The Pay-for-Performance Link
A merit pay program is a pay system that rewards an organizations workforce based on their job performance. An organization’s work force can earn a permanent merit increase in their salary compensation based on their level of productivity of work or performance. Many of the times merit increases are disbursed in a percentage form or flat rate. Merit pay is one of the most utilized forms of compensation strategies used in the United States. These types of pay program are mainly used by private “for-profit” business sectors.
Effective and well-designed performance appraisals have a direct link to merit pay programs. Merit pay programs are uniquely married to specific performance appraisal techniques. Performing an effective merit pay programs can depend on leadership appraisals approaches as it can on implementing this plan. There are four types of performance appraisal plans which are defined in the following:
This system evaluates an organizations workforces’ quality of work, appearance, dependability, cooperation, initiative, judgment, leadership, responsibility, decision making ability or creativity.
This system monitors an employer’s workforces’ productivity and performance against other employees. Employees are then categorized for greatest to poorest performer. There is also forced distribution performance appraisals that is an entity of a comparison systems. Forced distribution performance appraisals assign workers to a category that constitute a scale of performance.
Behavioral Systems and Behaviorally Anchored Rating Scales (BARS)
The behavioral system rates workers on the degree to which they show triumphant job performance conduct.
The behaviorally anchored rating scales rates commonly referred to as (BARS) are implemented to display the benefits of qualitative and quantitative information to an employer’s workforce performance appraisal process. BARS contrast an employee’s individual performance against particular instances of behavior that are anchored to numerical ratings.
Goal-Oriented Systems Management by objective (MBO)
This is considered prominently effective performance appraisal procedures because both leadership teams and workforce determine to orchestrate a meeting schedule during the rating times. This enables an organization’s workforce to assess how they will attain their objectives. Sometimes this system can be part of an individual development plan, also referred to as and (IDP).
An accurate merit pay cannot happen without an effective performance appraisal. The direct link between the two is that they both go hand and hand. The two recommendations for improving the strength of this link across the greatest number of organizations are as follows:
Improvements to Performance Metric
A performance metrics strategy can track how workforce performance compares against organizations expectations, but it can be sometimes unreliable. Performance metrics have direct relations to merit pay or performance based equity because the formulas determine how much percentage merit increases are. I think that organizations have stitched to the wombs of automation. Organizations are so quick to compute data into a software application and rate individual performance based on what a computer system says is acceptable. Employers heavily base their workforces productivity into computerized metrics systems to rate individual performance should utilize statistic with caution and embrace feedback.
Enhance Training and Development
Training and development is essential for superior employee performance and can enable organizations to increase production, retain their workforce and increase their bottom line. It is imperative for business success that employers create an ongoing training and development program to keep their workforce engaged. Employees who embrace ongoing training and development can be an effective tool used to obtain maximum outcomes for performance appraisals.
According to the course material there are several limitations of Merit Pay programs which are as follows:
Failure to Differentiate Among Performers
Poor Performance Measures
Supervisors’ Biased Ratings of Employee Job Performance
Lack of Open Communication between Management and Employees
Undesirable Social Structures
Factors Other Than Merit
Little Motivational Value
The limitation that would be most difficult to overcome would be Lack of Open Communication between Management and Employees.
As indicated preciously, a performance metrics strategy can track how workforce performance compares against organizations expectations. Merit pay programs can depend highly on this type of performance metrics structure. Performance metrics may have unattainable or unreasonable goals outside the scope of a workers ability to perform effectively. For example, performance metrics goals for a cashier at a fast food restaurant may be to service an average of thirty customers an hour, but due to a short in the intercom system that management won’t address even though it has been brought to their attention, the worker is only able to serve twenty two customers and hour. Effective communication can help bridge the gap between empowering an organizations workforce to perform efficiently and addressing a company’s issues affecting an employee work performance. Ways to overcome this limitation would be to orchestrate group meetings, one or one’s or Employee Opinion Surveys (EOS
Sometimes performance metric do not accurately assess a worker’s performance. Performance metrics in my opinion is an artificial means of rating and individual’s performance. It can be better described as a computerized art of micromanaging.
Merit pay programs reward an organizations workforce for individual productivity and performance but not team performance. For example, an employee may have done poor on their individual performance evaluation, but departmental performance for all employees could have been satisfactory.
Sometimes there can be disputes on merit pay programs in regards to tenure or seniority. Merit pay programs are not based on years of services with organizations. For example, an employee with 17 years of service will get no more of a merit increase then an employee with 4 years of service.
XX, B.B.A, HRM