Since
pay is important to most people, the critical factor is if a perceived
relationship exists between pay and performance. Despite the widespread
support for the policy of merit pay, there is considerable evidence
that in most organizations, merit pay systems fail to create a
perceived relationship between pay and performance. As a result
of this failure, they fail to produce the positive effects expected
of them. Here is a brief review of the reasons why merit pay systems
often do not produce the perception that pay and performance are
related.
Problems
with Merit pay systems:
Poor
performance measures
Fundamental
to any effective merit pay systems are objective, comprehensive
measures of performance. Without these, it is impossible to relate
pay to performance. There is a great deal of evidence that in
most organizations, PA is not done well, and that as a result,
no good measures of individual or group performance exist. In
the absence of good objective measures of performance, most organizations
rely on the judgments of managers. These judgments are often seen
as invalid, unfair & discriminatory. Because the performance
measures are not trusted when pay is based on them, little is
done to create the perception that pay is based on performance.
Indeed in the eyes of many employees, merit pay is a fiction,
which managers try to perpetuate.
Think
:
How good are the performance measures in your organization? Who
decides these? Are these tracked?
Poor
communication
Salaries
of many individuals in organisations are kept secret. In addition,
pay practices and formulas too are kept secret. Salary increases,
bonuses, highest & lowest raises all are kept secret. Hence
the typical employee is often asked to accept in faith that pay
& performance are related without ever being able to determine
if they are.
Since trust build only with communication and exchange of information,
secrecy in pay & performance decisions builds up mistrust.
Many organizations don’t bother to communicate at all how
the system works as it needs a lot of energy and time and typically
the HR department is understaffed. Even when they do they do so
in ways that lead people to question the credibility of the system.
For eg. Firms often say that all pay increases are based on merit,
but all employees get uniform increases because of inflation and
changes in the labor market. This raises the question ‘how
much did merit have to do with their merit increase?’
Think
:
How well have your employees
understood how pay increases and performance are decided? How
often and how well do managers communicate with their subordinates
on these issues?
Poor
delivery systems:
Merit pay policies and procedures often lead to actions, which
do little to actually relate pay to performance. They are also
complex that they fail to clarify the relation between pay and
performance. The merit salary increase in particularly poor as
it allows only small changes in total pay to occur in one year.
Past merit payments are often made part of the individual’s
base salary. Thus a poor performer who used to perform well once
upon a time can still get highly paid. Bonus plans may typically
relate pay better to performance. However they are often kept
low or are the same amount to everybody.
Think
:
What are your stated and unstated policies towards deciding pay
increases? How much of them have been genuine enough to motivate
performance?
Poor
Managerial Behavior:
Managers’
actions often negatively affect perceived connection between pay
& performance. They recommend widely different pay increases
or bonuses for their subordinates when large performance differences
exist. They will not recommend very large or very small pay actions
as it means explaining why someone got a low raise.
Such difficulty to explaining raises leads to managers disowning
the pay decision. They say that they fought hard to get the employee
a good raise but lost. This communicates to the subordinate that
pay increases are beyond their control and not based on performance.
Think
:
what are the reasons that are typically given to explain how a
raise was arrived at ?
To
post your feedback, comments or to discuss the issue please email
hrd@madrasmarkets.com.
For
in-depth discussion of issues send an email to hrdissues-subscribe@yahoogroups.com.
Contact us for further consultation.
Bibliography :Material
obtained from Perspectives on Behavior in Organisations
