Impact of Performance Based Remuneration Systems on Productivity Performance of Local Industries: Compilation Report

From APEC HRDWG Wiki

Performance-based Remuneration Systems

Performance-based Remuneration Systems are increasingly being implemented by Small and Medium Enterprises (SMEs) to remain competitive. One of the ways to ensure that an SME maintains its competitive edge is to make sure that any increase in remuneration is supported by improved performance.
This study demonstrates the results of a performance-based remuneration system carried out by APEC economies, including:
• Korea
• Malaysia
• The Philippines
• Chinese Taipei 

These economies support the growth of SMEs within their economies. Various plans and policies ensure that SMEs are on the same growth path as other industries in the economy because they comprise more than 90% of business establishments in these economies.
In all the economies discussed, performance-based remuneration systems were developed by the economies themselves. Prior to this, the systems used include:

• Balance Scorecard
• Management by objective
• Key Performance Indicators
• Benchmarks
• High Performance Work Systems
• Excellence Models and Performance evaluation based on set objectives and targets

The fixed component and the variable component constitute the two elements in SMEs. The fixed
component comprises the basic wage or remuneration while the variable component or performance element is linked to productivity improvement, profitability, or determined through specific performance measures.

Importance of Performance-Based Remuneration Systems

The study of individual firms shows vast improvements have occurred. Some firms recorded an increase in profits two-fold within two to three years. Productivity improvements were more than double over a three year period.

Other areas that impacted the implementation of performance-based systems included expansion of sales, reduction in sales costs through creative and innovative means, increased motivation, and improved staff morale through a sense of commitment and dedication. Pay for performance became an acceptable normal practice. In addition, multi-tasking to reduce unwarranted recruitment of staff was initiated.
The positive impact of implementing performance-based remuneration systems revealed the shared cooperation employers and employees.Through this system feelings of ownership and responsibility were acquired and rewards were real and reflective of performance. Thus each individual found ways to support and contribute to improvement, ultimately leading to better quality for all.

The full report document is available for download at the APEC Publication site.