4 BARRIERS TO INDIVIDUAL PERFORMANCE RELATED PAY

It is difficult for managers to design and implement performance-related pay schemes in a progressive organization due to four barriers that make this scheme ineffective: goal setting, outcome measurability, evaluation of performance and strategy, and compensation.

Goal Setting: Few goals have to be met by the IPRP system, including financial or productivity goals. If the staff members do not define these goals or if these members perceive these goals to be unachievable, then an adverse impact exists on the employees' efforts, motivation, and performance. It creates difficulty for managers to implement an IPRP scheme in a business environment.

Outcome Measurability: Another crucial factor in the effective functioning of an IPRP system is the managers' ability to measure the employees' performance. If there is low outcome measurability, then the managers face difficulty in assessing all the aspects of employee performance. In contrast, when it is high, it enhances the employees' performance. Implementing the IPRP system in such an environment arouses employees to pay attention to highly measured and remunerated areas, thus resulting in ignorance of those less measured aspects which negatively impact employee performance.

Evaluation of Performance: After setting goals and measuring the performance of the employees, the results obtained need to be evaluated. These results are compared with the original goals set by the managers, and the employees are asked for explanations. Due to this factor, the threat caused to an IPRP system is that an employee will face the manager's biases during the evaluation phase. It has been observed that managers evaluate the employee based on his relationship with that individual. Thus, it has created conflicts between managers and employees. 

Strategy along with Compensation: Lastly, an association is mandatory between the company's strategy and the system for remuneration and compensation. It is another barrier for the managers because it is necessary to consider the business strategy and the compensation system to implement an effective IPRP system within the business environment. The business strategy is a cornerstone for a pay package and pay policies. Paying low compensation to employees has negative consequences on the performance of the employees. Researchers have suggested that paying employees below the median point never produces favourable results for companies.

Recommendations

Considering all the negative impacts of an IPRP system in its implementation, the following alternate reward approaches are recommended to the top management to overcome all the difficulties which the line managers are facing:

Profit-Related Pay: This system refers to a bonus given to the staff members based on the profits and revenue generated by the company. It is normally paid as part of the employee's basic salary. This does not focus on the performance of the individual working in the company, but employees are rewarded based on the profits earned by the company as a whole. It is better than the IPRP system because implementing this would result in more determination and commitment of the employees towards the company's success as a whole and not their performance. This will help the employees enhance their performance for the company's success, and cost-saving will also be ensured.

Competency-Based Pay: Unlike the IPRP system, which measures outputs, competency-based pay measures the inputs of the individuals. It means it evaluates the skills of the employees rather than their performance. It is directly associated with effectively using and improving the employees' skills. This system is mainly used to complement the IPRP scheme. Employees are rewarded based on their performance and achieving their goals, focusing on their extraordinary skills and abilities. It enhances employees' efficiency, leadership, and teamwork and improves their performance.

Conclusion

Individual Performance Related Pay system can be used as effective performance management and a motivational tool for managers, provided it is properly implemented in the organization. However, it is not a quick fix because it cannot act as a tool that can improve the performance of the employees along with organizational efficacy. Suppose it is to be used with a positive impact on employee performance. In that case, it can be complemented with competency-based pay that will increase the employees' productivity and their contribution to the goals of an organization. Moreover, when the incentive is used to motivate the employees, the managers must create a clear line between the efforts of the employees expended towards the success of the company and the remuneration given to those employees. Important factors that need to be considered by the line managers while implementing the IPRP scheme include a clear need to set goals for the employees, transparency with good communication, an effective system for performance management, and fair distribution of rewards to the employees. Focusing on these points will help managers create an effective level of employee pay and will result in the recognition of employees for their work.