Employers are failing to make effective use of performance-related pay by offering awards that are too small to motivate staff, according to research published today by XpertHR.
Pay award data gathered by XpertHR over the past year shows that the median pay increase from which performance-related pay rises are awarded is just 2.7%, leaving employers little scope for differentiating between exceptional and poor performers.
The findings are taken from a survey of 152 organisations, of which, just over half (51.3%) operate performance-related pay schemes for some or all of their employees.
The survey established that key objectives of performance-related pay schemes are to:
- improve individual performance (92.9% of schemes surveyed);
- improve organisational performance (92.9%);
- focus attention on key objectives (88.8%);
- motivate staff (88.8%); and
- reward exceptional achievement (85.7%).
Fewer than a quarter of organisations formally evaluate the effectiveness of their performance-related pay scheme but three-quarters believe that it partially meets the aims of improving individual and organisational performance, the findings showed.
Respondents also said that performance-related pay also had the greatest positive effect on workers who were already high performers, but in some cases it worsened the performance of average or poor performers.
XpertHR pay and benefits editor Sheila Attwood said: “Although most respondents agreed that performance-related pay is an excellent tool to improve individual performance, it has not necessarily been easy to put into practice in their own organisation.”