The Value of HRM to Business Organizations Essay


In the face of competitory concern environment, companies today are trying to place advanced and efficient wages systems to better organisational public presentation. Performance-related wage ( PRP ) , known as performance-related income or pay-for – public presentation, has been a popular tool across industries in the 1980 ‘s for actuating employees. Although PRP have many questioned voices in recent old ages, the betterment and invention of PRP is still a valued issue to reason. Performance related wage system would offer fillips to employees who perform particularly good through meeting peculiar standards or having a high public presentation rating from supervisors. This paper sets out the consequences of two empirical documents to compare and contrast the parts of PRP to persons and organisations. The positive impact on both persons and organisations in utilizing PRP is explored.

Section 1 Literature Review

PRP is suggested to be “ one of the most dynamic issues in human resource direction and arguably the most topical constituent of wages policy today ” ( Brady and Wright, 1990 ) . A recent study on the direction procedure of organisations indicates that around half take PRP as the most of import characteristic in their procedure ( Armstrong and Baron, 1998 ) . Other likely survives back up the advantages of PRP in existent pattern whilst others result oppositely. This subdivision could analyse the PRP based on variable theories of its advantages and disadvantages, purpose to happen out the features of a conducive PRP.

We will write a custom essay sample on
The Value of HRM to Business Organizations Essay
or any similar topic only for you
Order now


“ PRP is normally based on a systematic wage construction, a formal assessment system and a more or less systematic nexus between assessment, public presentation and single wagess. “ ( Snape et al, 1994 ) . It can be any system relates the wages of an single employee to the public presentation of the organisation ( Hindle & A ; Tim, 2008 ) . Aimed to “ increase both quantitative and qualitative input of workers to the production procedure ” ( Whitfield & A ; Poole, 1997 ) , PRP links the wage to public presentation by specific critical aims including attending, client satisfaction, attempt and more of import the gross revenues marks ( Tom & A ; Adrian, 2002 ) . It could be subjective and arbitrary, but it still considered as an effectual contrast of behavioural traits in honoring end product alternatively of input. PRP focuses more on a occupation qualitative instead than its quantitative, which ends to a general public presentation increasing of the whole organisation.

In this instance, PRP is taken to carry through an organisation ‘s outlook: Directors assume PRP would bind the advantages to the organisational demands and convey benefits to both the company and persons.

1.1 Advantages

Compared with traditional incremental wage systems, PRP owns a more systematic assessment system and provides higher outlooks of employees. This encourages people to affect more in the company and keep more single enterprise in pattern. Keep this in head ; PRP can pull workers to work with higher productiveness and greater attempt ( Lazear, 1996 ) . That is because PRP gives directors a mode to promote the employees in their behaviours and public presentation instead than merely utilizing the motive through acknowledgment and feedback ( Mick & A ; Adrian, 2000 ) .

What ‘s more, Stephen et Al. ( 1993 ) addressed a strong point to PRP that it removes both external and internal influences on direction, for wage is merely associated with the public presentation and profitableness of the house. In a concern communicating, PRP besides helps in offering the message of each public presentation critically: it assumes that good public presentation should be paid more than the hapless ( Mick & A ; Adrian, 2000 ) .

Performance would be affected by many factors as mentioned above. Yet if we look specific into the single advantages and disregard the working state of affairs, it will merely be affected harmonizing to the public presentation equation, which indicates PRP influences persons strongly in their abilities and personalities ( John, 1992 ) :

P = degree Fahrenheit ( abilities, experience, ends, energy, wagess )

Equation 1.1 John ‘s Equation on PRP Factors

Last but non least, PRP evidently contributes the net incomes of both single and organisation positively ( Booth & A ; Frank, 1999 ) . This fits the satisfaction of both the employees and employers. In amount, PRP contributes the net incomes, single enterprise and productiveness. It removes both external and internal influences on direction and accent on properly appraisement.

