Merit Pay

Merit Pay:

Merit pay is a term describing performance-related pay, most frequently in the context of educational reform. It provides bonuses for workers who perform their jobs effectively, according to measurable criteria.An incentive plan implemented on an institutional wide basis to give all employees an equal opportunity for consideration, regardless of funding source. The merit increase program is implemented when funds are designated for that purpose by the institution's administration, dependent upon the availability of funds and other constraints. .

Merit pay is a pay increase based on goals or achievements set by an employer, rather than a pay rate based on a union contract or a defined pay scale for a position. It is also known as pay for performance. Merit pay typically involves the supervisor meeting with the employee to discuss the employee's work and to award an increase or a bonus based on performance.

Advantages

* Allows the employer to differentiate pay given to high performers.

* Allows a differentiation between individual and company performance.

* Allows the employer to satisfactorily reward an employee for accomplishing a task that might not be repeated (such as implementation of new systems). Disadvantages

* The pay is subjective.

The idea of merit pay seems simple enough. If you pay high-performing workers more than low-performing ones, the former will stay and keep producing at a high level, while the latter will leave or have incentive to improve. And it can work like that-if employees are clear on exactly what it takes to earn a higher raise, if there are no other factors but performance in pay decisions, if there are enough funds to pay out significant differences in raise amounts, and if managers have the confidence to "bite the bullet," be honest, and stand up to emotional pressure.

The eye of the beholder

Edward Lawler, one of the most respected and prolific academic experts in human resources of the past 30 years, describes the conditions that permit the effective use of money as a motivator:

* employees attach a high value to pay,

* employees believe good performance will result in higher pay,

* employees have enough control over the job that their own efforts can have a material impact, and

* superior performance leads to more positive than negative results (e.g. more acceptance than rejection by coworkers).

Notice how much these factors depend on the "eye of the beholder." Employee attitudes have a lot to do with the success of merit pay programs. Perhaps