Hi Rajesh & Lalita,
Thanks for your inputs..i really appreciate it..
Just would like to share the contrarion view on this..let me know what you think..
Are you considering pay for performance ? Think again....
The idea of merit pay or pay for performance is so widely accepted that almost every organization says it has a merit pay system. The major reason for the popularity of merit pay is the belief that it can motivate job performance and increase organisational effectiveness. Research shows that this can be true if pay has two fundamental properties:
• a)Pay has to be important to people
b)Pay has to be tied to their performance in visible, credible and direct ways as perceived by them
Think :
a) How important is pay to your people? More importantly is the pay increase big enough to be important to your people ?
b) Are salary increases perceived to be tied to performance in your organization or are they considered to be a function of favoritism, general increases etc ?
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 ?
Cheerio
Rajat