Advantages and Disadvantages of a PRP System

Advantages and Disadvantages of a PRP System

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PRP system was a big idea of the late 1980s. It was viewed as the answer for motivating people and developing their performance. Nearly 40% of the organizations used in 1998 for management, 25% for non-management. The wave turned reverse PRP in the 1990s when the previous schemes were not delivering the expected results. Extensive innovations in compensation systems and, in particular, a variety of attempts to link pay to a measure of performance have been witnessed in recent years. Those innovations have been related to wider initiatives in order to improve the performance of organisations and in particular efforts to increase employee involvement. On the whole, there has been systematic research on the effects of performance-related pay (PRP) schemes. Also, existing results seems a little bit contradictory, with some studies suggesting that PRP schemes might have a positive influence on organisational performance. The majority of existing research focuses on individual-based PRP, especially piece-rates, in spite of the existence of a wide variety of schemes that are neither based on individual performance nor even a tangible measure of output. Many PRP schemes focus on paying to a work-group or firm performance measures. Some, on the other hand, is based on subjective measures of output, such as merit pay. There are also schemes that link a component of pay to the profits of the organisation or offer employee’s shares in lieu of cash as forms of team PRP scheme. Furthermore, these can also be regarded as similar to PRP schemes, although involving a very indirect link between performance and pay.

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