Performance-related pay is money paid to someone relating to how well he or she works at the workplace. Car salesmen, production line workers, for example, may be paid in this way, or through commission.

Business theorist Frederick Winslow Taylor was a great supporter of this method of payment, which is often referred to as PRP. He believed money was the main incentive for increased productivity and introducing the widely used concept of 'piece work'.

This standards-based system is used for evaluating employees and setting salaries by many employers. Standards-based methods have been in de facto use for centuries among commission-based sales staff: They are paid more for selling more, and low performers do not earn enough to make keeping the job worthwhile.

In addition to motivating the rewarded behavior, standards-based methods can provide a level of standardization in employee evaluations, which can reduce fears of favoritism and make the employer's expectations clear. For example, an employer might set a minimum standard of 12,000 keystrokes per hour in a simple data-entry job, and reassign or replace employees who cannot perform at that level. Employees would be secure in knowing that their performance was evaluated objectively according to the standard of their work instead of the whims of a supervisor, or against an ever-climbing average of their group.

Opposition

Performance-based systems for rating physicians or job performance have met some opposition as they are being adopted by corporations and governments. Frequently, the opposition is motivated by fear of the unknown, and it subsides after the new system is in place and seen to operate transparently. In other cases, opposition is motivated by specific ill-conceived standards, such as one which makes employees work at unsafe speeds, or a system which does not take all factors properly into account. When intelligently implemented, standards of care have reduced hospital-acquired infections, medical mistakes and inappropriate treatment, to use the healthcare industry as an example. When implemented carelessly, standards have been a source of significant stress and low morale, no matter what the industry is.

In other cases, opposition is motivated by a dislike of the consequences. For example, a company may have had a compensation system which paid employees strictly according to their seniority. They may change to a system which pays sales staff according to how much they sell. Low-performing senior employees would doubtless object to having their income cut to match their performance level, while a high-performing new employee might prefer the new arrangement.

See also

• Merit pay