Linking pay to employee performance ( related pay performance ) Assignment

Linking pay to employee performance ( related pay performance ) - Assignment Example For the government, pay levels have an impact on macro-economic factors, such as employment, inflation, purchasing power and socio-economic development.   Even though basic pay makes up a significant portion of the total compensation, the employer is also affected by the benefits offered to the employees, such as fringe benefits, cash and non- cash benefits. In the majority of developed countries and countries with high personal tax rates, the benefits component of executive compensation has been consistently increasing over the past few years (Silva, 1998).   Performance related pay (PRP) â€Å"links reward or salary progression to some form of performance rating. This could be part of a performance management or appraisal system, or it could be based on a separate appraisal of performance exclusively for pay purposes.† (Armstrong, 2001). PRP has assumed growing significance in the present times with more and more organisations adopting measures to motivate their workforce. The objective is to drive performance levels by linking employee rewards with organisational goals and objectives (CIPD, 2011).   Pay can have one or more objectives that can be categorised under four heads. The first objective is equity. This can be achieved through various means, such as adjusting income distribution in such a way to reduce the disparity in income levels; bringing the pay levels of the lowest paid employees on par with the rest of the organisation; safeguarding real wages, and ensuring uniform pay for work of equal value. Even differences in pay is made on the basis of skills or performance levels, it is connected to equity (Silva, 1998). The second objective of efficiency has a relationship with the first objective of equity. Efficiency objective comes into play when a part of the pay is linked to employee performance and contribution to the organisation. Macro-economic stability is the third