Final answer:
Performance related pay is a compensation system where an employee's salary or bonus is directly tied to their performance. It can take different forms, such as bonuses, profit sharing, stock options, or merit-based pay increases. This type of pay structure can motivate employees to perform better and improve their performance.
Step-by-step explanation:
Performance related pay is a compensation system where an employee's salary or bonus is directly tied to their performance. It is designed to incentivize and reward employees for achieving specific goals or objectives. For example, a salesperson may receive a commission based on the number of sales they make. This type of pay structure can motivate employees to perform better and improve their performance.
Performance related pay can take different forms, such as bonuses, profit sharing, stock options, or merit-based pay increases. It is commonly used in organizations to align individual goals with organizational goals and promote high performance. For instance, an employee may receive a bonus if they meet or exceed their sales targets.
However, it is important to note that performance related pay should be implemented carefully to avoid potential drawbacks, such as competition among employees, subjective performance evaluations, and discouragement of teamwork. Organizations need to have clear and measurable performance criteria, provide regular feedback and coaching, and ensure fairness in the evaluation process.