The Effect of Merit Pay on Pay Gaps

Article Review

Jessica Smith

Texas A&M University – Central Texas

Submitted in Partial Fulfillment of

HRM 516-110 – Compensation Management

Dr. Barbara Lyon, SPHR

Fall 2015

The Effect of Merit Pay on Pay Gaps

Narrative Summary

This article is about rates of wage growth among women and minority groups and their impact on pay gaps. This article focuses on the pay growth of those with more than one disadvantaged identity, and on the impact of merit pay. Recent research indicates that pay gaps for people in more than one disadvantaged identity category are broader than those with a single-disadvantaged identity. It is uncertain whether the gaps are closing and at what rate; nor is it known whether merit pay reduces or aggravates existing pay gaps.

These issues are defined as the analysis draws on longitudinal payroll data from a large UK-based organization. The results showed that pay gaps are coming to a  close; although, the rate of progression is slow in reference to the size of current pay inconsistently, and slowest of all for people with disabilities. When the effect of merit pay is recognized, it has been established to have a small positive effect in reducing pay gaps, and this effect is generally larger for multiple-disadvantaged groups.

Implications and Considerations

Merit pay and pay for performance are related but not exactly identical terms. Merit pay incentive plans reward performance by increasing the employee's salary on a long-term basis. Additional forms of pay for performance reward employees without increasing their salary. All forms of pay for performance are designed to motivate employees to meet their performance goals.

I found in this article that the salary amounts or wage rates entered or change provide the company with information for analysis purposes. If you are using Oracle Payroll, they also provide some of the values that payroll calculations use. If you are using another payroll system, they can also provide salary information for that payroll to process. Oracle HRMS and Oracle HRMSi enable you to generate a range of reports to meet your business analysis needs and aid payroll calculations (Woodhams, Lupton, Perkins, & Cowling, 2015). If using a compensation workbench, this feature supplies a number of reports for salary changes, bonuses, and stock options.

A salary range is an established range of pay organized into salary grades. Each job is assigned a salary grade that represents employees performing similar work utilizing similar knowledge, skills and abilities. Since employees have different levels of experience and education, quartiles are utilized in order to determine where an employee should be placed in the salary range. The first quartile of the range is usually intended for employees who are new to the grade, are in a learning situation, and/or do not have substantial experience in the new position. The second quartile of the range is intended for employees who have gained experience and skill and who are becoming more proficient in the position for which they were hired. The midpoint represents the market rate for this position, and represents fully experienced employee at that level. The third quartile is typically reserved for experienced employees who perform all tasks independently and consistently exceeds expectations in exhibiting the core competencies of the position. Lastly, the fourth quartile of the range is normally reserved for individuals who are considered the subject matter expert in their position with a depth of knowledge that extends beyond their primary responsibilities.

When determining pay, the employee’s knowledge and skills should be considered, not just ethnicity, sex or origin; as they relate to the new job/duties/responsibilities. The minimum of the salary range equates to the minimum qualifications required of the new job. If an employee meets only the minimum qualifications of the position, they likely should be compensated in the first quartile. The midpoint of the salary range is considered the market value of the position, and it is expected that the employee at this salary or above is fully productive in the position and has considerable experience in the job. Only substantial and relevant years of experience in a previous position that is directly related to the position will be considered for something higher. Years of experience may not be related to the position are not considered.

References

        Woodhams, C., Lupton, B., Perkins, G., & Cowling, M. (2015). Multiple Disadvantage and Wage Growth: The Effect of Merit Pay on Pay Gaps. Human Resource Management, 54(2), 283-301. doi:10.1002/hrm.21692

Multiple Disadvantage and Wage Growth: The Effect of Merit Pay on Pay Gaps.

Authors:

Woodhams, Carol; Lupton, Ben; Perkins, Graham; Cowling, Marc

Affiliation:

University of Exeter Business School
Manchester Metropolitan University Business School
Brighton Business School

Source:

Human Resource Management (HUM RESOURCE MANAGE), Mar2015; 54(2): 283-301. (19p)