MGI 301 Lecture Notes - Lecture 14: Merit Pay
20 Jun 2018
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Recognizing Employee Contributions with Pay
Introduction
-Organizations have discretion in deciding how to pay
Each employee’s pay is based on individual performance, profits, seniority, or other factors
-Regardless of cost differences, different pay programs can have different consequences for
productivity and ROI
-Programs Recognizing Contributions
-Programs differ by payment method, payout frequency and ways of measuring performance.
-Potential consequences include employees’ performance motivation and attraction, culture
and costs.
-Management style and type of work influence whether a pay program fits the situation.
Merit Pay
Merit pay programs link performance-appraisal ratings to annual pay increases.
Merit Bonus - Merit pay paid in the form of a bonus, instead of a salary increase.
Merit Pay
Criticisms of merit pay:
oFocus on merit pay discourages teamwork
oMeasurement of performance is unfair and inaccurate
oToo much emphasis on individual performance
oMerit pay does not really exist - high performers paid more than marginal and
poor performers
Individual Incentives
•Individual incentives reward individual performance but payments not rolled into base
pay
oMust continuously be earned and re-earned
oPerformance measured as physical output rather than by subjective ratings
•Individual incentives are rare because:
oMost jobs have no physical output measure.
oMany potential administrative problems.
oEmployees may only do what they get paid for.
oDo not fit in with team approach.
oMay be inconsistent with organizational goals.
oSome incentive plans reward output over quality or service.
Profit Sharing
Payments based on a measure of organization performance (profits), and payments do
not become a part of base pay
Advantages
oprofit sharing may encourage employees to think more like owners
o labor costs are automatically reduced during difficult economic times,
and wealth is shared during good times
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Organizations have discretion in deciding how to pay. Each employee"s pay is based on individual performance, profits, seniority, or other factors. Regardless of cost differences, different pay programs can have different consequences for productivity and roi. Programs differ by payment method, payout frequency and ways of measuring performance. Potential consequences include employees" performance motivation and attraction, culture and costs. Management style and type of work influence whether a pay program fits the situation. Merit pay programs link performance-appraisal ratings to annual pay increases. Merit bonus - merit pay paid in the form of a bonus, instead of a salary increase. Individual incentives reward individual performance but payments not rolled into base pay: must continuously be earned and re-earned, performance measured as physical output rather than by subjective ratings. Payments based on a measure of organization performance (profits), and payments do not become a part of base pay.