1.2 Disadvantages

True, PRP still has some drawbacks in oppugning the nonsubjective degree. It is difficult to put some wholly nonsubjective measurings for the employees ‘ public presentation, which makes the valuator prejudice ineluctable ( Hindle & A ; Tim, 2008 ) . Although many suggested manners ( e.g. multiple feedback, preparation and 360 degree public presentation assessment ) have been used to cut down or even to take the subjectiveness, it asks for excess operate costs. Even worse is that the ill designed PRP would ache the employees ‘ working enthusiasm, because they were below the belt treated ( Hindle & A ; Tim, 2008 ) .

1.3 Features of Effective PRP

In a market circumstance, how to derive the maximize benefits from PRP is a raising inquiry. Trying to avoid the disadvantages, directors are despairing to maximise the advantages every bit many as possible. This requires the high-qualified PRP characteristics as Kessler and Purcell ( 1992 ) pointed out as followed:

Chiefly, the public presentation standards in PRP should be established. Standard assessment in PRP balances the single net incomes by cut downing subjectiveness, and this makes persons run into their demands. Employees are motivated to believe they can impact the results by themselves and construct up their ain “ image ” through the organisational procedure ( Antti & A ; Hunnu, 2006 ) . Second, the set up criterions above can measure persons decently in existent pattern. The public presentation assessments should be easy understood by the employees particularly when they participate in the PRP determination doing procedure. By doing the criterions and assessments themselves, employees are more likely motivated in bettering their personalities and abilities ( Antti & A ; Hunnu, 2006 ) .

In add-on, the PRP definition indicates that PRP can be linked to single public presentation, group public presentation and corporate public presentation severally ( Stephen & A ; Keith, 2000 ) . The combination of these PRP strategies can convey both employees and companies more benefits than merely utilizing one.

Section 2 Case Descriptions

2.1 Case 1: The impact of changing types of performance-related wage and employee engagement on net incomes ( Robert McNabb and Keith Whitfield, 2007 )

The paper uses matched employer-employee informations from a nationally representative sample of British constitutions, and the analysis bases on the 1998 Workplace Employee Relations Survey ( WERS98 ) . The paper extends into two important respects. First, it focuses on the usage of peculiar PRP strategy related to net incomes ( production end product ) . Second, it provides grounds to the being of conditional factors on the usage of other wage systems.

PRP has been widely recognized as an of import human resource policy to better the end product of employees. The traditional PRP strategies adopt two types, either based on single or group public presentation. And some organisations combine the two. The different steps taken by companies would hold different impacts on net incomes. The paper examines the impact on different PRP strategies of net incomes, on employee engagement strategies and on fiscal engagement strategies.

As a consequence, it suggests that employees earn the most under a combination of PRP strategies in workplace. The relationship between the employee engagement strategies and compensation mechanisms is showed to be really complex.

The consequence shows companies under PRP strategy are profitable ; those under both single and group-based PRP strategies are even more profitable. To persons, employees under a PRP-PP ( Profit Related Pay ) combined scheme earn more than those under a PRP-SO ( Employee Share-Ownership ) combined strategy.

2.2 Case 2: Performance Pay and Productivity ( Edward P. Lazear, 2000 )

This diary based on the informations collected from Safelite Glass Corporation which has implemented a piece-rate public presentation payment ( PPP ) alternatively of hourly rewards and chiefly discusses the influences of public presentation payment on productiveness, screening, ability of employees, net income and quality.

Harmonizing to the writer, PPP is designed to increase workers ‘ attempt. It sets an end product degree of e* , which means when end product per hr is greater than e* the worker will gain more. Furthermore, to cut down the force per unit area of piece-rate payment on less skilled worker, the new program besides offers a warrant at about the former hourly rewards with the same minimal criterion of e0. Figure 2.1 shows the relationship between hourly rewards and PPP ( Line B ) . In PPP method, workers with end product degree between e0 and e* will acquire the same rewards as earlier. The ruddy line C in Figure 2.1 bases for the traditional performance-related wage ( TPRP ) .

