This paper has been prepared with an aim to understand that how the pay setting has evolved in

the industry in the last three decades in particular and how fair is the individual performance
based pay to the employees. For this very purpose, I have taken up the case of UK’s industry and
done research in order to understand the evolution of pay setting in the UK.

Here the various models and various data have been used to see the evolution of pay setting in
the nation and how has the individual performance based pay evolved through the ranks in the
UK.

In the last few decades the setting up of pay in the UK has changed considerably with changes in
the wage pay. This decision of changes in the wage pay is to be based up on an organization or
an industry with the influence of the political as well as the economic environment in the
UK[ CITATION Ben90 \l 1033 ].

The first big change in the UK’s wage pay regime was seen during the 1960s and the 1970s
when the incentive schemes were introduced where the employees were offered higher wages for
better performance by them. Though, at that time this scheme was not that successful. The period
of 1980s and 1990s was of fundamental reforms and shifts in the political as well as economic
environment in the UK[ CITATION Dav96 \l 1033 ]. Changes were made to the taxation policy,
inflation rates were low, companies were developing organizational culture, and workplace
restructuring was happening. At this time the level of competition within the industries was also
increasing and this set the tone for better wage realization for the employees. With all this the
culture of individualization of the wage setting was being developed in the UK [ CITATION PCu04 \l
1033 ].

There are certain reasons which have led to a change in the UK’s wage setting patterns. With
increasing competition, employee productivity was becoming the key and thus companies were
now looking at the individual performance to set the pay. Reward strategies were one of the key
tools that companies used in order to attract and retain its key employees in the
organization[ CITATION BAG04 \l 1033 ].

In order to emphasize on the cost aspect of the company, the emphasis was made on keeping the
bonuses and incentives separate from the base pay of an individuals. Moreover the requirement
for flexible reward based schemes was on an increase [ CITATION MLA04 \l 1033 ] . Here alternative
ways were being looked upon by organizations in order to pay their employees whose
performances have been better than the rest[ CITATION HDa09 \l 1033 ].

The loyalty aspect was losing its sheen as the companies were looking for performance and
productivity of an employee more than anything else[ CITATION DeC07 \l 1033 ]. The companies
were emphasizing on the increase in the involvement of the employees in the teamwork
strategies as well as the reward strategies to know what the employees expect of the company to
be paid as an incentive and what should be the quantum[ CITATION BAG04 \l 1033 ].

Bargaining power –

In the recent years it has been the bargaining power of the various groups which have led to the
pay setting worldwide. The bargaining power here refers to the bargaining power or the degree
of control or the influence that an individual or a group of individual have on the pay setting in
an industry, or an organization. This can be divided into two parts, bargaining power of the
employees; and bargaining power of the employers.

By collective bargaining, it refers to the degree of bargaining that the employees are able to do in
a collective manner with tools such as trade unions. The membership of the employees in the
trade unions across the board has declined with UK seeing a 58% participation in 1979 has a
participation of 27% in 2009[ CITATION HDa09 \l 1033 ] . Similarly in case of Ireland it was at 62%
in 1980 and in 2009 it was at 33%, and even in the case of the US where the participation was at
35% in 1954, in 2009 it reduced to 12% [ CITATION HDa09 \l 1033 ]. There have been several
reasons for this decline like the political and the legislative that have happened in the period, the
diversification of the workforce that has happened, the restructuring in the industry along with an
increased hostility on the part of the employer toward the trade unions[ CITATION Kin99 \l 1033 ].

This has resulted in reducing the collective bargaining by the employees, and now it is more
specific to the industry or the organization rather than nationwide as the industries have
diversified[ CITATION Dye04 \l 1033 ]. This has resulted in reduction of strikes in Europe
significantly. In the period of 1970 to 1974, the average number of days lost per year was at 3.55
million and in the period of 2000-2002 it reduced to a level of 462,000 only which is
approximately 8 times lower[ CITATION HDa09 \l 1033 ].

On the other hand the collective bargaining power of the employers has increased. With this rise
in the collective bargaining the wages were set for the jobs rather than being based on the
performance of an individual[ CITATION TWa02 \l 1033 ] . This also ensured that the wage
competition between the workers was reduced. Moreover the employees prefer wage similarity
rather than going for wage differentiation[ CITATION WAS04 \l 1033 ].

For the employer the wage costs have stabilized and there is prevention in terms of the wage
competition that is there between the organizations [ CITATION ZMW03 \l 1033 ] . Moreover the
trade unions are kept at bay from interfering at the organization’s workplaces. Though the
problem of flexibility has for the terms has emerged. In addition to it the business strategies for
particular organizations are becoming a trend[ CITATION CBr04 \l 1033 ].

Though in recent times this collective bargaining has reduced from the employer’s perspective
and there is a trend for decentralized bargaining and individual negotiations which is catching
up[ CITATION Dix08 \l 1033 ].

Pay setting and the business strategy –

In recent times the trend suggests that the organizations are looking for connecting the pay
setting to the specific business strategic and are building up on the considerations such as equity,
justice, and motivation[ CITATION Dye04 \l 1033 ] . The relationship between the two is becoming
more individualized with pay setting and the business strategy of a firm equating. Earlier it was
the size of the job that was key determinant in setting up of the wages as people with more
knowledge, responsibility, authority commanded higher pay. But these days the individual
contribution and firm specific reputation are the key determinants is setting up of the
pay[ CITATION PHe90 \l 1033 ].

