Performance-related pay hit during recession

The recession has had an impact on performance-related pay (PRP) schemes for more than four-fifths of employers, according to research published by XpertHR.

The survey of 125 employers, covering a workforce of more than 450,000 people – showed that the economic downturn has led to tighter control over paybill costs for 61% of the respondents.

More than half (55%) stated that the budget allocated for PRP schemes had been cut. This reduction has presented itself as a ‘pay freeze’ (defined as a standstill on pay for 12 months or more) for almost two-fifths (38%) of the respondents, while 16% have implemented a ‘pay pause’ (defined as the postponement of a pay review for a period of less than 12 months).

Research also pointed to anecdotal evidence that suggested PRP schemes were being abandoned altogether by some employers, albeit temporarily, in favour of providing an across-the-board pay rise instead. But a small minority (13%) have opted for merit-based increases over pay awards for all, presumably in a bid to boost individual (and hence overall organisational) performance.

More than three-quarters (77%) of respondents stated that improved individual performance is a ‘very important’ objective of their merit pay scheme, with a similar proportion (72%) reporting that organisational performance was just as crucial, and seven in 10 (70%) saying that rewarding exceptional performance was very important.

But in terms of improving individual performance, PRP schemes scored poorly, with 53% of respondents claiming that even the prospect of such reward was ineffective at motivating poor performers. The research also showed that PRP had no effect on the performance of high performers at 30% of organisations, with a similar proportion (29%) saying it had no discernible effect on the performance of average performers, either.

Less than a quarter of respondents (24%) regarded PRP as an important retention aid, and only 12% believed that it was key to boosting recruitment.