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More recently, the notion that equilibrium pay level results from Adam Smith’s “invisible hand” – market forces – can hardly explain the pay and reward system of HRM, which involves far-researching aims (Gilman, 2009). Lawler’s ‘new pay’ began to attach much importance to the understanding of the organization’s goals, values and culture and the challenges of a global economy when formulating pay strategy (Armstrong, 2002). And its model suggested that the reward strategy should consist of three key elements: the organization’s core value, structural issues and process, whose consistency would be the key factor of effectiveness of the reward system (Lawler, 1995). More frequently, the reward system is now linked to business strategy through motiving people to behave in expected ways. As Gomez-Mejia (1993, cited in Kessler, 2007) stated that the new approach to pay is more about achieving business objectives, rather than the issues of internal equity and external
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First-generation system implemented in the 1980s did not acquire desirable results. Some organizations are carrying out second-generation system to avoid previous mistakes. Others are trying the pay relevant to competence or contribution (Armstrong, 2002). Nowadays, PRP is introduced continuously in two-thirds of organizations (Marchington and Wilkinson, 2002). ‘Performance-related Pay (PRP) provides individuals with financial rewards in the form of increases to basic pay or cash bonuses which are linked to an assessment of performance, usually in relation to agreed objectives’ (Armstrong, 2002, p. …show more content…
According to author’s research, most managers interviewed regarded cost reduction as a major motive for the introduction of PRP, which led to reduction of trust between the Finbank and its managers. This negative effect of PRP results from the fact that the business objectives may be contradictive on each other in pay policy (Marchington and Wilkinson, 1998). For ‘driving up income’, the bank want to create the managers behaviors and attitudes meeting with customers’ needs. Whereas for ‘driving down cost’, salary cost - the major cost in the financial industry - would be cut producing negative attitudes. For sure, the motivational effects of PRP were seriously restricted by the objective of cost
First-generation system implemented in the 1980s did not acquire desirable results. Some organizations are carrying out second-generation system to avoid previous mistakes. Others are trying the pay relevant to competence or contribution (Armstrong, 2002). Nowadays, PRP is introduced continuously in two-thirds of organizations (Marchington and Wilkinson, 2002). ‘Performance-related Pay (PRP) provides individuals with financial rewards in the form of increases to basic pay or cash bonuses which are linked to an assessment of performance, usually in relation to agreed objectives’ (Armstrong, 2002, p. …show more content…
According to author’s research, most managers interviewed regarded cost reduction as a major motive for the introduction of PRP, which led to reduction of trust between the Finbank and its managers. This negative effect of PRP results from the fact that the business objectives may be contradictive on each other in pay policy (Marchington and Wilkinson, 1998). For ‘driving up income’, the bank want to create the managers behaviors and attitudes meeting with customers’ needs. Whereas for ‘driving down cost’, salary cost - the major cost in the financial industry - would be cut producing negative attitudes. For sure, the motivational effects of PRP were seriously restricted by the objective of cost