Merit Pay: An Employee Motivator tool

Merit pay is an approach to compensation that is aimed at rewarding the higher performing employees with additional pay or incentives. It includes both advantages and disadvantages for the employees and the employer. But, nevertheless, merit pay is the best way to reward the potential employees that you want to retain. Let’s have a look at the advantages and disadvantages of Merit Pay.

Advantages of Merit Pay

These are reasons why you might want to consider merit pay.

• Merit pay helps an employer differentiate between the high-performing and low-performing employees and rewards them accordingly.

• Unlike profit sharing schemes or other similar bonus pay schemes, merit pay allows an employer to differentiate between company’s performance as a whole and an individual’s performance. While there are many merit pay programs that provide for an overall reward distribution between the employees, in order to promote values such as team work, however, a portion of the available compensation is reserved for strong performers.

• Merit pay also acts as a tool that enables an employer to recognize individual performance on a one time basis. This is useful in rewarding those employees who may have participated in a one-time project such as implementing a new HRIS or opening up a new sales territory.

Disadvantages in Merit Pay

These are the challenges employers quite often face when awarding merit pay.

• There is no 100% accurate way to differentiate employees based on their performance to determine the right deservers of merit pay. Sometimes, it is almost impossible to measure outstanding contributions and accomplishments, and in such cases the onus of determining the merit pay lies with the manager or supervisor.

• Huge amount of time and energy that is invested by an organisation for promoting merit pay by developing competencies, measurements, levels for performance, etc could have been better utilised for delivering services to customers.

• Under the purview of limited metrics, the ability of the supervisor to communicate to each employee about his or her contribution’s value addition to the organisation and the expected performance level for qualifying merit pay is an ongoing challenge. Whereas some supervisors communicate it better, while in other cases the jobs as such, the required performance level is easily communicated.

Nothing discourages a high performer faster than knowing that employees, who have contributed much less in the organization, have received the same pay increase or bonus. Therefore, even with the challenges that exist in the awarding of merit pay, merit pay is one of the best opportunities to ensure that outstanding performers are retained in the company and company is enriched with their contributions.