Pay for Performance is a term used to cover a variety of reward arrangements. Within organisations (PRP) can be used to designate to particular scheme. Pay for Performance is that part of the financial, or financially measurable, reward to an individual which is linked directly to individual, team or company performance.
The principal types of Pay for performance are merit pay, individual incentive bonuses, individual discretionary bonuses, team/company performance bonuses, skill based payments and any other payments which employees my earn or receive related to individual, team or organisation performance improvement. Pay is one of the strongest communicators of how much an organisation values the contribution of an individual or group.
In practice, pay for performance strategies will be emphasized for :
- Focusing attention and harnessing effort where the organisation wants it
- Supporting a performance oriented culture
- Emphasising individual performance or team work as appropriate
- Strengthening the performance planning process
- Rewarding the right people
- Motivating all of the people
- Sharing in success and increasing employee identification with the business
The varieties of Pay for Performance
1. Individual
Short term ( a year or less) : individual bonus, incentive gifts
Longer term : individual longterm cash incentives, merit pay
Mixed : deferred individual bonuses
2. Team
Short term ( a year or less) : team bonus
Longer term : team long term cash incentive, performance unit plans
Mixed : deferred team bonuses
3. Corporate
Short term ( a year or less) : profit sharing (or corporate success) bonus
Longer term : Corporate long term cash incentive, 'automatic' share options, phantom options, co-investment plans, restricted stock
Mixed : deffered corporate bonuses
4. Mixed
Short term ( a year or less) : bonus based on multi level performance criteria, individual bonus from bonus pool
Longer term : long term cash incentive using multi level performance criteria
Mixed : share options individually performance related on grant, individually geared performance unit plans
The most frequently used types of Pay for Performance are :
Merit pay, Individual bonuses, team bonuses, company wide schemes, share schemes, incentive gifts and skill based pay. (by vicky Wright)
In practice, pay for performance strategies will be emphasized for :
- Focusing attention and harnessing effort where the organisation wants it
- Supporting a performance oriented culture
- Emphasising individual performance or team work as appropriate
- Strengthening the performance planning process
- Rewarding the right people
- Motivating all of the people
- Sharing in success and increasing employee identification with the business
The varieties of Pay for Performance
1. Individual
Short term ( a year or less) : individual bonus, incentive gifts
Longer term : individual longterm cash incentives, merit pay
Mixed : deferred individual bonuses
2. Team
Short term ( a year or less) : team bonus
Longer term : team long term cash incentive, performance unit plans
Mixed : deferred team bonuses
3. Corporate
Short term ( a year or less) : profit sharing (or corporate success) bonus
Longer term : Corporate long term cash incentive, 'automatic' share options, phantom options, co-investment plans, restricted stock
Mixed : deffered corporate bonuses
4. Mixed
Short term ( a year or less) : bonus based on multi level performance criteria, individual bonus from bonus pool
Longer term : long term cash incentive using multi level performance criteria
Mixed : share options individually performance related on grant, individually geared performance unit plans
The most frequently used types of Pay for Performance are :
Merit pay, Individual bonuses, team bonuses, company wide schemes, share schemes, incentive gifts and skill based pay. (by vicky Wright)
