According to Armstrong and Murlis (1998: 282-284), the strongest argument for PRP is that it is right and fair to provide rewards to employees according to their contribution. It is also the best way to motivate employees by incentives (money). On the other hand, there are opposite arguments against PRP. Firstly, PRP is not a guaranteed motivator. There is little evidence that people would be motivated by the expectation of rewards from PRP. Secondly, there is limited impact of financial incentives.
An integrated approach by providing the basis for a mix of financial and non-financial rewards can motivate all types of employees, not just only certain type of people. Thirdly, there are measured problems. It is difficult to measure people's performance objectively. Fourthly, PRP can encourage people to focus narrowly on short-term results and quantity rather than quality. Fifthly, if there is excessive emphasis on individual performance, teamwork will suffer. Sixthly, PRP can fail unless it is properly controlled to avoid payments unrelated to performance improvements.
In the following, there is the example of PRP in IRS (October 2005: 30). "Severn Trent Water supplies 8 million customers, handling 2 billion litres of water per day. It operates 3000site and 98000 kilometres of water mains and sewers, and employs around 5000 staff. The company introduced a performance-related pay model and grading structure for its frontline staff in July 2004. The pay framework was accompanied by a new appraisal process, providing an objective way of measuring and accessing performance. It is successful and in the process it moved from an input-to output-based way of working. " Conclusion
In summary, there are three main forces related to the determination of relative wages: labour market, state regulation, and pay structures, payment systems inside the firm. Firstly, since the neo-classical theory of the labour market doesn't work, it causes the relative wages. In the labour market, there are market forces, such as derived demand, human capital, non-competing groups, balkanization; and non-market forces, such as personal characteristics-age, sex, race; institutional factors-the state, trade unions as monopolist , large employers as monopsonist which can influence the general level of relative wages.
Secondly, the state also has the power to determine the general level of wages, such as the direct forces of laws in National Minimum Wages, Equal Pay Act to avoid discrimination; and indirect forces, such as pay review bodies in public sector, and the knock on effect-domino effect-into the private sector. Finally, inside the firm, pay structures which are set by job evaluation; and payment systems, such as payment by results and performance related pay are the main exact pay determination to motivate and provide rewards to employees.
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