p.p1 (2005) suggests that, there is a great correlation

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According to Bryson and Forth (2006), labour is the real efforts put in by employee’s for making services or goods. In worker’s view, pay is the compensation for labour. The pay may not only consists of financial income received after or in advance for the efforts provided, but also non-financial payments which are frequently considered by employees as more valuable compared to their financial equivalents, like health insurance and other fringe benefits. The payment differs widely across workers and may also have deferred payments like holiday pay and pensions. (Dale-Olsen, 2006)
 
Though there are complexities, employees are awarded pay for their efforts to compensate. Pay is plainly characterised as a result of a simple, economic, private settlement between employees and employers. However, pay is complex to both employees and employers due to a minimum of three causes. (Bryson and Forth, 2006) First, the suitable compromise for reward and effort is ruled and influenced by powerful social customs and conventions. For example, “fair day’s work for a fair day’s pay” in relation to its constituents is a strong tradition. When the survival requirements of workers and their families in general seem to be not equivalent to the market-set wages, the governments are forced to take part in wage setting process. Second, Many a times, employers are assessed and critiqued for the amount they pay their employees, and employees for the pay they receive. This is another factor to consider the significance of social conventions. For example, there can be two different dimensions to the investors and public image for employers which they are aware and cautious about. Cutting down on labour expenses might lead to more positivity in stock market prices, in contrast, their conduct with the employees in a socially responsible manner might achieve appraisal as a fine employer. Pay is also as important determinant for employee as their social standing is based on their wages and also the way it is rewarded like weekly, hourly or annually.  Brown et al. (2005) suggests that, there is a great correlation between workers welfare in relation to their pay compared to their colleagues. Also, pay affects workers directly on their ability to eat and wear and the way they can take loans, and indirectly in the manner in which they are seen by the society. Third, occasionally, the wage setting process is intertwined with others when employees and employers want. For example, employers might collectively decide to do something, like, when there is scarce work-force, they keep away to ‘take wages out of competition’ as they can collectively bargain to set same rates in specific industries, jobs or communities. Also, the trade unions or different modes of collective activity can influence employees to come in cooperation to set wages with one or more employers. (Bryson and Forth, 2006)

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Performance related pay

Bryson and Forth (2006) suggest that for firms nothing more besides rewarding under an job contract for increased fixed wages where company compensates a time-based wage is the only manner for them to handle work-aversion in circumstances that are hard to analyse effort.

Traditional incentive systems, merit pay plans and variable pay configurations are the three major types of pay-for-performance systems at the individual level.  Traditional incentive systems comprise piece-rate plans and sales commissions. An employee is rewarded a particular pay for each item created or each service given, in a price-rate incentive plans. In case of merit pay plan, worker’s base pay is increased with amounts for previous work behaviour and outcomes as compensation for individuals. However, in variable pay plan, the rewards that boost base pay are not permanent and should be re-earned to be presented again as this is a performance-related compensation. For example, lump-sum rewards are given for attaining specific objectives. (Durham and Bartol, xxxx)

According to Weitzman and Kruse (1990), piecework is viewed in terms of  persuading higher effort so that the marginal cost of manufacturing an additional unit of output is matched with the marginal value of it. Using this system for the employers is hard when worker’s efforts are expensive and not viable to monitor. Gallie et al. (1998) argues that when management find it difficult to supervise the workers, piecework and other different systems of performance pay act as an procedure for managerial control. Bryson and Forth (2006) state that “traditionally the purpose of Payments-by-results systems of pay has been to encourage workers to increase effort and output….In practice….there has been a tendency for payments-by-results systems to become more an instrument of management control designed to ensure consistency of output.” 

From the literature of Durham and Bartol (xxxx), pay and performance are linked by three pay systems (gainsharing, profit sharing, and stock options)  at the organisational level. The United States have noticed an upward trend in the shared forms of compensation that have inculcated higher employee participation in decision making (Dube and Freeman, 2006). According to Bryson and Freeman (2006), in Britain One-quarter had profit-related pay schemes and one-fifth had employee share-ownership schemes in 2004. Also, one-third of workplaces apply individual payments-by-results, one-quarter applied group-based payments-by-results and 16 per cent applied subjective merit pay and (Bryson and Freemen, 2006).

Effects apart from the direct effects of pay on performance also need to be looked upon. Indirect effects are arising from effects on retention and attraction systems in firms. For example, the status of rewards effects attraction to companies. Pay systems that offer fixed pay rather than variable pay, and which offers compensations to individual performance rather than group performance might be more attractive to individuals. The general level of pay is also a aspect stimulating retention and hence pay for performance can have a positive effect on retention. (Durham and Bartol, xxxx)

Bryson and Forth (2006) contradict that the connection between productivity and performance and variable pay is unsure and uncertain. The cost of the variable pay for the employers might offset its potential benefits (Levine
and Tyson, 1990). There is also a scope of demotivation to the employees (Brown and Nolan, 1988). The act to include employees in the decision making process of shared remuneration might not be optimal (Jones, 1987).

Promotion as a compensation might motivate efforts in huge firms as the spots for promotion are narrow. This looks similar to a tournament where ‘winner takes all”. Tournament theory explains the wage imbalance within firms and a plausible reason for high salaries of CEO’s. Nevertheless, between employees there is an unwillingness to help each other in tournament function. (Bryson and Forth, 2006).

Durham and Bartol (xxxx) stated “It does not make sense for an employer to offer to pay employees more unless the employer will actually get more in the bargain. When, therefore, might it be unwise (or even counterproductive) to offer incentives?” It becomes difficult to influence efforts the employees with the principle of pay for performance in possible exceptions like when employees are learning, when the employer can monitor, when other motivators are sufficient or compensatory and when the company is unionised (Durham and Bartol xxxx).
For instance, according to Agency theory, the financial incentives are not required when employers can monitor and give feedback and direction (Jensen and Meckling, 1976).

Marsden (2004), has argued that the major effect of implementation of pay related performance across British public services was to open the door for renegotiation of performance norms in the 1990’s. When a new scheme is  well planned with also managers well equipped to run it, there will be some employees who dislike the scheme and criteria and perceive themselves worse off, and also there will be some who like the idea and act positively to the new system and concept. There is a positive attitude in the latter to change their performance and modify themselves to improve. However, in the former, this attitude is missing and managers motivate them through new performance systems by means of appraisal and goal setting. (Marsden, 2004) 

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