performance related pay

The increase level of globalisation has forced organisation's to become more productive and innovative in facing competition in market. Microsoft Corporation is one of the organisation that facing high competition in software and information technology industries. To become more productive and stay competitive in the market, they need high level of productive and motivated employees in the organisation. Theoretically, Performance-related pay (PRP) believed can be a tool for monitoring and motivating employees to perform better in the workplace, as well as improving organisational's performance (McNabb & Whitfield, 2007). According to CIPD (2014) Performance-related pay (PRP) can be defined as a method of remuneration that links pay progression to an assessment of individual performance, usually measured against pre-agreed objectives (‘classic’ PRP, also known as individual PRP or merit pay). Pay increases awarded through PRP as defined here are normally consolidated into basic pay although sometimes they involve the payment of non-consolidated cash lump sums.

The theoretical rationale for performance related pay can be explained in the ‘principal- agent moral hazard’ theory. The idea can be explained by assuming that employees have discretion over the level of effort they provide, and that they can choose between minimise and maximise their effort. The employer cannot observe effort directly over employee's decision either to provide low or high efforts. The idea behind this theory also stated if employer offers a fixed wage, then employees will choose to minimise their effors. The employer could make a decision by reducing the wage until it matches the value of the low effort level, but this may not always be desirable for...

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...he pay packet includes a fixed salary element, where progress through a range may be according to performance, and/or a variable bonus paid out for achieving set objectives. Variable bonus payments are usually unconsolidated and may be paid monthly, half yearly or yearly.
Managers need to be trained to operate individual performance related pay schemes and should be aware that team-working may be adversely affected - such schemes may prove divisive as workers seek their own performance improvements without consideration of any effect on the work-team and perhaps withhold helpand information from co-workers. Individual performance related pay needs to be carefully considered in the light of any organisational move towards teamwork and worker involvement. Such schemes also tend to lack the transparency sought by workers to properly understand how their pay is decided.