Payment Systems

Lecture aims:

Define and outline differing payment systems

key managerial issues relating to the use of different
Highlight
payment systems
Time based payment systems
Incentive based systems

Payment by Results
Measured Day Work
Skill and Competency based payment systems
Group based pay systems

Motivation, Fairness and Control

Defining pay structures and

payment systems
structure: the ranges of base pay that are
Pay
attached to grades (hierarchy) or levels in job or

career families and the scope for pay progression

related to performance, competence, contribution or
service. (Armstrong 2004)

Base levels: influenced by equity and market value

Used to determine specific pay rate for particular jobs

systems are the mechanism driving the pay

Payment
progression and general pay uprating (Kessler 2001)

Payment systems are methods of rewarding people for their

contribution to the organization (ACAS 2006)
In two principles: time and performance
2

Purposes of
payment systems

Control and productivity

Recruitment and retention
Incentives for improving skills and quality
Change working practices
of restructuring of organisational
Part
behaviour
Comply with the law such as equal pay
3

Time-based
payment systems
pay: structured and administered in a
Time-based
relatively simple and straightforward way stipulated
periods of time with reference hourly rate, weekly
wage and annual salary (Kessler 2001)

Paid in relation to a given period of time

Individual rates of pay are often linked to grading

structures, age, length of service, and other factors.

Hourly rate or weekly wage, or annual salary usually

paid monthly

Time-based
payment systems (2)
for all workers doing similar/identical work
Used
where hard to measure performance or where
Used
performance is equated with experience
is managed through promotion or disciplinary
Performance
action

Advantages
Simple, cheap, easy to predict labour cost

Stable pay, easy to be understood by employees

Fewer disputes and complaints

Not linked to individual workers' abilities (limited productivity?)

Rigid and hierarchical
Creates high fixed pay costs for employers

Disadvantages
No direct incentives (limited control)

Performance-based
payment systems
or part of pay, varies in relation to results
Pay,
or performance (measured by output or input)

Payment by Results (PBR): bonus, piecework and

commission (individual, group or organisation)
Merit pay (or performance related pay)
Competency and skill based pay
Profit-related Pay

2011 - Survey of 21,981 employees

WERS
23% of employees in receipt of PBR or merit pay and 30%
receiving two or more forms of performance based pay

Payment by results (PBR)

a direct link between pay and output
Provide
(Taylorism)
job analysis (time and motion studies):
Requires
regarded as scientific but in fact represents a struggle
over frontier of control

a specific rate for each piece of output

Piecework:
Straightforward though quality and safety may be
compromised

scheme: volume of output exceeds the

Bonus
established threshold or targets
8

Payment by results (2)

analysis of work method is central to PBR: the
The
measurement of job effort and time so that the production

process can be managed through understanding the time of

each task

is more appropriate for manual workers: clothing

PBR
industry work output easily measured
wage drift (incentive increases quicker than
Consequences:
base pay, or average pay rises faster than official wage rate)
2011 - Survey of 21,981 employees
WERS
28% of UK workplaces used payment by results (objective
assessment)

Skill or
Competency-based pay
skills-based pay was linked to formal systems of
Traditional
apprenticeship training, with simple grading system and
recognized by unions

skills-based pay has shifted away from

Contemporary
traditional system due to technological changes

White collar workers: competency pay

employees to develop skills and competencies,
Encourage
linked with improved commitment
may not always necessary, and there is a cost issue for
Skills
employers (Druker 2000)
10

Group incentive schemes

pay: encourage teamwork and multi-skilling

Team-based
8% of UK workplaces (WERS 2011)
pay (profit-haring pay): overall
Organisation-based
profitability

33% of UK private sector workplaces (WERS 2011)

incentive schemes
Share
10% of UK private sector workplaces compared to 19% in 2004
(WERS 2011)

Philosophy: neo-human relations school

11

Summary
systems are associated with employers desire
Payment
to improve productivity and quality
issues in determining payment systems are :
Major
Simplicity vs. Complexity of measurement and administration

Pay as control vs. Discipline or Performance Management

Fixed vs. Variable Pay Costs
Control and motivation vs. Fairness and transparency
Individual vs. Group schemes

systems also conditioned by other factors:

Payment
Labour markets (pay sensitivity to recruitment and selections)

Size and HR Structures, Union recognition

Work organisation, job autonomy and skills

12