Performance related pay can improve performance. Image credit

Performance related pay can improve performance. Image credit

ZIMSEC O Level Business Studies Notes: Performance Related Pay

  • A financial reward system for employees where some or all
  • of their monetary compensation is related to how their performance
  • This performance is based according to a stated criteria
  • For example workers are paid a bonus when they achieve a certain level of production or when the quality of products meet/exceeds a certain quality level
  • It is also known as performance linked pay
  • Examples of performance related pay include the payment of commissions and bonuses
  • The piece rate system also falls under performance related pay


  • It provides a direct incentive for employees to achieve the defined business objectives/targets
  • Rewards employees who work towards set goals
  • Results in the development of a compliance culture within the organisation
  • Encourages employees to come up with efficient ways to achieve the organization’s goals
  • Helps to improve worker vigilance and reduces supervision costs
  • Can be used as a motivational tool
  • Helps the organisation to retain the most skilled and best staff
  • It’s an effective way of dealing with poor performance
  • Helps with communicating the goals to the entire organisation


  • It reduces equity in terms of pay as different individuals will earn different compensation for the same job/tasks
  • Can hinder cooperation and teamwork as individuals focus on their own performance instead of the team’s performance
  • Only rewards employee for certain aspects of performance e.g. the piece rate system focuses on quantity which may come at the expense of quality
  • Employees can be demotivated if the set goals are too high
  • Employees and employers will focus on financial gains instead of their own their development
  • Not all jobs or tasks can be reduced to simple performance standards
  • Performance Appraisal is a judgement based assessment method it is difficult to objectively measure performance
  • Recognises performance and not effort
  • Can lead to clashes with Trade Unions
  • Can be costly to implement
  • It can be difficult to translate performance into pay
  • Makes costing difficult
  • Makes financial planning difficult
  • It is difficult to understand how payment is calculated

To access more topics go to the O Level Business Notes page.

- See latest Zimbabwe grocery prices -


We publish the latest grocery prices from Zimbabwean supermarkets. We also deliver groceries online

Quick NetOne, Telecel, Africom, And Econet Airtime Recharge

If anything goes wrong, click here to enter your query.