Performance Related Pay: A Case Study of a Small Business

Abstract

NERYS FULLER-LOVE IS DIRECTOR OF THE Centre of Business Studies at the University of Wales, Aberystwyth, Wales, and Professor R. W. Scapens is director of the Centre for Interdisciplinary Research in Accounting and Finance at the University of Manchester, England. This paper aims to investigate the impact of the implementation of performance related pay on a small company. Performance rewards schemes have been used for centuries to reward improved productivity through increased payments or benefits. Although there is evidence to show that these schemes do increase productivity there are also doubts as to their effectiveness. Small firms have several stages of growing pains on the way to success or failure. What are the characteristics of successful small firms? Willingness to improve management through training and by bringing in professional managers from outside have been found to be a positive factor in their success. This is principally because the stages of growth in a small firm involve different management skills. For example, how does a small firm move from direct supervision of a few workers to indirect management when the number of employees increases? This paper attempts to link together these two themes, that of performance reward schemes and the management and control of a small business. It illustrates how a small manufacturing company implemented a bonus scheme in order to improve productivity and ease the transition from an informal management system to more structured formal systems. The reason for introducing the bonus payments, how they were implemented and evaluated are examined in this case study. Some of the factors investigated include the impact on the organisation, the effect of change, the resistance to change.