The Abstract

This research is about the implications of pay for performance and reward system for organisations. This research has reviewed the motivation theories in context o pay based performance system. It also provides a detailed review of incentives and bonuses which could be used by the project based organisations. This research also reviews the performance management and analyses the pay for performance system along with its implications for employees and organisations. This research has used the secondary research findings where journal articles and books are mainly used for accomplishing objectives of this research. This research is conducted using the qualitative methods. The research has found that to motivate employees from construction industry should be provided with incentives and bonus. Further, the individual pay for performance is also quite useful for improving performance and keeping employees motivated. It is concluded that employees could be motivated with the help of monetary rewards while bonus and incentives are most commonly used in project based organisations and both types have many limitations which could not be ignored. Likewise, pay for performance is also useful for enhancing motivation of employees, but it also encounters certain limitations. At the end, future research recommendations are provided.

1.Chapter One: Introduction

The phenomenon of pay for performance is widely debated across the globe and employers all across the world are interested in achieving the system that links pay with performance of individuals. It has been considered by the researchers that jobs with performance related pay are found attractive by the employees with higher capability and it enables them to put substantial level of efforts to achieve the underlying goals of the organisation (Blinder, 2011; Butcher and Sheehan, 2010). The exploration of effectiveness of incentive system has been considered as an important issue by the researchers as well as practitioners and it has been offered in the public literature that performance based incentive system is highly effective for boosting the motivation level of public employees (Brynjolfsson and McAfee, 2012). The same has been concluded by the researchers in private sector and they have offered that the reward is considered as the outcome of employee performance and when employees are rewarded financially, and then they feel motivated and valued within organisation (Della Torre, Giangreco and Maes, 2014).

It has further been highlighted by the scholars that organisations that link rewards with paper qualification of the employees are more likely to lead to dissatisfaction among employees. It can be justified by the fact that one employee might have higher level of qualification than other, but there could be difference in performance level of these two employees (Larkin, Pierceand Gino, 2012). The one with lower level of qualification might outperform than other. In such condition, when paper qualification serves as the basis of pay, then it might result in the declining morale and motivation of those employees who are more productive and less qualified (Sauermannand Stephan, 2013). Therefore, the solution of this problem has been sought in the performance based incentive system.

It has been explored and mentioned by the recent researchers that trend of linking performance with pay is increasing rapidly in all organisations and compensation is being decided and awarded based on the performance of employees with an aim of ensuring that objectives of organisation are fulfilled (Kondo et al., 2016). In order to support this system, the performance management system is being strengthened by the organisation and employers in engaged in seeking ways through which they can establish an effective performance management system (Jirjahn, 2015). The effectiveness of performance management system is viewed in the level of fairness and when employees are offered fair and justified rewards then they are likely to get satisfied and motivated. This satisfaction in turn leads to investment of employees’ efforts in improvement of their performance and thus overall productivity of organisation can improve to the significant level (Hon, 2012). In contrary to this, the organisations who are supporting their incentive system with ineffective performance management system are likely to experience dissatisfaction among employees and result can be seen in the form of lower productivity level of employees (Hewitt, 2012). Therefore, the purpose is to eliminate any kind of discrimination from the performance based pay system and to ensure that compensation of employee is independent of other factors and it is only the product of employees’ performance.

In the organisations which are working on project based structure, the relation between employee and employer is