In PPP, to lower-ability workers, extra end products must be compensated by more income than the higher-ability workers. So the compensation-needed curve of lower-ability workers is the bluish curve E. In the same manner, the flecked curve through A is compensation-needed curve of higher-ability workers. So harmonizing to Figure 2.1, lower-ability workers will still take to work at the e0 degree because if they work harder, their compensation-needed will be higher than the PPP curve. On the other manus, the higher-ability workers will take to work transcend the e* to acquire more wage. Under this tax write-off, in the new manner of payment, the productiveness of the company will turn because of the higher-ability workers ( Harmonizing to the information, the productiveness has risen by 44 % ) .

To turn out this consequence, the writer compares informations collected both during hourly pay period and piece-rate period. As a consequence, the norm end product has risen in the new manner of payment. The growing of the two factors addresses that mean worker ability has risen.

To happen out if there are other factors caused by PPP which contributes to the risen of productiveness, additive arrested development method is used to happen the influences straight caused by public presentation payment, other factors such as the whole economical environment are avoided. As a consequence, term of office effects on productiveness are found to be important, as it is found out that the PPP helps to retain higher-ability workers and induces them to larn more. However, there is no strong grounds on the increasing of separations among lower-ability workers. On the side of workers, rewards grow to 10 % due to PPP.

At last, the writer discusses the influences of PPP on the net income and quality factors. Though net income of Safelite in the instance has grown, the writer besides highlights the importance of consideration in the cost of measuring in. To the quality of merchandise, the merchandise was assumed to be low for the workers ‘ inducements in bettering the end products, Safelite proves an opposing consequence.[ 1 ]

Section 3 Cases Analyzing

Comparing and analysing these two instances above, this subdivision will chiefly cover with the chief effects of PRP on the persons and organisations based on literature reappraisal.

3.1 PRP Affect Individuals

3.1.1 Individual Net incomes

Some findings about the part of PRP on the employee ‘s single net incomes will be depicted as followed.

I. Individual Net incomes be increased by PRP but varied in its strategies.

As mentioned in Case 1, most of the old plants indicate that employee net incomes in PRP strategy will increase. This statement can besides be evidenced by the practical illustration in Case 2. It is said that 90 % employees received higher wage and the mean rewards raised 10 % , for the payment strategy had switched from hourly rewards to piece-rate wage ( a PRP strategy ) .

However, Case 1 argued that the old work ignored the differences of the PRP strategies ( single, group, etc. ) , and these strategies would hold different impacts on employee net incomes. Case 1 admitted that the employee net incomes in both single PRP and group-based PRP are more than fixed salary. While the gaining increaser of the employees in group-based PRP strategy is less than those in single strategy. That because the measurings of end product focal point on the group end product instead than single, and the phenomenon of free-riding would take topographic point in group work. Case 1 besides suggests that employees earn the most under a combined PRP strategy. In add-on, payment linked to houses ‘ fiscal public presentation dosage non impact employee net incomes straight.

II. High skilled employees can non ever acquire more net incomes.

Case 2 references that “ a piece rate allows the more able to work harder and have more from the occupation ” . Yet, harmonizing to Case 1, the employee net incomes are non “ every bit distinct as the standard theoretical accounts suggest ” , particularly in group-based PRP.

As discussed above, PRP focuses more on end product instead than input. High skilled employees without high public presentation end product will gain less than other work labours. Under group-based circumstance, end product measuring chiefly depends on group accomplishments instead than single abilities, so all the members in the same group are paid similar. There wo n’t be a distinguish earning between high skilled and low skilled work labours.

Overall, net incomes for single worker will increase and high skilled employees will gain more in single PRP strategy, whilst under different PRP strategies, this state of affairs varies.

