Running Head: Merit Pay for Performance How Does Merit Pay Affect Performance? Running Head: Merit based Pay Merit Pay is a compensation strategy that is used to motivate employees with pay increases based on positive performance. This increase revolves around the company obtaining the bottom line that was set forth by the board members and stockholders. The increase in pay also can be based on seniority and other equitable criteria. The merit pay system is prevalent in the education area. Teachers receive pay for performance based on yearly test scores.
The down side to this idea is that teachers tend to educate towards the test as opposed to the kids learning the information. In using a merit system for most businesses, you have to factor in is this meaningful to employees. This means that businesses should be providing merit pay that has fair incentives with competitive pay. Merit Pay has been tested as a very effective way for employees to produce results. There are also many pros and cons for having a merit pay system. Some of the pros of the merit system are that it promotes healthy competition between mployees and motivation to produce results.
The high performers usually know their worth and skillset and enjoy the challenge of meeting measurable goals that are linked to monetary rewards. Employees like to receive kudos for a Job well done by coworkers and upper management. This comes from a behavioral psychology that where there is good behavior or performance it can be reinforced with a reward. This association created relates behavior to a positive feeling. Merit Pay is believed to have many pros and cons when it comes to the workplace.
The long term effects of merit are still being analyzed for effectiveness. A study done by Cornell University states, “Extant compensation literature has indicated that pay- for- performance can influence employee performance. There is little research; however, that differentiates the effects of certain forms of pay-for-performance plans on future performance. ” The logic of pay for performance seems to motivate people that are already considered top performers. There are many organizations that fail Some of the pros are definitely better performance producing results.
This also feeds a healthy competition between employees. This motivates them to focus and deliver great results. It allows employees to buy in and effectively communicate their needs for the betterment of the organization, when there is one common goal. This also provides the employees with a permanent increase in pay annually. This usually helps the organizations as well. The cons of the merit system usually affect the morality of the employees. Some employees may feel that no matter how hard they try they can never meet the standard.
This will cause them to feel unmotivated. This also causes employees to focus more on their personal goals rather than team goals. The difficulty comes into to play when distributing the 2-3% merit increase adequately. As the organization you want to ensure that the performance appraisals are fair and equitable without inconsistencies. The future of the merit system is really begins to question is there really any merit to the system. The merit system has taken the “entitlement mentality’ out of yearly raise in base pay.
The merit system rewards for being competent and capable to do your Job abilities. The downsize to the merit system is those employees that Just don’t have the capacity to fulfill the duties required or the employees who attempt to bypass the necessary steps to compete fairly. It seems to me that the slim percentage of increase that’s set forth to divide among employees don’t really produce a healthy and morally fit environment for the employees. The merit system seems to motivate employees to produce but it also seems to destroy what team morality there may be.