Contingent pay at The Harding Trust

In this essay, I shall make my evaluation on whether Performance Related Pay (PRP) should be introduced to The Harding Trust (THT). The theoretical ideology of PRP will be looked at, as well as the practical implications of the scheme. Factors of great importance, that may well determine the impact of PRP on THT, will also be examined. Through my evaluation, I shall place a significant focus on advantages and disadvantages of PRP as well as how they could affect THT. I will pay special attention to the impact that PRP could make on employee performance and the overall organization. All arguments and facts will be presented from organizational point of view as well as from the point of view of employees. I shall attempt to make a relevant link to the case and conclude with whether I believe PRP is appropriate and should be introduced to THT. Finally, I shall make a short recommendation on what reward system would best suit the needs of THT. PRP Theoretical Ideology and Problems

In search for an appropriate definition that captures the true nature of performance related pay (PRP) and its’ core functions within the public/private sector, I came across various definitions. While PRP serves many purposes within an organization, the authors Grame Slaman, John Storey and Jon Billsberry, all seem to agree that in its’ essence, PRP aims to fairly reward the individual/team achievement of a specifically agreed goal (reference 1). By doing so, the scheme establishes a measurable link between performance and pay. This not only allows for performance norms to be set, but also serves employees as a motivator to increase output, hence be rewarded for it. A quantitative research carried out by Francis Boachie-Mensah, claims that the majority of employees are motivated by PRP rather than any other reward system(reference 3). The reward system currently used by THT links pay to length of service, rather than performance. Following the logic of these arguments, one may suggest that by adopting a PRP, The Harding Trust (THT) is likely to benefit from having higher employee motivation as well as clearly identified performance norms.

However as a result of employees aiming to satisfy given performance norms, quality of services provided might drop dramatically. This refers to a known issue where in order to increase own gain, individuals are willing to sacrifice effectiveness over efficiency (reference 4). In the case of THT, this could mean- case officers spending more time on new contracts whiles ignoring follow up procedures on employees already assigned to jobs. The occurrence of which situation has the potential to harm the external trust placed in the company. Another advantage of having pay linked to performance is that it empowers managers to direct behaviour towards achieving organizational goals (reference 1). This can be seen as an opportunity for The Harding Trust to align PRP to the overall business strategy. Ironically introducing PRP might lead to employees becoming less concerned with the overall business strategy and more self-centred (reference 5). Even further PRP could result in HTT employees becoming less willing to co-operate with each other. A study undertaken by Marsden and French concluded that PRP, leads to internal conflicts and ‘’discourages team working’’ (reference 5). PRP – Impact

Making a decision on whether PRP should be introduced to an organization, is a process that should not be based on theoretical benefits and drawbacks alone. The practical implications and possible impact on the individual company should also be considered, as they might differ from one company to another. Impact on performance

The impact of PRP on performance will to a great degree depend on the organizational culture and more specifically on what employees draw value from. According to Philip Harris, people have different needs and value different things which ‘’reflect their private world and life experience’’ (reference 6). This argument suggests that while financial rewards linked to performance will satisfy the needs of some employees within THT hence improve their output, it will not necessarily have a positive if any impact on others. A study conducted by ICP [1998] however claims that the majority of employees(74%) are likely to improve performance as a result of PRP (reference 7) Impact on Morale & Job Satisfaction

PRP might be considered as a scheme contributing to the creation of a challenging work environment and allowing for career development where individuals are fairly recognized. The term ‘’fair’’ relates to the idea of each employee being rewarded in accordance with the individual efforts made .As such, the system is likely to have a rather positive impact on morale & job satisfaction. However a number of studies have shown signs of negativity towards PRP, mainly based on the way in which the scheme is perceived by employees. Michelle Brown and John S. investigate the problem and make an argument that employee’s perception of PRP is often associated with the common opinion that the scheme is unfair, gives way to ‘’favoritism’’ and is often based on unrealistic goals (reference 8). Formulating an opinion around these arguments, one would suggest that if PRP is perceived by THT employees as being unfair, the introduction of the scheme would lead to decline in morale and job satisfaction. It should be noted here that THT’s current reward system does not bear similar risks as it’s solely based on length of service ergo allowing no room for favoritism. PRP- Further considerations before making a decision

Organizational readiness & why it should influence the decision Organizational readiness can refer to anything from having properly integrated learning and development processes to directly supporting goal achievement. Kelly, Aisling (1996) argues that it is not sufficient to have a PRP scheme working individually. ‘’ PRP schemes will be most effective when they are implemented as part of a wider performance management strategy ‘’ (reference 9). This concept brings forward the idea of an existing functional relationship between the organizational reward system and its’ Performance management system. Following the case of HTT, we can already track evidence of performance appraisals (PA) being introduced. However, there is no clear connection made between PA and THT’s reward system. Professors Mridul Maheshwari and Manjari Singh argue that readiness ‘’ Besides readiness in terms of various systems in the organization, also includes the psychological preparedness of employees’’ (reference 2). In the case of HTT, introducing PRP would involve a big shift from the current reward system. This change has the potential to make employees question their jobs security and overall psychological contract with the company. Conclusion

The aim of HTT is clearly to improve output and in this way gain advantage over its’ competitors. PRP seems to be the clear choice to do that as it links reward directly to employee performance hence serving the organization as a powerful motivational tool. However, having analysed all the potential impacts that the system may have on THT, we have observed high possibility of PRP having the opposite effect. Based on arguments made through this essay, it is safe to assume that introducing PRP may lead to low job satisfaction, give room to favoritism and lower levels of cooperation among employees. Even further it seems impossible for the scheme alone to be able to distribute reward from which equal value can be drawn by all employees of THT. These factors contribute to the construction of a working environment where having high levels of employee motivation seems unrealistic. From an organizational point of view, we’ve observed how introducing PRP could also lead to lower quality of services provided, internal conflicts as well as employee disregard for the overall organizational goals.

Based on these arguments, I have formulated an opinion that while the scheme could indeed help increase performance in the short term, it will not be beneficial to THT in the long term. However, my intention is not to completely disregard the positive effects of the scheme that can be enjoyed by THT, it is rather to suggest an alternative more flexible reward system that would assist THT in overcoming disadvantages associated with PRP. I suggest the introduction of a contribution reward system, where both performance and competency are taken into account. Performance related rewards would come in the form of bonuses and be shared within teams. This is likely to create a sense of unity and encourage team work. Cooperation between teams will also be encouraged by a separate bonus scheme based on regional performance. While performance will only be rewarded in the form of a shared bonus, individual contribution will be recognised and rewarded through clear promotion paths associated with higher wages. In this way employees contributing more to the team will be recognised on basis of individual efforts and rewarded accordingly. This system would allow employees to draw value from financial perspective as well as in terms of promotion and development opportunities, a combination that brings THT closer to the idea of a total reward system.

Bibliography

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http://doras.dcu.ie/19558/1/Aisling_Kelly_20130930132918.pdf