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Performance-related pay (PRP) offers employers the comfort of not giving increments which is committed, and substituting it with a variable bonus or lump sum payment in the yearend. We must understand the criteria to pay a lump sum. How can we accord such reward? True, most companies use the same performance management system (PMS) utilized for increments as the basis for deciding rewards. Is it the right practice?
To have an effective PMS, it is important to have a clear understanding of what outstanding performance means. What is the rationale behind giving rewards? Some employers perceive PRP as an employee retention strategy. One company said it is a strategy to bridge the gap in market compensation levels. In my opinion, PRP is not for employee retention or to align compensation benchmarks. It must be purely based on achieving corporate objectives that work through departments and individual productivity.
The few companies that have attempted to define performance measures have focused on contribution, net profits and ROI, setting objectives for managers to track individual performance based on other quantitative and qualitative measures. These include a host of role dimension measures on the use of resources, cost, inventories, cash management, productivity, and quality and people issues.
The success of PMS lies in being able to define the appropriate parameters for a specific business, setting aggressive but realistic targets and tracking these regularly. The important thing is to provide feedback. It becomes a challenge for managers to assess honestly.
Surprisingly, a division head rated 60% of his employees as good and 20 % as excellent, but his division did not achieve its desired objectives. A CEO did not use PMS tools to evaluate his senior management team, but he knows how to assess and reward them. His company is successful.
• A successful PMS is able to define an organization's parameters
• Companies use PMS as basis for deciding increments, rewards
• PRP must not be used for employee retention or aligning pay
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Source: Dr. Pon Mohaideen Pitchai, Special to Jobs & Careers
The writer is a Dubai-based HR and Management Consultant