'Enlightened' performance-related pay needed to increase productivity

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More 'enlightened' performance-related pay is one way to increase workplace productivity

More 'enlightened' performance-related pay is one way to increase workplace productivity in the UK, according to a paper by the Centre for Policy Studies.

The report Mind the Skills Gap includes 22 recommendations for improving British workers' skills, in an attempt to address the country's productivity crisis.

These include obliging schools to record the employment rates of their alumni, improving the visa system for non-EU workers and encouraging the extension of performance-related pay.

Centre for Policy Studies head of economic research Adam Memon, who authored the paper, told HR magazine employers who do introduce more widespread performance-related pay should avoid setting "short-term targets that can lead to volatility".

"I think in the post-crash period we're seeing much more enlightened ways of setting types of performance-related pay," he said. "Not to do with share prices but more to do with relative performance – so market share for instance."

While Memon added that if the schemes are poorly set up they can "lead to poor outcomes", this can be easily avoided by implementing them in a "sophisticated" way.

"It's probably best not to tie the way performance is rewarded to one specific way; giving employers flexibility is best," he said. "Each employer has to work out what's best for them."

Memon claimed there are some actions policy makers can take in the short term to increase productivity, but said any steps taken to improve the wider skills agenda now may not have a full effect "for maybe a decade".

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