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Factsheet:

Performance-related pay

Resource summary

This factsheet was last updated in March 2014.

What is performance-related pay?

Performance-related pay (PRP) is a method of remuneration that links pay progression to an assessment of individual performance, usually measured against pre-agreed objectives (‘classic’ PRP, also known as individual PRP or merit pay). Pay increases awarded through PRP as defined here are normally consolidated into basic pay although sometimes they involve the payment of non-consolidated cash lump sums.

While the focus of this factsheet is individual, consolidated PRP as a means of pay progression, PRP can be defined more broadly to include many differing systems that link individual and group performance to pay, including non-consolidated elements such as bonus schemes. CIPD members can use our tool on developing bonus and incentive plans.

PRP has grown in prominence since the 1980s as employers have increasingly sought effective ways of driving high performance levels by linking employee reward to business objectives. However, PRP has proved in some circumstances a rather crude instrument and the 1990s and beyond witnessed a number of challenges to the theory. As some of the earlier schemes failed to deliver the promised results, some employers brought in new or revised PRP schemes or moved to new approaches altogether (for example, skills-based pay) while others have developed hybrid schemes.

Login or register for a free account to continue reading this factsheet and to learn about:

  • What is performance-related pay?
  • The rationale for performance-related pay
  • Measuring performance
  • Coverage and trends in performance-related pay
  • Implementing PRP schemes
  • CIPD viewpoint
  • References
  • Further reading

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