Seniority versus Merit Pay

Seniority versus Merit Pay

Seniority and longevity pay systems are pay structures based on the duration or length of employment of a worker with an organization. These pay plans assume that an organizations workforce will become more of an asset to their company over a period of time.

The advantages of Seniority/Longevity based pay:

Employees who are a part of a seniority based pay system are rewarded in honor of their dedication to an organization.

Employees who are a part of a seniority based pay are more likely to perceive that they are treated fairly because their income is based on tenure.

Employees who are a part of a seniority based pay system can be included in a performance structure, but the main factor is tenure.

Seniority based pay systems usually eliminates any perception of favoritism and can promote cooperation among co-workers.

The disadvantages of Seniority/Longevity based pay:

Employees who are a part of a seniority based pay system can experience slower career growth, and can it can be discouraging to new talent.

There is no salary incentive for employees that are a part of a seniority based pay system to perform at a superior level.

Seniority based pay systems tend to retain below average workers in a position leaving the productive employees likely to discontinue employment.

A merit pay program is a pay system that rewards an organizations workforce based on their job performance.

The advantages of Merit Pay programs:

Enables employees to be compensated for performance.

Encourages and motivates employees to perform at a superior level.

Helps an organization distinguish high performers and low performers

The disadvantages of Merit Pay programs:

A great deal of time has to be invested by organizations to incorporate performance appraisals in order to measure performance for merit increases and compensation.

Performance metrics can enable micromanaging within HRM and management groups.

Cause a communication gap between managers and employees in regards to individual organizational contributions.

The publicly traded company that I researched was Walmart. The pay structure that would most benefit the company would be a merit pay program. Walmart employs 2.2 million employees globally and is considered the world’s largest retailer. Walmart is a production and performance based company, so a merit pay program would be ideal because this type of pay rewards employees for performance. A seniority based pay structure would not be necessary for Walmart because they have no problem retaining employees. Walmart is a solid brand with a strong foundation and financial stamina. In addition, they offer stability and career opportunities for their workforce.

XX, B.B.A, HRM