Performance-related pay can be regarded as exploitative, as it makes staff work too hard and too much for their reward, say university professors.
In a study of “contingent pay” schemes by the University of East Anglia (UEA) in England, performance-related pay was, surprisingly, found to have a positive effect on job satisfaction, commitment and trust in management.
But the study by the UEA’s Norwich Business School of nearly 14,000 UK employees and some 1,300 managers also found that it is related to more intense working.
“Even though employees may value these earnings as a ‘good thing’, the ultimate beneficiary of their extra effort is the organisation,” says lead researcher Chidiebere Ogbonnaya.
“As a result, performance-related pay may be considered exploitative, or a management strategy that increases both earnings and work intensification. It is associated with the feeling that work might be too demanding or that there is insufficient time to get work done.”
Mr Ogbonnaya says that the key factor is to ensure that there is some balance between employee job demands and measurement of rewards offered.
Performance-related pay is a natural path for companies to take, says Dawn Metcalfe, managing director of UAE management consulting firm PDSi, but adds that it can be unsustainable for staff.
“Getting people to work harder is reasonable, to an extent, and is what companies will always do,” she says. “But companies say they are interested in sustainable results: how sustainable is it if people feel under pressure to work so hard that they are burnt out?”
She also warns that forcing individual workers to do more to hit targets can lead to them “adopting unethical approaches and strategies”.
She says individual employees need to speak up and negotiate more with their bosses. And bosses, in turn, need to give staff a “more effective and more sustainable” sense of purpose.
Q&A: Suzanne Locke reveals more about different types of pay schemes:
What about other contingent pay schemes?
The UEA investigated two other types, profit-related pay – when a part of salary is tied to the profit of a company – and employee share ownership. It found that profit-related pay had a no effect on job satisfaction, while share ownership had a negative effect on job satisfaction. Employers need to distribute organisational profit “efficiently” so that “deserving” employees do not miss out.
How widely used is performance-related pay?
A 2013 study by economists at the US bureau of labour statistics estimated that nearly 40 per cent of hours worked were in jobs with performance-related pay. A 1998 survey by the UK’s Institute of Personnel and Development found that 40 per cent of British companies had PRP systems in place; 10 years later that had grown to half of all businesses, for at least some of the workforce.
What about small cash bonuses? I’ve heard they can work.
In a study on Intel factory workers making computer chips offered either a cash bonus, pizza, a simple compliment or no incentive, pizza pushed productivity 6.7 per cent higher on day one, closely followed by a thank you text message (6.6 per cent) and just 4.9 per cent by those offered cash. By the end of the week, however, compliments were the biggest motivator, while cash made workers 6.5 per cent less productive than those who received no incentive at all.
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