2. Traditional Pay System
The traditional pay system compensates an
employee on the basis of either a fixed hourly rate or
an annual salary.
Under this system, pays are
dependent on factors including
seniority and performance.
3.
4.
5. Merit Pay
Merit pay is when salary
or compensation is
dependent upon merit or
performance.
This is also known as
performance-based pay
It is most appropriate
where employees have
control over their
performances.
6. Elements of Merit Pay
Objective performance indicators
Subjective performance indicators
Production Quotas or Quality Standards
Funds
Cost of Living or Inflation
Commitments from top management
9. Production Quotas or Quality Standards
Employees must know that their efforts in meeting
production quotas or quality standards will lead to
pay raises.
10. Funds
Companies that use merit programs must ensure
that the funds needed to fulfill these promises to
compensate employees are available.
11. Cost of Living or Inflation
Organizations should make adjustments to base pay
according to changes in the cost of living or inflation
before awarding merit pay raises.
12. Commitments from Top Management
Top management must be willing to reward
employees’ job performances with meaningful pay
differentials that match employee performances
differentials.
13. Just-Meaningful Pay Increase
It refers to the minimum pay increase that
employees will see as making a meaningful change in
compensation
14. Effective Merit Pay Program
Performance appraisal
A method by which the job performance of an
employee is documented and evaluated. Performance
appraisals are a part of career development and consist
of regular reviews of employee performance within
organizations.
16. TRAIT
SYSTEMS
This system
asks raters to
evaluate each
employee’s
traits or
characteristics.
Quality of work
Quantity of work
Appearance
Dependability
Cooperation
Initiative
Judgment
Leadership responsibility
Decision-making ability
Creativity
17. Limitations of Trait System
Highly subjective on supervisor’s perspective
Rate individual on subjective personality factors
rather than on objective job performance data.
Focus attention on employees rather that on job
performance
24. The Critical Incident Technique (CIT)
CIT requires job incumbents and their supervisors to
identify performance incidents (on-the-job behaviors
and behavioral outcomes) that distinguish successful
performances from unsuccessful ones.
25. Behaviorally Anchored Rating Scales (BARS)
It is based on Critical Incident Technique in which
the incident would be written as “the incumbent is
expected to complete the task in a timely fashion.
26. Behavioral Observation Scale (BOS)
A specific kind of behavioral system, displays
illustrations of positive incidents of job
performances for various job dimensions.
27. Goal-oriented Systems
Management by Objective (MBO)
Supervisors and employees determine objectives for
employees to meet during a rating period and
employees appraise how well they have achieved their
objectives
28. Performance Appraisal Process
Non Discriminatory Performance Appraisal
Practices
These are key to effective merit pay systems because
they accurately measure job performance
29. Four Activities to Promote Nondiscriminatory Performance
Appraisal Practices
30. Sources of Performance Appraisal
Information
1. EMPLOYEE
2. EMPLOYEE’S SUPERVISOR
3. EMPLOYEE’S COWORKERS
4. EMPLOYEE’S SUPERVISEES
5. EMPLOYEE’S CUSTOMERS OR CLIENTS
31. Errors in the Performance Appraisal Process
BIAS ERRORS
CONTRAST ERRORS
ERRORS OF CENTRAL TENDENCY
ERRORS OF LENIENCY OR STRICTNESS
32. Bias Errors
It happens when the rater evaluates the employee
based on a personal negative or positive opinion of
the employee rather than on the employee’s actual
performance
First Impression effect
Positive Halo effect or Negative Halo effect
Similar-to-me-effect
33. Contrast Errors
Supervisors make contrast errors when they
compare an employee with other employee rather
than to specific, explicit performance tender.
Such comparisons qualify as errors because other
employees are acquired to perform only at minimum
acceptable standards .
34. Errors of Central Tendency
Supervisors rate all employees as average or close to
average, they commit errors of central tendency.
35. Errors of Leniency or Strictness
Raters sometimes place every employee at a high or
low end of the scale, regardless of actual
performance.
36. Strengthening the Pay-for-Performance Link
Linking performance appraisals to business goals
Analyze jobs
Communicate
Establish effective appraisals
Empower employees
Differentiate among performers
37. Possible Limitations of Merit Pay Programs
Failure to differentiate among performers
Poor performance measures
Supervisor’s biased ratings of employee job
performance
Lack of open communication between management
and employees
Undesirable social structures
Factors other than merit
Undesirable competition
Little motivational value
Notes de l'éditeur
Merit increases reward excellent effort or results, motivate future performance, and help employers retain valued employees.
Merit increases are usuasally expressed as a percentage of hourly wages for nonexempt employees and as a percentage of annual salaries for exempt employees.
Supervisors give merit increases to employees based on subjective appraisal of employees’ performance. They periodically review individual employee performance to evaluate how well each worker is accomplishing assigned duties relative to established standards and goals.
Objective performance measures include timing measures such as stopwatches or electronic timing devices, or distance measures such as measuring tapes to determine the winner of an event. In these situations the performance appraisal is not subject to personal opinion or interpretation of results and it is a clear objective measure.
These measures are often criticised and scrutinised as they are open to interpretation and opinion. Subjective measures often refer to the quality and style of performance such as scoring of dance and gymnastics. While a numerical score may be used it is open to interpretation of the judge not a clear cut measure.
Job requirements must be realistic, and employees must have the skills and abilities to meet job goals.
Employees must perceive a strong relationship between attaining performance standards and receiving pay increases.
Organizations must make sure that adequate funding is in place.
Merit pay should always reward employee performance rather than represent adjustments for inflation.
Compensation professionals attempt to minimize negative inflationary effects by making permanent increases to base pay known as cost-of-living adjustments.
EMPLOYEES ARE RANKED FROM THE BEST PERFORMER TO THE POOREST PERFORMER.
SUPERVISORS RANK EACH EMPLOYEE AND ESTABLISH A PERFORMANCE HIERARCHY SUCH THAT THE EMPLOYEE WITH THE BEST PERFORMANCE RECEIVES THE HIGHEST RANKING.
FOR EXAMPLE: THREE CATEGORIES THAT MIGHT BE USED ARE BEST PERFORMERS, MODERATE PERFORMERS AND POOR PERFORMERS.
MANY COMPANIES USE THIS APPROACH TO MINIMIZE THE TENDENCY FOR SUPERVISORS TO RATE MOST EMPLOYEES AS EXCELLENT PERFORMERS.
THIS SYSTEM PROVIDES RESULTS THAT ARE RELATIVELY FREE OF RATER ERRORS AND BIASES WHEN CORRECTLY DEVELOPED AND APPLIED.
