Performance-Related Pay
Some employers choose to use a pay scheme that is directly related to the performance of their employees. In these cases, the better an employee performs, the more they are paid by their employer. Naturally, with differences in pay between employees, this is a highly delicate process that must be thoroughly considered. Although there is an element of discretion allowed, such decisions should be handled very carefully.
Designed to reward employees for working harder and distribute pay more fairly, performance-related pay helps employers attract talent and ensure all employees are working to the best of their potential. However, to ensure these scheme are executed fairly and with a minimum of favouritism, it is imperative that the criteria for different rates of pay are clearly set out, agreed by both employer and employees and, most importantly, objective and measurable.
The type of targets and rewards will largely depend on the objective or purpose of the scheme. To encourage loyalty to the company, employers often offer reward schemes and shares for employees, depending on length of service and achieving long-term targets. If an employer is simply trying to improve employee performance, they will likely use short-term commission-based schemes, or bonuses. The details regarding all bonuses, rewards or payments should be outlined in the employment contract or other written documents.