While formulating a pay structure organizations take into account the goals of the organization,
their values and culture ad the challenges that the company faces in the global
economy[ CITATION JHu97 \l 1033 ]. With this a “New Pay” model has been developed which is a
new orthodoxies mix of the pay idea and it involves a strategic approach towards pay setting.
This approach assumes that the HR goals and the business strategy right from top to the bottom
matches with each other[ CITATION WMJ02 \l 1033 ] . There is a unitary view when we talk about
the employee relations which connect the pay to the organization’s performance [ CITATION
SSh03 \l 1033 ].

But still the question remains that whether a firm should adopt a pay setting scheme based up on
pay equity of should it be based up on the performance of the individual employees [ CITATION
WGZch \l 1033 ].

There are various types of pay schemes that the employer chooses to use for the pay setting in
their organization[ CITATION Rum91 \l 1033 ]. These schemes can be broadly categorized into the
following 4 categories which are; Fixed pay; Variable pay; Company’s performance related pay;
Individual’s performance related pay.

Fixed Pay was a standard pay practice, which was adopted by a large number of organizations,
where the organizations offered a fixed pay to its employees and the rates were determined at
certain set intervals[ CITATION SSh03 \l 1033 ] . The progression in the pay is usually related to time
spent in the organizations. The problem with this is that the performance of an individual pay be
poor but he is paid equal to someone whose performance is far better[ CITATION Sch97 \l 1033 ].

Now coming on to the variable pay refers to the variance in the pay given to the employees by
the employer on a certain predetermined conditions[ CITATION AAM99 \l 1033 ]. This scheme is
viewed to be beneficial as here the pay is not fixed and the variance in the pay is as per the
performance of either the individual or the organization, as planned.

In the company’s performance related pay the type of pay structure the companies’ pay their
employees are based up on the performance of the company. Here what generally seen is that
there is a stake of the employees in the organization, thus the performance of the organization
influences their pay[ CITATION Dav96 \l 1033 ]. The goal of this approach is to ensure that the
employees work towards realizing the goals of the organizations and as the goals are met then
the employees will be paid rewards for their efforts. Here again the problem is that the
individuals who are not performing up to the mark will also benefit unduly[ CITATION PCu04 \l
1033 ].
The individual performance related pay states that the pay should be provided to the employees
on basis of their individual performance and nothing else. Here the biggest gain is that the
organization will be able to point out the best employees and the most productive one in the
organization and similarly the least productive ones are also visible [ CITATION IBj07 \l 1033 ] . Here
the organization would set certain parameters to measure the performance of an individual ad
pay is set in correspondence to that performance valuation [ CITATION HDa09 \l 1033 ]. But the
problem here is that this might start a culture where the employees are running behind wages and
the actual productivity and organizational goals or the teams’ goals take a back seat with
individual goals taking priority[ CITATION Sch97 \l 1033 ]. Moreover this would also promote wage
differentiation in the organization which at times can generate animosity between the employees.

Critical evaluation of the Individual Performance based pay –

The question asks the researcher that whether he agrees to the notion that the rise in the
Individual performance related pay is fair to workers or not. For this purpose the researcher has
critically examined the approach and provides the gains and the concerns that are associated with
this approach.

With Individual Performance Based Pay, there are several gains that are realized. These gains are
not just or one pay or one group of individuals, but with the Individual Performance Based Pay
both the groups, i.e. the employers as well as the employees make gains.

It helps in motivating he employees to perform at their very best which eventually results in not
just improving the performance of the individual, but also the organization as well [ CITATION
PJD08 \l 1033 ]. This individual performance based pay also acts as a lever for the organization to
bring in a change[ CITATION Dic03 \l 1033 ]. This individual performance based pay will result in
organization delivering the message that it is performance which is valued and not just the tenure
at the organization for growth in the organizational ranks and pay hikes[ CITATION EFr06 \l 1033 ].
With rewards set for attaining certain goals by the individual, organization can themselves attain
their goals as well[ CITATION TEL02 \l 1033 ]. An individual performance based pay helps the
organization in attracting the best talent outside the organization who is willing to work, and at
the same time it ensures that he best talent in the organization stays with them [ CITATION Ben90 \l
1033 ]
Similarly there are certain concerns which also arise from the Individual Performance Based Pay.
The key concern associated individual performance based pay is in the implementation part of
things[ CITATION JMK10 \l 1033 ]. In individual performance based pay it is extremely difficult for
an organization to measure the performance of an individual and set the right parameters for
measuring it[ CITATION IMc98 \l 1033 ]. Most of the employees consider themselves as better than
the rest but the individual performance based pay will show the reluctance on part of some of the
employees in its adaptation[ CITATION Ver02 \l 1033 ]. With individual performance based pay the
organizational goals can take a back seat at times and individual goals may take
priority[ CITATION Rum91 \l 1033 ].

Conclusion and Recommendations –

It can be concluded by saying that the individual performance based pay has been one of the best
modes of pay setting in an industry or an organization as of now. Though here are certain
challenges which are associated with it but taking a look at all the available options, the option of
individual performance based pay seems the most viable one for the organization not just attain
the organizational goals, but at the same time ensure employee satisfaction as well.
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