According to one guru in the City, Britain's financial heartland: "Companies will tell you all kinds of stuff about how you are doing, but talk is cheap. It's the bonus that tells you what they really think."
The Irish employers' organisation, IBEC, can confirm this monetary emphasis in people management practices. In a recent survey, it found that 92 per cent of organisations in the Republic's banking, insurance and financial sector operate an individually oriented performance-related pay (PRP) system.
In the wider context, researchers at the University of Limerick also found that rewards for managers have traditionally - and continue to be - determined at the level of the individual. In fact, they assert that in the Republic, merit - or PRP schemes - represent the most commonly used pay incentive across all grades. This is especially evident among non-union and private-sector groups. Interestingly, it's the British and US multinationals that specialise in the use of bonus pay incentives.
This money-motivation link has also been identified by British pay consultancy Towers Perrin. It found that more than 95 per cent of the 460 organisations it surveyed across Europe had immediate plans to boost performance by making significant changes to their reward systems. Indeed, the Chartered Institute of Personnel and Development (CIPD) has also determined that the use of all forms of PRP is growing throughout Britain.
IBEC's survey confirms this trend in the Republic. Individual performance-related or merit pay schemes are the most common - especially for management grades and, to a lesser extent, for skilled, technical, professional and clerical workers.
The money-motivation link is also underlined in the competitive world of sport. According to Manchester United manager Sir Alex Ferguson, if his club are to be the greatest power in world football, "star players must be paid more than other players. All should be paid their worth, but it is unrealistic to suggest that all should be paid the same."
In the past, it was normal to pay staff by fixed salary, with improved performance rewarded via promotion, or when salaries were reviewed at the year end. However, over the past 20 years there has been a huge change in reward systems.
Employees increasingly see their pay vary with reference to some measure of individual or company performance. This development is based on the same logic that applies to the salesperson who is paid on a commission basis. The salesperson is more likely to work harder than a colleague receiving a straight salary, simply because their pay is directly related to their performance.
IBEC's nationwide survey findings again appear to support this view. The main gains to companies using pay incentive schemes were found to be: improved business performance, a more focused workforce, and better staff morale and motivation. About two-thirds of respondents indicated that the actual impact of the incentive schemes had either "exceeded their expectations" or were "successful".
In fact, nearly three-quarters of the organisations agreed that their individually oriented PRP system improved employee performance, whilst nearly 70 per cent found it effective for delivering a clear message about the importance of the organisation's performance. Likewise, 74 per cent of respondents to the CIPD's British survey agreed that PRP does improve performance.
However, in its submission to the benchmarking body, the Irish Congress of Trade Unions (ICTU) has expressed "serious doubts" about the introduction of PRP systems. According to Mr Tom Wall, ICTU's assistant general secretary, the impact of PRP on quality, working relationships and teamwork make it a most controversial practice. This is especially apparent in the public sector, where performance is often hard to measure.
There are indeed many reservations about PRP. For example, in 1990 the CIPD found that some PRP schemes seemed to demotivate 10 people for every one motivated. A study of the system in Britain's Inland Revenue discovered that more than half of the staff there felt that PRP had undermined their morale, whilst nearly two-thirds agreed that it had caused jealousies between colleagues.
Even the Towers Perrin European-wide survey found that 84 per cent of those organisations that linked pay and performance reported operating difficulties. These include ineffective employee communications, poor performance management and a lack of support from senior management.
This bears some similarity to the study of PRP at Greencore - the food manufacturer and supplier - undertaken at Dublin City University. This study established that more than four out of every five Greencore managers felt that the PRP system was still problematic. The primary difficulty identified with the Greencore scheme was a lack of objectivity in the measurement of performance. Furthermore, they found that there was an over-emphasis on short-term objectives at the expense of longer-term goals. They also concluded that there was a lack of communication with their own bosses, with insufficient feedback in respect of targets, and therefore little scope for improving their performance. Indeed two-thirds of the managers actually favoured the introduction of an appeals system to handle disputes in respect of their PRP system.
Money can motivate, but as many organisations have found, there's lots of potential to get it wrong.
Dr Gerard McMahon is a lecturer in Human Resource Management at the Faculty of Business, Dublin Institute of Technology. ppl1@indigo.ie
