Performance-Related Pay

Abstract

Performance-related pay (PRP) is now a globally accepted tool to align the performance of employees, both individually and collectively, for strategic compensation management. However, there is a lack of universality in approach, both across the countries and across the organizations within a country. From an organizational point of view, PRP is expected to help achieve business goals. From the employees’ point of view, PRP provides an opportunity to earn higher compensation, motivates their behavior and serves as a retention strategy. These ends are not conflicting but rather are complementary. Hence, understanding best-fit PRP practices is a legitimate line of enquiry for compensation in every country. This study critically examines the PRP systems of two central public sector enterprises (CPSEs), based in India, that were implemented more than 5 years ago. The study, based on performance data from two large CPSEs, an energy company and a steel company, over a decade (5 years before PRP and 5 years after PRP implementation), examined the impact of PRP in terms of incremental change in the performance of the enterprises. The data analysis could not substantiate any significant change in the performance of the CPSEs, and hence the study suggests the need for future longitudinal research to recraft the PRP systems in order to make it more supportive of the business strategy, rather than continuing with what has been a conventional tool to dole out cash incentives even to nonperformers.