Performance Related Pay

I. What is Performance-related pay?

Performance-related pay is money paid to someone relating to how well he or she works at the workplace.

II. Types of Performance-related pay

1. Organization-wide incentives:

Bonus earnings or pay levels based on measured quantities or values for the whole establishment; this is frequently the basis of contract price or tender-led schemes in local government.

2. Merit pay:

Bonus earnings or pay levels usually based on general assessment of an employee’s contributions to performance.

3. Individual performance related pay:

Bonus earnings or pay levels based on the assessment or appraisal of an employee’s (or team’s) performance against previously set objectives, usually part of a performance management system. This is a fairly recent development, particularly in the public sector and has grown sharply in use since the 1980s.

4. Profit related pay:

Bonus or share options based on the organization’s profit performance; this is widespread in the private sector, where share options are often important for senior managers. Profit related pay is now fairly common in local government.

5. Commission:

Percentage payments on sales or turnover, paid on an individual or group basis; common in sales, retailing and other branches of distribution.

6. Payment by time and output:

The distinction between payment by time and output has long been blurred. Although both systems still exist in their pure forms, a wide variety has been developed, incorporating elements of both.

7. Measured day work:

It is one of the more important examples of a composite system. This occurs in a number of forms, but they all share the characteristics of pay linked on a single or stepped basis with measured output.

8. Piecework:

A price is paid for each unit of output. This is the oldest form of performance pay and is still used in some local government direct service organizations.

9. Payment by results:

Bonus earnings depend on measured qualities or values of output for individuals or groups, usually based on work studied time units; this covers a range of bonus schemes and still form the main method of performance pay for manual workers.

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