  • Clarify team goals and priorities.
  • Enhance flexible working within teams
  • Encourage multi-skilling.
  • Provide an incentive for the team collectively to improve performance.
  • Encourages less effective members of the team to improve to meet team standards.

Disadvantages.

  • It only works in cohesive and mature teams.
  • Individuals may resent the fact that their own efforts are not rewarded specifically.
  • Peer pressure which compels individuals to conform to group norms could be undesirable.

Developing Group Bonus Schemes.

In developing group bonus schemes, the following is necessary.

  • Identify the group to be included in the scheme.
  • Methods defining targets should be clearly understood.
  • Agreement should be reached with groups about their targets.
  • Methods of measuring targets should be defined.
  • Formula for deciding on bonus payment should be defined
  • Consider amount available, how and when it should be paid.
  • Procedure for monitoring the scheme should be defined.
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