1CHAPTER 1INTRODUCTIONMany different compensation practices are lumped under the name pay-for-performance. We used to think of pay as primarily an entitlement. If employees went to work and did well enough to avoid being fired, you were entitled to the same size check as everyone else doing the same job as you. Pay-for-performance plans signal a movement away from entitlement, sometimes a very slow movement toward pay that varies with some measure of individual or organizational performance.Despite the omission, merit pay is still pay-for-performance used for more than three quarters of all employees. Companies uses performance-related pay scheme to encourage employees to work harder. The better employees or teams, carry out works, themore the company or employer pays you. It is believed that it is a way of rewarding employees for higher performance. Employers introduce this type of scheme to keep current staff and sometimes because of wanting to compete to a new talent, and lastly they may be seeking a fairer way of distributing wages. In order for performance related schemes to work they should be based on clear, measurable targets that are agreed by both the employer and employees.Performance-related pay is a method of remuneration that links pay progression toan assessment of individual performance, usually measured against pre-agreed objectives.Pay increases awarded through performance-related pay as defined here are normally
2consolidated into basic pay although sometimes they involve the payment of non-consolidated cash lump sums.It has grown in prominence since the 1980’s as employers have increasingly sought effective ways of driving high performance levels by linking employee reward to business objectives. However, it has proved in some circumstances a rather crude instrument and the 1990s and beyond witnessed a number of challenges to the theory. As some of the earlier schemes failed to deliver the promised results, some employers brought in new or revised performance-related pay schemes or moved to new approaches altogether while others have developed hybrid schemes.In the current debate on the issue of merit pay for teachers and government employees, one frequently hears the lament: “If only we could measure results what the business does. Then we could pay for performance instead of mere seniority!” This statement assumes that business actually has a rational system of paying according to performance. The truth is business merely acts and talks as if it does.Formal merit-pay programs are a relatively recent phenomenon. In the past it was common for a firm to pay a fixed wage or salary based primarily on market supply-and-demand factors. Top management made all the major decisions and took the risks. White-collar employees were few in number and, although better educated than their blue-collar counterparts, had scarcely any decision-making authority and were readily replaceable.