Performance Related Pay: The Importance of Fairness

Abstract

Performance related pay (PRP) has been revived as a ‘new idea’ in recent years in connection with workplace reform and enterprise bargaining. Yet it has been tried many times in the past without achieving the increases in efficiency promised by its advocates. The challenge for PRP is to establish a pattern of pay which is seen as fair by employees, which uses reasonably objective measures of performance, which can stand the strain of change, which sustains the object of the system, is not too large a portion of the pay packet and is not too costly to administer. If a ‘conventional’ view of fairness is maintained in relation to PRP, the net returns may not be sufficient for the majority of employees. Much depends on whether a new concept of fairness is emerging which accepts differential increases based on performance rather than the rate for the job.