According to a recent report by XpertHR, around half of organisations use performance-related pay, but a key disadvantage in the current economic climate is that the pay awards on offer are too small to motivate employees.
Pay award information gathered by XpertHR over the past year reveals that the median paybill increase from which performance-related pay rises are awarded is just 2.7%, leaving employers little scope for vastly different pay awards between exceptional and poor performers.
The findings are taken from HR website XpertHR's
survey of 152 organisations, of whom just over half (51.3%) operate performance-related pay schemes for some or all of their employees.
Success or failure?
Although fewer than a quarter of organisations formally evaluate the effectiveness of their performance-related 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 performance-related pay 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.
XpertHR Pay and Benefits editor Sheila Attwood said:
"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."