Executive Summary (170)
Aim: The purpose of this study was to determine the attitudes of employees towards performance related pay (PRP) in a health insurance company.
Methods: using a qualitative case study design, the research used seven employees and five line managers from the human resource, IT, Customer service, claims, and finance departments who participated in the interviewees to assess their perspectives on performance related pay. A semi-structured interview instrument consisting of various themes of factors affecting employee attitudes was applied to assess the employee perspectives towards a PRP scheme.
Results: the findings show that job appraisal, employee motivation, equity and fairness, teamwork culture, and general workplace environment are important factors that affect employee perspectives. Out of the 12 respondents, eight had positive attitude toward the implementation of PRP. However, the rest of the participant expressed dissatisfaction at the way the performance related pay program was being implemented.
Conclusion: employees are generally happy with the implementation of the PRP scheme in Health Insurance Company provided it is perceived to be smooth and fair.
Performance related pay (PRP) is a reward scheme that links employee performance with pay. It is a process of giving a monetary reward to an individual based on individual, group or organizational performance (Armstrong & Murlis, 2005). The main reasons for PRP are the performance improvement, competitive benefit and equity (Brown, Sturman, & Simmering, 2003). Companies proceed to plan their remuneration schemes around the perception of rewards for individuals who accomplish set targets (Perkins, White, & Jones, 2016). Moreover, researchers have mainly focused the success of the PRP scheme from motivational viewpoint and employees attitude towards PRP implementation. Investigating employees attitude towards PRP process in company x is crucial for the companies belief that workers are committed to their work and to rewarding them will enhance more value to the productivity (McNabb & Whitfield, 2007). Moreover, PRP scheme is influential in performance improvement, which can benefit the organization (McAdams and Hawk, 1994). Jobs with PRP interest employees of higher capability and encourage employees to deliver more effort (Booth and Frank, 1999). The PRP system is famous worldwide as motivational tool for increasing employees performance. The present case involves a health insurance company that seeks to improve its performance via implementation of a PRP scheme among its employees. The study aims at examining employees' attitude towards the implementation of PRP in the health insurance company. The purpose of the research is to use a case of a health insurance company to explore the views of employees to make appropriate recommendations. As employees in the insurance industry mostly thrive on commissions, their perceptions on performance related pay would be of great interest to the insurance companies.
Literature Review (1526)
This section will review existing literature on employee perceptions towards performance related pay. There is abundant literature on the subject of performance related pay (Scarpello & Carraher, 2008). Despite the much-hyped advantages of PRP to companies, only a few studies explore factors impacting employees attitudes toward PRP. We begin by defining PRP followed by exploration of literature discussing the attitudes of employees to implementation of such schemes and the factors affecting the employees attitudes.
Suff, Reilly, and Cox (2007) defined PRP as a pay progression system where individuals receive a financial reward based on their performance. CIPD (2017) defines performance-related pay as a way of managing pay by linking salary progression to an assessment of individual performance, usually measured against pre-agreed objectives. For purposes of the present study, the definition by CIPD will be used because it captures the evaluation of organisational objectives as per the initial agreement with the employees.
An attitude is defined as a way an individual responds to his/ her environment, either positively or negatively. Attitudes are the convergence of intrinsic and extrinsic stimuli, and therefore everyone can to improve them including employees, managers, and organizations. From this context, employee attitude can be defined as the positive or negative response to ones occupation/ workplace (Robbins, 2003).
There is abundant literature on extrinsic versus intrinsic incentives in labour relations. Akerlof (1982) suggested that a reliable employee would reciprocate to the organization in a way that does not require the performance related pay. According to the Akerlof (1982) model, employees pay is often directly proportional to higher effort; thus, the higher the pay the higher the effort is expected from the worker. Therefore, if the effort of the employee depends on a reference wage, then firms would most likely pay a wage above that level to obtain more effort from their employees. Contradicting theorists suggest that money enables employees to gain internal recognition while achieving external status, and others PRP often fails to meet the organizational goals. According to motivation crowding theory, for example, PRP might decrease instead of increasing employees' motivation depending on their perception of the reward. Motivation is likely to increase if the performance pay is perceived as supportive. On the contrary, if the employees perceive the reward as controlling it will decrease the motivation. Theories of need such as McClelland's Need Theory, Herzberg's Two-Factor Theory, and Maslow's Hierarchy of Needs suggest that employees are more satisfied with higher-level psychological needs such as recognition, self-actualization, social relations, and job enrichment or autonomy while other theories emphasize employees are exercising the right behaviour (Hutchinson, 2013).
