Should pay reflect savings?

13 December 2007
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13 December 2007 | Antony Barton

Just over half of buyers think some of their salary should be made up of performance-related pay (PRP). And, they add, the amount should reflect the cost savings they achieve.

In the latest SM poll of 100 procurement professionals, 52 per cent said they were in favour of the idea and 48 per cent were not. Many respondents said they approved of PRP, but not based on cost savings alone.

They pointed out that with so many other duties, such as corporate social responsibility, compliance and internal customer service, PRP should relate to the delivery of a "complete agenda".

Others were against the idea of PRP altogether. Nic Massey, a buyer for Toyota Motor Europe, said that although pay can motivate it can also harm the organisation: "It can drive people to destroy business relationships, either through inexperience or the greed factor of achieving great rewards."

Some believed PRP could lead to short-term cost-cutting rather than long-term value for money. Andrew Grover, contracts manager at Southern Universities Purchasing Consortium, pointed out that long-term projects are unlikely to provide an annual indication of a buyer's performance. The consequence would be waiting until the end of the contract to assess final savings, with the risk that the buyer who set up the initial contract is no longer with the team.

A couple of buyers suggested PRP based on cost savings could result in a huge salary increase for buyers of large-scale equipment but less for equally good employees working on contracts for small-value consumables.

Peter Easterby, European sourcing specialist for Honeywell, said buyers should think carefully before asking for PRP because the supply market could turn sour and savings opportunities become scarce. "Would buyers be willing to take a hit on salary if the business is impacted by huge cost increases?"

Buyers in favour of PRP for cost savings generally felt it would be fair recognition for hard work, but recognised that various factors would need to be taken into account.

SMdec2007

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