Reward System With The Advantages and Disadvantages

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• Overview of performance-related pay- It is a reward system in which financial or monetary benefits are given to employees on the basis of their performance. There is a standard or mark which reflects the expectations of the company from its workforce. If an individual performs the required standard and/or above that, then extra payment in the form of bonuses or incentives is paid (Shields, J., and et. al., 2015). It involves a review of performance on a regular basis followed by categorization of them into groups which helps the company to determine the exact reward to be given to them. There are no major variations in this reward system and considers performance as the sole element to judge the capabilities of a person.

• Advantages- It offers numerous advantages which make performance-related pay a suitable reward system. Some of these are as follows:

1. Tasks and goals are defined clearly to each and every individual on which they have absolute focus.
2. It is an effective way of managing the poor performance of employees.
3. It encourages the staff to give their best performance.
4. Targets are achieved without any delay which leads to higher profits.
5. 5. It enhances the focus of the workforce on the goals and objectives.

• Motivational needs of employees- Motivation is an important element to keep employees working in the organisation with all their efforts. It helps in increasing job satisfaction which leads to lower employee turnover. The main purpose for which a candidate takes up the job is to earn money. Therefore, it can be said salary is what motivates employees to a great extent. When staff is paid additional they work efficiently. Also, it helps in creating an environment that promotes security about the job among the candidates. It is another motivational need. Apart from this, people look for an organisation which judges their capabilities on the basis of their performance. It is useful in developing an impartial atmosphere for existing employees which attracts new potential applicants to apply (Noe, R.A., and et. al., 2017).
• Disadvantages or risks of performance-related pay- This reward system has disadvantages that should be considered by TESCO before its implementation. These are elaborated underneath:

1. The managers greatly rely on the quality which can add more pressure to employees.
2. This reward system makes the staff lose their contribution or interest in teamwork because each of them competes against each other to get higher pay.
3. There is difficulty in measuring the performance if the the objectives are not completely fulfilled because the amount of incentives cannot be determined.
4. If the employee perceives the incentive amount low then it can reduce the motivation among them.

• Budgeting consideration- Every reward system requires a budget in order to provide incentives or bonuses within the time. It is an expense for the company for which the finance team should invest time in preparing the budget. With respect to performance-related pay, there is a major requirement of budgeting. Some of the considerations that should be taken into account are as follows:

1. The annual increase in wage or salary should be included in preparing the budget.
2. The tax amount to be given on the amount to be provided as an incentive.
3. The type of budget is also important to choose. There are two different budgets viz. Fixed and flexible which have their individual characteristics. It should be appropriate according to the requirements of the organisation.

• Impact of internal or external factors on implementing performance-related pay- There are a number of factors that may influence the implementation. Organisations should have knowledge about such factors in order to reduce the negative impact. The same are as follows:

1. Economic conditions: There are crises in the economy that should be taken into account for taking into account the efficiency of the operations.
2. Current wage level: It is directly related to the wage level. It is proportionate to the complete salary that is paid to every individual (Trevor, Reilly and Gerhart, 2012).
3. Cost of living: It has a direct nexus with the per capita income of the candidate working in the organisation. It is also a major element which should be taken into account.

• Examples of other organisations which have successfully implemented it- There are many companies which have applied performance review systems within their organisations. Some of these are ARGOS, John Lewis Partnership, NHS etc. These belong to different categories of organisations such as public, NPO, private etc. This means that every entity irrespective of its type can implement this system.

Summary

This report has shown the brief of the above-mentioned reward system along with the advantages and disadvantages of the same. These are important for making the decision to choose this. Some of the reasons for this system are as follows:

1. Money is a great way to motivate employees and this system involves financial benefits.
2. It helps in promoting competition among the working people due to which everyone works with their best efforts.
3. It is useful for all entities irrespective of size, nature, turnover, etc.

Also read:- Description of My Ideal Job Helps in Making Career Effectively

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