Merit pay refers to a payment system whereby the workers receive payments depending on their performance. One example of a merit pay system is the payments made to the salespeople through commission. The salespeople receive payments depending on the number of sales one makes or the total worth of the commodities that one manages to sell. The merit pay system has received support as well as opposition from business theorists and analysts (Bright, L. 2005).
Through the merit pay system, workers who perform their jobs well can receive bonuses. The United Kingdom is an example of a state where a merit pay system has been used to pay the workers. In the United States, the system has been opposed especially where the aim is to increase payments for government officials who are considered undeserving. The Merit pay and Automatic pay Raises systems have been used in the past to pay workers.
While some business analysts support the Merit Pay system, others prefer the Automatic Pay Raises. –red. Based on research and business arguments that have been provided in the business field, only one system has proved to be a good tool through which the workers’ performance and accountability can be reflected. The companies will benefit from doing away with Automatic Pay Raises and switching to merit systems because research shows that it improves one’s performance and accountability.
Automatic Pay Raises refers to the system of payment where people receive their salary or wages based on the current cost of living. This means that an individual’s payment is increased proportionally to the increase in the cost of living. Europe is an example of a continent where payments to the workers have been automatically related to the cost of living. For instance, the Automatic index-linking in Belgium had a 2% rise in the cost of living in 2002.
This increased automatically the pay and social security benefits by 2% (Workers Struggles: Europe, Middle East & Africa, 2001). One of the reasons why the automatic pay raise system is adopted in some nations is that it prevents the purchasing power erosion that may occur due to inflation. There has been controversy on which system between the two is the best when it comes to paying workers. In this paper, the two systems of payment will be discussed to provide a reasonable argument on which system is best for reflecting the performance as well as the accountability of the workers.
For companies to maximize their profits, the performance and the accountability of the workers must be excellent. The merit system requires a company’s management to evaluate the performance and accountability of the workers so that it serves as a base upon which payment to the workers is made. For instance, when employees perform their work well, they receive high payment as compensation for their work well done and vice versa. This means that the trend of paying workers in a company that uses merit pay is a clear indication of how well or how poorly the workers perform. Excellent performers are regarded as being accountable for their work.
The Automatic Pay Raises allow workers to be rewarded regardless of their performance at work (Heneman, R., and Wener, J. 2003). Even though behavioral scientists want people to be more motivated by challenging jobs and goals, when employees were studied, it was apparent that money is a great effective motivator. From there, when they were studied, it became clear that they disagreed over what was their number-one motivator, however, they collectively chose money as their number two (Money Motivates).
When a merit system is adopted in companies, it creates the need to develop job-related appraisal systems. These systems become very useful in evaluating the performance of the employees, and the accountability of the workers is looked at to determine the reward that needs to be given to each worker. Since the payment needs to be made based on the performance of the workers, the human resource department in a company is compelled to keep an updated record of performance in workers. L HR keeps such records at most places any way for grounds for dismissals and lay-offs.
“Some people think that money can’t be used to motivate employees and that is true for some employees, but for a large percentage of the workforce it does not have to be that way. Studies show almost everyone is motivated by money to some degree, many to a moderate degree, and most to a great degree when compensation is properly designed” (Does Money Motivate Employees).
Employee performance is influenced by the amount of money one receives as payment for their work. This means that the salary that workers receive determines their performance at work. Any compensation or rewards that are made act as a motivator to improve the worker’s performance, or can reduce the performance of an employee. A merit system acts as a compensation system where employees get paid for their rate of productivity.
The accountability of workers determines the level of responsibility that a worker has for her work and actions. Despite what studies show, money does motivate people on some level when it is in a designed method such as a bonus or reward. “Studies show overweight employees who were compensated for their weight loss efforts lost more weight than those who received no monetary reward” (Money motivates employees to slim down).
Since it has become clear that money motivates employees to lose weight, it is obvious they will be enthusiastic to work harder when they have lost the weight they had to carry around with them before. Employees are more pleasant when they do not have anything holding them back physically. Therefore, money can be the main motivation that managers use to motivate employees to be productive.
According to USA Today, the time-honored tradition of bonuses and pay raises are money motivators to get employees to do a job well done. With that, promotion along with the pay raise is the extreme motivator for any employee (Ask an Expert: Finding what motivates your employees). From this information, it is apparent money is the effective motivation that managers use to better their companies. Accountability of workers boosts their performance and improves their productivity.
One major reason why merit pay is the best for reflecting workers’ performance and accountability is that rewards offered to the workers due to their performance are an indication of improved knowledge and skills. In companies, a worker’s knowledge and skills are considered as being very important in measuring how well a worker can perform. Employees who perform their work well are boosted by great knowledge and skills about an issue. Those who perform poorly are hindered from doing well by their lack of knowledge and skills. When pay is very little to workers when using this system, poor performance is reflected. When there is good performance, the good pay to the employers will reflect this (Heneman, R., and Wener, J. 2003).
The merit system often reflects the economic position of a company. For instance, a company that reaps huge amounts of profits is always in a better position to reward its employees. This is so with automatic pay raises as well. Universal percent raises of 2%, 3%, or 5 % depending upon company revenue for the year. When a company has a low economic ability, then it lacks the means through which it can reward its employees. In most cases, employee performance plays a very vital role in maximizing the productivity of a company.
A merit system that lacks good financial rewards for its employees may therefore be a reflection of the employee performance inability to maximize the productivity of a company. This no doubt acts as a very good indicator of employee performance about the productivity and profitability of the company. In contrast, an automatic pay raise system means that the payment to the employees cannot be directly linked to the performance, hence a low possibility of reflecting the performance and accountability of the workers. – based upon company productivity. Since money is a major incentive for increasing productivity, it can be used to measure properly the performance of the workers. The Business theorists (Fredrick Winslow Taylor) supported this system due to this reason.
Merit pay is a standard-based system that is used to evaluate and set employees’ salaries based on their work. Low performers fail to retain their jobs when this system is utilized. The automatic pay rise system lacks the ability to evaluate the level of productivity of the workers. A merit-pay system when used in companies is able to provide a level upon which the employee evaluation can be standardized, hence provides a good environment within which employee performance can be evaluated without fears of favourism.
The merit pay system also allows companies to stress the quality of work, improvement, and attendance in workers. Because such a plan stimulates productivity and increases the workers earnings, the performance of the workers can be monitored and evaluated. A company’s workforce can be better stabilized by the merit pay system as compared to the Automatic Pay Raise. Through the system, the workers’ potential is maximized, and the employees’ process of maximizing his or her potential allows the company to evaluate the employees’ performance.
When a merit system is used to pay workers in a company, the company is provided with a means through which productivity can be increased. In their efforts to have the performance and accountability of the workers evaluated, companies are unsure of the method of payment that would be best to allow evaluation. However, using merit pay systems to pay workers would be the best way in which the workers’ performance and accountability can be evaluated.
References
Ask an Expert: Finding what motivates your employees. Web.
Does Money Motivate Employees?. Personal Systems Associates. Web.
(2007). Money motivates employees to slim down. That’s fits. Web.
Money Motivates. Citeman Network. Web.
(2001). Workers Struggles: Europe, Middle East & Africa. Web.