Determinants of Performance Related Pay For Rewarding Executives (A Study in the Engineering Sector of Pune Region)

Abstract

This is an empirical paper based on the author's study in the greater Pune region. Her doctoral research centered on Performance Based Rewards for Indian Executive, particularly to align shareholders interests with the executive remuneration.

Conducted during the period 2000 to 2001, as a part of her doctoral work, the findings have since been reaffirmed, with due modifications. The research was undertaken across ten different sectors, encompassing over fifty organizations, for conducting a comparative study of rewards, as they configure in Performance Related Pay (PRP).

This paper is an offshoot of the doctoral research carried out by the author; the data for this paper has been gathered from 10 major engineering industrial establishments. The research paper has been used as means of developing several propositions that link different determinants for PRP, in the engineering firms, as part of compensation strategy and their effectiveness in achieving the outcome from such initiative. The underlying argument is that effectiveness at realizing intended pay strategies depends significantly on the existence of a match between compensation strategies, organization and environment. Respondents are managers responsible for compensation policies in these firms. The relationships among compensation strategies, organization characteristics and environment are explored. The findings may help authors conceptualize, and practitioners manage the relationship between reward processes and strategy in organizations.

Though the investigation revolves around a comparative study of the various factors considered within each organization for administering PRP, the purpose of the investigation is to determine what constitutes a company's decision in incorporating certain determinants as vital to reward employees, by way of variable pay. Out of this comparative study emerged a set of parameters that could be considered homogenous, and which could be taken as a basis of accepted practice for the purposes of both delineating people management policies and benchmarking people management practices for reward management. Such factors were then espoused as determinants considered critical by the said organizations for the effective implementation of PRP plans. Therefore the determinants included in this study as critical for the success of PRP plan initiative are - Quantum Distribution of PRP to basic salary. Seminal Factors for Administering PRP, Types of PRP Plans used and Coverage of PRP Plan. While selecting determinants for a reward system, it was felt that the end must be kept in mind, such as the purpose behind variable system of pay.