INDIVIDUAL PERFORMANCE-RELATED PAY
Merit pay awards too small to motivate staff
More than half of organisations now use merit pay, but these pay awards are often too small to motivate employees. That’s one of the key findings to emerge from new research by HR website XpertHR.
The findings are taken from a survey of 152 organisations, of whom just over half (51%) operate individual performance-related pay schemes for some or all of their employees.
Individual performance-related pay is defined by XpertHR as schemes in which "pay increases are awarded to employees wholly or partly on the basis of their individual performance (as opposed to bonus or commission schemes which are typically paid in addition to any annual pay award)".
Why performance-related pay?
According to the survey results, the key objectives of performance-related pay schemes are:
To improve individual performance (93% of schemes surveyed)
To improve organisational performance (93%)
To focus attention on key objectives (89%)
To motivate staff (89%)
To reward exceptional achievement (86%).
%ADVERT%
Success or failure?
Although fewer than a quarter of organisations surveyed by XpertHR formally evaluate the effectiveness of their merit pay scheme, the majority felt that the scheme objectives were “at least partially being met”. In particular, around three-quarters felt that their scheme partially meets the aims of improving individual and organisational performance.
However, when questioned about the effect on the performance of employees, survey respondents reported that the schemes had the greatest positive effect on staff that were already high performers, with only a small improvement, or no effect, on average and poor performers. A couple of respondents even felt that the performance-related pay scheme had the effect of worsening the performance of average and poor performers.
A final word
"Although most respondents agreed that performance-related pay is an excellent tool to improve individual performance, it has not necessarily been easy to put into practice in their own organisation."- Sheila Attwood, XpertHR Pay and Benefits editor.
Want to know more?
The research is based on responses from 152 organisations to an online survey conducted in June and July 2011.
XpertHR offers detailed statistics and analysis of recent pay settlements across the UK. XpertHR collects details of pay settlements for around 1,400 employee groups each year. Its database contains more than 28,000 settlements. For more information visit www.xperthr.co.uk.