Merit pay
Merit pay condition an employee's basic pay on his or her job performance and overall productivity (Campbell, D. J., 1998).
In the era of dynamic development of the market as well as society, companies are increasingly introducing just such a pay system. The idea behind this term is to create a relationship between an employee's earnings and his productivity. Often it is a manipulative form of motivation that is meant to send some kind of message to the employee, even in cases where the company does not reward more all of those people who work harder or more productively (Gomez‐Mejia, L. R., 1992).
Ethical correctness of applying merit pay
There is a general belief in the business world that individuals should be rewarded in direct proportion to their contribution to a given endeavor. This is the so-called norm of distributive justice recognized by most in the business community (Hills, Scott, Markham, & Vest, 1987).
Most publications related to the ideology of employee motivation praise merit pay. The authors of such theories advocate that managers should closely correlate the goals they want to achieve in a given aspect of the organization's life with the compensation of the employees who work for these goals. Thus, it can be considered that it is up to the employer to determine what his preferred forms of employee compensation are and whether he believes that the merit system of pay is just the right one for the type of organization he operates. The structure of remuneration should always be justified and based on the organizations desire to achieve a particular goal.
Risks associated with the use of merit pay
Although the merit pay system sounds reasonable and its methodology is supported by pulicists and Human Resources professionals, if poorly applied it can have the exact opposite effect than the one intended. Wrong implementation of marit pay can cause problems in the area of (Donald J., 1998):
- Evaluation of the employee's contribution.
- Evaluation of performance and exchange of information at the employer-employee level.
- Employee-employer conflict due to different views on the form of remuneration.
- Lack of a transparent compensation system.
- Reluctance of employees to perform some of the often less paid but not necessarily less important tasks (from the perspective of the company).
The employee himself, whose earnings are constantly dependent on the results may also feel:
- A decrease in motivation to work through discouragement.
- A sense of burnout and dissatisfaction with work.
- Lack of stability.
All of these things can contribute to a significant decrease in employee productivity and thus poorer company performance (Gomez‐Mejia, L. R., 1992).
Advantages of the good use of the merit pay
A well-planned and implemented merit pay system in an organization can induce a number of positive phenomena in both the company and the employee, which are certainly the desired ones. A few of these may be:
- Flexible working hours (the employee himself determines when, where, how and how much he works).
- Greater motivation to work through visions of better pay.
- A sense of self-satisfaction among employees when they achieve better results than their colleagues.
- Directly proportional increase in productivity and job satisfaction in the company.
How to properly use the merit pay system
It is obvious that if the company wants to be successful in the market, its everyone within the company including the employess must strive for and achieve success. For the merit pay system to work in favor of the employer, it is necessary to apply it correctly and to be aware of the mechanisms operating in the organization. When implementing such methods, new problems may arise that can significantly increase bureaucracy in the company and thus worsen its productivity, which is the opposite of the whole idea of merit pay. The key in this matter is communication at the level of employee-employer and constant communication of their needs, as well as understanding that mutual respect at this level will bring mutual benefits for both parties in the long run.
| Merit pay — recommended articles |
| Theory X and Y — Negative motivation — Quality of work — Atmosphere at work — Meaning of synergy — Internal marketing — Personnel strategy — Career development — Skills transfer |
References
- Campbell, D. J., Campbell, K. M., & Chia, H. B. (1998). Merit pay, performance appraisal, and individual motivation: An analysis and alternative, Human Resource Management, 37(2), p. 131-146.
- Gomez‐Mejia, L. R. (1992). Structure and process of diversification, compensation strategy, and firm performance, Strategic management journal, 13(5), p. 381-397.
- Hills, F., Scott, D., Markham, S., & Vest, M. (1987). Merit pay: Just or unjust desserts. Personnel Administrator, Personnel Administrator, 32, p. 53-64.
Author: Paweł Słomka