The motivation of workers is considered an integral component of meeting the goals and objectives of organizations. Since motivation is the driving force behind the employees behavior in the organization, it could also be a measure of the level of persistence and effort to the employer. While persistence refers to the degree of commitment of the worker to the company regardless of the challenges the organization might be going through, effort relates to the level of input of the employee into meeting the goals and objectives of the organization (Suff, Reilly and Cox, 2007).
Existing theories of motivation point out that extrinsic reward appeals to the workers to increase the effort in their roles to increase their performance, which would lead to meeting the organizational goals and objectives. This individual PRP is based on expectancy theory and the reinforcement theory. The proponents of the reinforcement theory argue that there is a direct relationship between employee pay and performance. The reinforcement theory explains that PRP fosters the desired employee behaviors such as high performance (Suff, Reilly and Cox, 2007).
The expectancy theory posits that the workers are likely to increase their effort based on the outcomes they value. In other words, an individual would make an effort into something if he/ she expect a reward from the organization based on the level contribution to achieving the set goals. However, the theory suggests that employee compensation should be based on the needs as well as the effort they put into meeting the organizational goals. It can be deduced that money alone may not encourage the employees to put in more effort, which suggests both qualitative (recognition and appreciation) and quantitative (material rewards) dimensions to employee motivation. Therefore, the employees who expect recognition and value monetary rewards are likely to work harder and increase the effort that meets goals of the organization (Kobussen, Kalagnanam, & Vaidyanathan, 2014).
Taylor theory used the framework of psychological thinking to deduce that reward encourages the employees to develop the right behavior, while punishment does the exact opposite. He determined that money is the most important motivator to encourage workers to increase their performance at work. Besides, he observed that money plays an integral role in shaping the employee behaviour who expect to receive a reward from the organization for meeting the goals (Perry, Engbers, & Jun 2009).
However, Herzberg and Maslow contradicted the need theories above by stating that monetary rewards can create dissatisfaction among the workers. Instead, they pointed out that intrinsic aspects of the employment such as individual recognition, responsibilities, and achievement can create the required employee satisfaction for the long-term. While Maslow acknowledges that Pay is the physiological need employees require fulfilling their basic needs such as clothing and food, other requirements need to be satisfied by the organization to increase their performance level such as self-esteem and advancement (Boachie-Mensah & Delali Dogbe, 2011; Young, Beckman & Baker, 2012). The crowding theory of motivation contradicts the other theories on the role of PRP in motivation (Belle, 2015). According to this theory, rather than increasing employee motivation (crowding in), it may indeed reduce it (crowding out). This effect depends on the individual worker's attitude toward the reward. If the employee feels that the PRP is supportive, then the required motivational force will be generated. On the other hand, if the perception is that the reward is controlling, workers motivation will diminish (OToole & Meier, 2014; Stazyk, 2013).
In labor relations studies conducted by Schmidt and colleagues (2011) and Muller & Schmidt (2013), the authors highlighted the importance of employee involvement in the design and execution as well as understanding their preferences. According to Schmidt et al (2011), employees in the German public services generally harbored negative attitudes towards PRP. They suggested that employee involvement in the PRP process is the key to increasing acceptance and encouraging positive attitudes.
In their study on PRP in German Municipalities, Muller & Schmidt (2013) underscored the problem of not specifying tasks and i.e. defining targets where the workers have to deal with uncertain situations. In the absence of clearly defined performance criteria, employees tend to harbor negative attitudes towards the reward scheme. Muller & Schmidt further suggests that the organization must eschew to properly define performance criteria and involve employees in changing their working behavior in order to achieve a positive performance assessment. This way the workers develop attitudes that are more positive and increase their effort in realizing organizational goals. In other words, the employee finds it easier to set individual targets under the guidance of his or her manager who defines key organizational expectations.
Georgantzis, Vasileiou, & Kotzaivazoglou, (2017) recently investigated the attitudes of public sector employees in Greece towards PRP. The authors reported that the employees are far from unanimously having negative attitudes towards the adoption of performance related pay. Although some of the employees would want to support the implementation of the PRP, they would rather leave opposition to other around them in order to put blame on others for the conservative perceptions. However, the authors noted heterogeneous attitudes towards PRP, but generally were of the view that the system would have positive impact on productivity and wage. However, Georgantzi...
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