3.1.2 Individual Abilities

Individual Earning is non the exclusive outlook of employees. They assume PRP could assist them to construct up their ain image and ends, and to propose what they should better in the hereafter. Case 1 does n’t clearly turn to that persons would evidently better their accomplishments in a PRP system, yet it indicates that persons would vouch emotion and attempt to a procedure.

P = degree Fahrenheit ( abilities, experience, ends, energy, wagess )

Equation 1.1 John ‘s Equation on PRP Factors

In John ‘s equation ( 1992 ) in Figure 1.1, the experience and ends should be stable for they ‘re the most alone single features, which could n’t be easy changed in a short-run. Abilities are non that unique but still reliable. Therefore, in a long-run direction the well known equation will be predigested into:

P = degree Fahrenheit ( Energy A- Rewards )

Equation 3.1 John ‘s Equation on PRP Factors Logogram

As is widely accepted, persons are more likely to set the minimized energy for a maximized wages in an organisation procedure whilst the directors expect oppositely ( Brandy & A ; Wright, 1990 ) . We assumed that the rule of Energy ( E ) stays, so the Performance ( P ) and Reward ( R ) will be straight proportioned: A higher wages asks for a higher public presentation. As the single outlook is the max wages, the lone factor they could alter in a short-run period will be the abilities.

Case 2 supports the analysis above. Look back to Figure 2.1, the traditional incremental wage is Curve A whilst the C is the traditional PRP Curve and B as the Very Curve of Piece-Rate Performance Pay. Under the same fortunes ( e.g. point e0 ) , employees in PRP system show more intends in larning and bettering accomplishments. Besides as it shown in Figure, i?±b & gt ; i?±c, which means Line B has a higher growing rate of compensation than Line C. Usually the point ( which the extra compensation will be paid to workers if their productiveness exceed, used in Case 2 ) will be set at an appropriate point. As a consequence, high-ability workers are more likely to accomplish point D ( where Line B and C meet ) . The Piece-Rate Performance Pay method shows a stronger inducement in bring oning them to work harder and larn more.

3.2 PRP Affects Organization

As talked above, companies that adopt PRP could bring on employees to work harder and have strong inducements to heighten employee ‘s ability and cognition. Besides, in the procedure of prosecuting high compensation, skilled workers will flux to the endeavors that can fulfill their demand on higher compensation, so PRP method is more attractive to high-ability workers. With the factors and inducements above, PRP could expeditiously advance the productiveness of the company, which has been proven in both of the two instances.

Furthermore, in Case 1, it has been proven that the acceptances of both single and group signifiers of PRP at the same clip have stronger impacts on the productiveness. To be more specific, harmonizing to the analysis of Case 2, the growing of productiveness is chiefly caused by the publicity of the high-ability workers. So peculiar method of PRP, like PPP of Safelite in Case 2, could accommodate to certain companies more suitably and be more attractive to high-ability workers than traditional PRP, which in bend will better the productiveness more expeditiously.

In Case 2, it has been proven that the turning net income of Safelite is partially caused by the acceptance of PRP method. Though the fact that the cost of PRP system which has a negative impact on the net income of company could non be ignored, the addition of the productiveness which is caused by PRP certainly contribute to gain betterment.


Contributions of PRP on persons and organisations can be concluded to be really positive, despite of fluctuations in some instances. Net incomes of single worker would be high every bit good as the emotion to better their abilities and personalities, particularly under the PPP. Reversely, the PRP compensation strategy would maintain turnover and attract ambitious plants. This will evidently increase the whole public presentation of organisations. The rise of productiveness leads to increased net incomes for employees every bit good. Compared PPP with TPRP, TPRP system induces low-skilled workers to larn more cognition and accomplishments, while PPP is effectual to high-skilled workers. It is utile to equilibrate advantages and disadvantages under accurate and all-around assessment. In world, the organisations with profitable compensation PRP strategy are more effectual in competition.


Hi there, would you like to get such a paper? How about receiving a customized one? Check it out