8 Merit Pay Pros and Cons

Earn what you’re worth. That’s the concept of merit pay. It’s a specific strategy of compensation that is used for employee motivation in a number of different industries. Some jobs, such as being a teacher, have difficult standards for merit pay because results tend to come from student performance instead of curriculum quality. Other jobs, such as those that are service industry related, highly benefit from merit pay.

There are several advantages to using merit pay, but it may not always be the most effective system of employee motivation. Here are some key points to consider today.

What Are the Pros of Merit Pay?

1. It rewards people for performing at their best.
People who work harder should get paid more. That’s a pretty basic concept that has been handed down through the generations. Why should someone who barely lifts a finger to get a job done receive the same paycheck as the person who arrives to work early, leaves late, and is constantly working hard? Merit pay becomes an incentive for better, more efficient productivity.

2. It creates a system of healthy competition that benefits the employer.
Because there is usually a limited pool of work to be completed, merit pay encourages a system of competition that ultimately helps everyone work hard, do their best, and be proud of whatever results they are able to achieve. Employers benefit because they get more “bang for their buck” from each employee.

3. It rewards intelligence and creativity.
When workers are in a quota system, there is no general way to reward the top performers, the creative workers who improve processes, and the constant high output workers. When 100 items need to be processed, merit pay allows an employer to reward workers who can process 200 items without penalizing those who are satisfied in only processing 100 items.

4. It quickly identifies workers who are underperforming.
There are many people who have figured out how to fly under the radar of their bosses in order to do the least amount of work possible to earn their paycheck. A system of merit pay eliminates any places to hide because performance must be tracked to determine how much merit pay to distribute. This allows employers to eliminate the riff-raff over time and keep only the best workers.

hat Are the Cons of Merit Pay?

1. It creates cliques within the employee pool.
People who are high performers aren’t going to associate with those who are considered low performers. Those who don’t perform to the high standards of other employees feel like the system isn’t fair because they work just as hard, but don’t receive the same compensation because their output isn’t as high. The end result can be a system of cliques and inconsistency.

2. It eliminates any teamwork emphasis that exists.
Merit pay is all about individual performances. Even when an entire team is rewarded with merit pay, that team is competing against other teams. There will always be a winner and there will always be a loser. If not implemented properly, those who are dissatisfied with the merit pay arrangement may band together to fight the management on the system and slow production levels down to a crawl.

3. There’s no set definition as to what an appropriate reward happens to be.
Merit pay is ultimately subjective. Even when there are set standards in place based on employee performance, those standards had to be created by someone at some point in time. This means that even a company’s top performers may wind up feeling unappreciated, even when they receive a merit pay bonus, because they feel like the return they receive isn’t worth the output they’ve been putting in over time.

4. It ignores core issues.
Not every problem can be solved by throwing money at it. Many employees want other considerations besides salary levels to be considered when improving workplace conditions. With information access readily available, it isn’t uncommon for an 8 hour workday to become 10-12 hours with home-based work that is often left uncompensated. Those are the efforts many employees want recognized.

The merit pay pros and cons show that a carefully balanced system can be successful in many industries. Teachers are most often discussed because of the desire to improve the quality of a child’s education, but a lack of effective measurement is more likely to divide than conquer the issue. By evaluating each key point, perhaps a better system can be implemented when it appears that merit pay is not working.

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