Jayendra Rimal

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Traditional Bases for Pay Seniority and Merit

• Jayendra Rimal

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Seniority and Longevity Pay

• This type of pay rewards employees with increase
  in base pay according to the length of service.
• This type of pay rewards employees for acquiring
  and refining their skills as indicated by
  seniority.
• Organizations assume that employees become
  valuable with time and may choose to leave if
  they do not have an idea that their pay will
  progress over time.
• In unionized organizations where collective
  bargaining is undertaken, seniority usually is a
  criterion when transfer or promotion are
  considered.
• Seniority is usually prevalent in government jobs
  as it essentially provides automatic pay increase
  and performance assessment tends to be subjective
  rather than objective.

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Seniority and Longevity Pay, contd

• This type of pay is opposed by the private sector
  (unlike government) as they have to face
  increasingly competitive markets.
• Other influences like technology and skill
  deficit is forcing companies to have strategic
  orientation towards compensation.
• Seniority pay rewards job tenure through
  permanent increase in base pay but employees also
  reach maximum pay rates for their jobs over a
  certain period of time.
• Longevity rewards employees who have consumed all
  grades and have reached the maximum pay limit. It
  could be as a percentage of base pay, flat amount
  or step increase. This is use as an incentive.
• Advantages of tenure based pay are that
  employees perceive they are treated fairly.
• For employers it facilitates administration of
  pay. Employers are less likely to offend
  employees by showing favoritism because seniority
  is an objective measure.

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Merit Pay

• This assumes that compensation over time should
  be determined by differences in job performance.
• This rewards excellent performance, motivates for
  future performance and help retain valued
  employees.
• This type of practice is prevalent in the private
  sector.
• Based on subjective and objective appraisals by
  evaluating how well workers perform relative to
  set standards.
• For it to succeed, employees must know that
  meeting standards will result in pay raise.
• Job requirements must be realistic and employees
  must have the required skills.
• In addition to commitment from top management,
  jobs must be designed in such a manner that
  performance can be measured accurately vis-à-vis
  set standards.

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Performance Appraisal

• As effective performance appraisals drive
  effective pay programs, there has to be a clear
  link between them.
• It is also important that appraisals are
  administered successfully while professional
  skills should used in designing and implementing
  them.
• Some performance appraisal plans
• Trait system asks raters to evaluate traits such
  as quality of work, quantity of work, appearance,
  dependability, cooperation, initiative, judgment,
  leadership, creativity etc.
• Comparison system evaluates an employees
  performance against the performance of other
  employees through various methods. e.g.
  comparison system, forced distribution and paired
  comparison.
• Behavioral system rate objective job performance
  behaviors, e.g. critical incident, BARS and
  behavioral observation scales (BOS).
• Goal oriented system possibly the most
  effective performance appraisal method as
  supervisors and employees determine objectives
  that the employee is supposed to meet.

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Essentials of Pay-for-Performance(From
Management Techniques by Michael Armstrong)

• It should fit the culture of the organization
• The reward is clearly linked to the effort
• The reward follows the accomplishment which
  generated it
• Employees can influence performance by changing
  behaviors
• Employees are clear about targets and performance
  standards
• They can track performance against these
  targets/standards
• Fair means are available for measuring
  performance
• The reward is closely linked to and
  proportionate to the effort
• Employees expect that high performance will lead
  to rewards
• The PFP is carried out through a easily
  understood formula
• Provisions should exist to amend the formula when
  required
• Constraints are built into the scheme whereby
  employees cannot receive inflated rewards not
  related to performance
• The scheme is properly designed installed and
  maintained
• Employees are involved in the development and
  operation of scheme

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Strengthening the Pay-for-Performance Link

• Link performance appraisal to business goals
• Analyze jobs
• Communicate
• Establish effective appraisals
• Empower employees
• Differentiate among performers

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Limitations of Merit Pay Programs

• Failure to differentiate among performers
• Poor performance measures
• Supervisors biased rating of employee
  performance
• Lack of open communication between management and
  employees
• Undesirable social structures
• Factors other than merit
• Undesirable competition
• Little motivational value

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Any questions?