2. • Contingent pay covers the various methods of providing additional
rewards for individuals or teams
3. Types of contingent pay
• Contingent pay for individuals
• Service related pay: provides fixed increments which are usually paid
annually to people on the basis of continued service either in a job or
in a grade
• Competence related pay: Links pay to an assessment of competence
achieved
• Contribution related pay: Links pay both to performance as measured
by results and competence
• Skill based pay: Which provides additional payments that reflect the
level of skill attained
4. Types of contingent pay contd.
• Contingent pay for teams
• Payments to members of a formally established team or the provision of other forms of non-
financial reward which are linked to the performance of that team. The rewards are shared
by the team members in accordance with a published formula.
• Contingent pay based on organizational performance:
• Profits sharing: Provides a cash payment related to the level of profits
• Profit related pay:Provides for a proportion of pay to go up or down in line with profits
• Gain sharing :Shares gains in terms of added value or some other measure between the
company and its employees , and includes various forms of its involvement
5. Performance related pay
• Provides individuals with financial rewards in the form of increases to
basic pay or cash bonuses which are linked to an assessment of
performance , usually in relation to agreed objectives.
6. Reasons for introducing performance related pay
• To attract the right type of applicant and to send strong messages to
those employees the organization wanted to loose as well as those
they wanted to retain
• To achieve organizational transformation by promoting values
suggesting that the company was performance-driven , cost conscious
and flexible , and by encouraging commitment- locking individuals in
through objectives cascading from the company’s business plan.
7. Stages in development of PRP program
• Define the objectives
• Analyze the existing situation
• Decide on the involvement of line managers, team leaders, employees , trade unions.
• Consider alternative designs
• Consider process elements
• Produce overall design
• Prepare implementation program
• Implement communication and training programs
• Implement the plan
• Evaluate the impact of the plan
8. Advantages and disadvantages of PRP
Advantages Disadvantages
Motivates
Is a lever of change
Links rewards to results
Delivers message that performance is important
Helps to attract and retain staff
Meets basic human need-to be rewarded for achievement
Is not the only motivator
Is not an effective motivator
Can demotivate
May deliver the wrong message
Problems of measuring performance
Relies on managerial judgment which may be partial
Emphasizes quantity at the expense of quality
Is prejudicial to teamwork
May be discriminatory
May not deliver value for money
May not be appropriate
Is too often taken on trust
May be right in principle but is hard to make work in
practice
9. Advantages and disadvantages of
Competence related pay
Advantages Disadvantages
Encourages competence development
Fits de-layered organizations by
facilitating lateral career moves
Helps to integrate role and
organizational core competence
Forms part of an integrated,
competence based approach to people
management
Delivers message that competence is
important
Relies on appropriate relevant and
agreed competence profile
Assessment of competence levels may
be difficult
Might pay for irrelevant competencies
Link to pay may be arbitrary
Costs may escalate if inappropriate or
unused competencies are rewarded
10. Competence related pay
• Method of rewarding people wholly or partly by reference to the level
of competence they demonstrate in carrying out their roles. It is a
method of paying people for the ability to perform.
11. Process of competence related pay
• Competency analysis
• Agreeing competency requirements in a particular role
• Assessing levels of competence for individuals against the
requirements
• Relating pay of individuals to the assessment
12. Appropriateness
• Well researched competency framework exists
• Criteria are available for the measurement/assessment of
competencies
• The organization is concerned with the development of competence
levels
• Managers and staff are properly briefed and trained on the
assessment of competence
13. Performance Management
• A business process intended to ensure alignment of group and
individual efforts for achievement of continuous business
improvement
• How much and how??
14. Critical success factors
• Ongoing tracking
• Direct linking to company’s mission
• Timely communication and skills training
• Connection between reward and performance
• Objective feedback and review
• Employee ownership – I own the direction in which I go
• Senior leadership involvement
15. Mission Why does the company
Exist ?
Vision of future Where is it going?
Strategic organizational
goals
How will it
Get done? Esp.
Focusing on
Values.
Core
Organizational
Capabilities
Performance
Development
& planning
