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Factsheet:

Performance-related pay

Resource summary

This factsheet was last updated in May 2015.

What is performance-related pay?

Performance-related pay (PRP) is a way of managing pay by linking salary progression to an assessment of individual performance, usually measured against pre-agreed objectives. It is also known as individual PRP or merit pay. Wage 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 on individual, consolidated PRP as a means of pay progression, PRP can be defined more broadly to include systems that link individual and group performance to pay, including non-consolidated elements such as bonus schemes.

PRP has grown since the 1980s as employers have sought ways of driving high performance levels by linking employee reward to business objectives. However, in some circumstances, PRP has proved 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, a number of 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.

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  • 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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