Summary
Application
I learned from reading this article that PRP (performance related pay) has a positive effect on productivity, particularly where individual performance can be evaluate and rewarded. This does support my attempt to answer my questions on the affects of pay for performance on motivation and productivity. The article provided further insights into how PRP motivates the workforce in both positive and negative ways. PRP is most effective in employment situations where it serves as an immediate financial reward to top performers. In these situations, it improves the company’s productivity in two ways; it increases the performance of the most effective members of the workforce and provides a sorting device for the less able members.
In situations where profit sharing is introduce the effect is still positive. In one study, US manufacturing firms who adopted profit sharing saw an increase of 2.5% to 4.2%; non-manufacturing companies saw an increase of 2.5% to 4.2%. In that study when they measured profit sharing as a proportion of employees covered, the estimated increase was 7.9% to 8.9% for manufacturing firms and 10.3% to 11.0% for non-manufacturing firms. This also helped answer my questions about the affects of pay for performance on motivation and productivity. I saw that where the individuals profited along with the company they had additional motivation to increase their productivity.
Of particular interest to me were the findings that in teamwork and multi-tasking circumstances PRP has a lesser, or even negative effect. The article took a brief look at situations, where the rewards were team based. It found there was the potential for individuals to coast on the team, and reduce their personal contributions. In situations with employees assigned to multi-tasking duties, the inclination was to focus on those activities that would make them the most money. These findings imply that it was not the acknowledgement of their effort that provided the motivation force for these employees; it was the cash remuneration they received.
Critique
This article provided insight into my research topic of the affects of pay for performance on motivation and productivity. It supported the correlation of pay for performance and increased productivity. It also demonstrated that the more tightly these two factors were bound together the greater the individual increase in productivity by showing that in circumstances where pay for performance was most tightly bound to financial rewards, such as in pay per piece rewards employees showed the greatest increase in productivity. In regards to these factors, this article supported my attempt to answer my question. This article also demonstrated the effect of money as a motivating force. Where pay for performance is closely tied to greater financial remuneration individual effort increases. Other studies have also found that companies who used performance management have higher success ratings than those who do not (Porter, 2002). The further individual performance is removed from the increased individual financial rewards the greater the tendency for the individual to rely upon the organization to produce results. In a team effort, some individuals rely upon the team to carry them. In other cases team PRP can be worked successfully (see for example Jones, Kamli, & Kauhanen 2007) In a profit sharing situation productivity increased; but not to the extent that was seen when PRP directly related to individual effort. The supposition could be made that this demonstrated individual tendencies to produce more or less depending upon their increased self-value from a pay for performance. (de Silva 1998) The finding that multi-tasking individuals focused upon those activities that made them the most money indicates that it is the money that is the powerful motivator in these circumstances.
References
de Silva, Siryan (1998) An introduction to performance and skill-based pay systems, International Labor Organisation ACT/EMP Publications, retrieved from http://ilo-mirror.library.cornell.edu/public/english/dialogue/actemp/papers/1998/srspaysy.htm
Gielen, Anne C., Kerkhofs, Marcel J.M. & van Ours, Jan C. (2008) How performance related pay affects productivity and employment. J Popul Econ (2010) 23:291-301,
DOI 10.1007/s00148-009-0252-9
Jones, Derek C, Kalmi, Panu U Kauhanen, Teams, Performance-Related Pay, Profit Sharing and Productive Efficiency: Evidence from a Food-Processing Plant. (2007) retrieved from http://academics.hamilton.edu/economics/home/workpap/06_09.pdf
Porter, Melanie, (2002) An Evaluation of the Effects of a Performance Pay Plan on Productivity of Employees in a Professional Services Firm, retrieved from http://digital.library.unt.edu/ark:/67531/metadc3322/m1/1/high_res_d/thesis.pdf
