PERFORMANCE RELATED PAY WORKS IN AN INTERNATIONAL CONTEXT

Performance Related Pay works in an international context



Performance Related Pay works in an international context

Introduction

Pay is always the main topic of discussion in any hiring process. The human resource managers know the market value of each employee with respect to their skills and experience. Every company has its own practice on how to pay an employee. Some would pay below market rate, others would pay at the market rate and yet some companies are willing to pay slightly above market rate. The way each company pays is closely related to the size of the company. In recent years, there has been a lot of debate on how company should pay the employee. Should the company continue to practice the traditional pay or adopt performance-related pay (PRP)?

Performance-related pay (PRP)

Performance-related pay is a new pay system that is an additional payment system on top of the base pay. This payment system is typically based on how an individual perform in his or her job, team performance or even how the company is performing in financial context. There are many forms of PRP, strategic pay, flexible pay, and variable pay.

Strategic pay is “a pay-design process that starts with business strategy and organizational design. It argues against an assumption that certain best practices must be incorporated into a company's approach to pay” (Lawler 1995).

Flexible pay is a form of payment system where the pay of the employee is tied to the market situation. In this pay system, measurement like customer satisfaction, customer retention and repeat revenue will dictate the pay of an employee in the company. The employee will be pay based on his skill and experience rather than job-based. By doing so, employees can be deployed to any projects that require their particular skills.

Variable pay is a payment system where employees are offered with financial incentives when they display behaviors that are favorable to the business strategies of a company. “The most important recommendation is that the proportion of pay which is contingent on performance should increase as a proportion of total remuneration” (Heery 1996).

Pay systems are the processes of paying employees within a given pay mix and structures. The process of evolution of the pay system in China can be summarised as below. Before the economic reforms, the Chinese government adopted a unified grade-wage system, following the Soviet model, in which differentials in wage levels were based on different regions and industrial sectors (Bozionelos, N., Wang, L. 2007). At that time, labour markets did not exist and urban labourers were paid according to the wage grades. Despite the constant efforts by the labour authorities to make the wage system conducive to productivity, the so-called “Rational Low Wage System” which governed compensation in the state sector in China before the economic reforms had generally been criticised as being equalitarian, over-centralised, rigid and insensitive to variations in performance (Bozionelos, N., Wang, L. 2007). PFP was absent in the pre-reformed pay system before the economic reform ...