To examine whether human resource management works well in theory but not in practice, both theories and implementation cases in this field would have to be discussed to probe into this issue fairly. Due to the complex nature and broad contents of the subject; however, the discussion will accordingly limit itself to only concentrate on the reward system in HRM, illustrating types of payment schemes commonly applied at present, such as time-based rates, payment by results (PBR), plant/ enterprise-based schemes, skill-based pay, and performance-related pay (PRP).
By analyzing each one of them, adequate evidence should be drawn to reveal the pros and cons of each scheme and therefore lead us to a reasonable conclusion. In the following parts, types of payment schemes will be discussed respectively, yet among which performance-related pay (PRP) will be emphasized and focused upon more than the rest of the others, for it is the most popular system employed in the last decade and may still remain the most commonly adopted system in the succeeding years. As a result, the discussion will amply develop in this section to give a crystal inspection of this issue.
To start with time rates, also known as day rate, day work, flat rate or hourly rate, seem to be the most common type of wage payment (Armstrong, 1977: 196). In real world time rates are usually applied in managerial and white-collar work. Though near three-quarters of British employees are paid on plain time-based rates due to its simplicity and easy-to-understand nature in theory (Marchington and Wilkinson, 2002), yet there is also evidence showing the defect of the scheme, such as the limitation in providing work incentives (ACAS, 1991).
For example the clever employees, who feel inadequately paid, may divert themselves to new companies or competitive firms where the individual contributions to performance are measured and rewarded. In the method of payment by results, an excess payment has been given to pay schemes based on basic rate which relates earnings with output of the worker or of the group to which he belongs and attempts to motivate workers to achieve higher levels of productivity.
(Graham, 1983) Although PBR systems leads to increased output, higher earnings, and lower costs of production, it might not be so perfect when being applied in practice. For instance a recent investigation conducted by the European Industrial Relations Observatory On-line on how much has PBR worked properly has revealed that standards of performance are often disputed and therefore considerable effort is expected on both labour and management sides to employ the appropriate standards.
Yet after the standards are decided, any changes which could be caused by new technology or extra components supplied will again require both sides to renegotiate (Marchington and Wilkinson, 2002). Such process may lead to long-run argument and waste of time. Though PBR can supposedly eliminate the age-old problem of buying worker’s time but not their effort, still a new problem emerges, for the system encourages speed, not quality (Druker, 2000:115). Hence, even if the overall production is increased under PBR, the quality of products could conversely decline.
While PBR works well for particular industries or groups, such as clothing and insurance industries, it may achieve little for overall performance (Marchington and Wilkinson, 2002). Plant/ enterprise-based schemes use the historical base period of organizational performance, measure improvements, and share the gains with employees (Davis, 1972) to make work appear to be a win-win situation; that is, both organization and employees can obtain direct financial success from the operation (Bowey,2000).
This system, however, does not provide a direct incentive in practice, for the relationship between individual endeavor and the reward may not be in a parallel way. Even worse than that, it might cause the bonus distribution problems which are not in line with the work performance. The difficulties to create reliable and understandable methods of outcome assessments should be concerned.
In changeable world companies should also consider about external environment factors, such as the rising tax, market pressure, competitive advantage and economic conditions, to plan a corresponding payment system as these factors may affect the profitability of company, which leads to the reduction of employees’ rewards. Another important point is that firms should realize the fact that the benefit divisions according to the rising production will not be done without the higher level of sales revenue, which means that it is worthless if the goods can not be sold.
Skill-based pay makes sense to reward individual employees who know how to work. The idea is that employees with the same skills should deserve the same pay (Henry, 1987). The academic background and the acquisition of special skills of employees will be evaluated by managers or top management in order to determine their base salaries. Therefore the advantage of this system is that employees will be self-alerted to achieve self-improvement and search ways to perform their job more efficiently and effectively.
Nevertheless in practice only some employees can improve their skills, which can lead to inequity of worker standardization and generate pressure in organizations. Besides, there is no easy way of determining how much a skill is worth, and skill assessment can often be difficult (Steers, 1975: 514). Performance-related pay, sometimes addressed as merit pay, comparatively is very different from all the earlier incentive methods mentioned above, for the scheme connects itself to the evolution of Management by Objectives to a larger extent.
The main goal for PRP is similar to profit-related bonuses, which is to achieve targets, but the particular aims are distinct-the former generally applies to targets relating to individuals whereas the latter tends to focus on groups or even a whole organization ( Cannell and Wood in IPM, 1992). It is also called merit pay, for in the implementation of such scheme part or all of an employee’ basic payment raise is decided principally by the individual’s performance which is measured by a number of specific objectives (for instance, sales targets or customer satisfaction) (Marchington and Wilkinson, 2002).
