In a UK study conducted by Herriot et al. (1996), it was found that employees used fairness and pay most frequently when work environment was discussed. It was the two things that topped the list of things that employees paid attention to when discussion of work environment came up.
Pay for performance is the third most commonly discussed concept in development of Merit pay system. Recent developments in the field of management and performance-based evaluation systems provide conclusive evidence of the fact that the understanding of the urgent need to motivate and reward employees based on their performance is augmenting over time.
That is why "analysts are predicting that performance-based deals will become increasingly prevalent, with some estimates showing pay-for-performance rising to 30% of all online ad revenues by 2006" (Riolo, 2002)
However, another research-based analytical article by some of the best experts in the related field, read the following thereby highlighting both the negative and the positive recent development in the thought process regarding the pay for performance process:
"Real pay for performance is the biggest trend coming down the tracks, and it's going to hit the workforce like a freight train. In today's tight labor market, employers are paying what potential employees demand. But at the same time, they're finding that they've already realized the easy productivity gains from technology advances. So as the economy slows, the light at the end of the tunnel is sure to be an oncoming train. Employers will be locked into hefty payrolls with no way to increase productivity to compensate for their high fixed costs" (Tulgan, 2001, p. 19)
Thus, one of the most pivotal elements in any true performance-based system is that "rewards must actually be tied to actions within the direct control of individuals" (Tulgan, 2001, p. 19)). One of the most common examples projecting and proving this model includes organizations wherein employees are paid...
When it comes to designing a Merit system, many employees would want the organization to consider such things as labor shortage and clear dearth of qualified people in a certain field. Smith (1993) recognizes the possible damaging effects of using Pay for performance and appraisals too casually in all types of organizations:
'the use of appraisal systems to determine white collar pay has devalued the acceptability of what was a useful management tool; the rearrangement of pay structures to reflect labour shortages and provide short-term impacts on motivation have created a long-term problem of complexity linked to high costs and unjustifiable differentials' (Smith 1993)
The research thus indicates that while some practices are common, they may not always be suitable for every organization. It is more important thus to clearly understand the concepts that guides and triggers an employee's perception of fairness and equity.
References
Adams, J.S. (1965). 'Inequality in social exchange.' In L. Berkowitz (ed.) Advances in Experimental Social Psychology, Vol. 2. New York: Academic Press.
Herriot, P., Manning, W.E.G. And Kidd, J.M. (1996). ' the content of the psychological contract', Working paper: Department of Organisational Psychology, Birbeck College.
Riolo (2002). Argue for pay for performance. Commentary.
Rousseau, D.M. And Parks, J.M. (1993). 'The contracts of individuals and organisations'. in: Cummings, L.L. And Schein, E.H. (1980). 'Organisational psychology', Prentice-Hall, Englewood Cliffs, NJ.
Smith, I. (1993). 'Reward management: A retrospective assessment', Employee Relations, Vol. 15, No.3 p 45-49.
Tulgan B. (2001). Real pay for performance. Journal of business strategy, 2001-page 19
