TRADITIONAL BASES FOR

PAY

SENIORITY AND MERIT

OVERVIEW
SENIORITY &
LONGEVITY
PAY
THESE SYSTEMS
REWARD EMPLOYEES
WITH PERIODIC
ADDITIONS TO BASE
PAY ACCORDING TO
EMPLOYEES’ LENGTH
OF SERVICE IN
PERFORMING THEIR
JOBS.
THE DESIGN OF SENIORITY PAY AND LONGEVITY PAY
PLANS

SENORITY PAY LONGEVITY PAY

TO REWARD JOB TO REWARD

TENURE OR EMPLOYEES WHO
EMPLOYEES’ TIME HAVE REACHED PAY
AS MEMBERS OF A GRADE MAXIMUMS
COMPANY
EXPLICITLY AND WHO ARE NOT
THROUGH LIKELY TO MOVE
PERMANENT INTO HIGHER
INCREASES TO BASE GRADES.
PAY.
 ADVANTAGES OF SENIORITY PAY

TO EMPLOYEES TO EMPLOYERS

PERCEIVE THEY ARE IT FACILITATES THE

TREATED FAIRLY ADMINISTRATION OF
BECAUSE THEY PAY PROGRAMS.
EARN PAY EMPLOYERS ARE LESS
INCREASES LIKELY TO OFFEND
ACCORDING TO SOME EMPLOYEES BY
SENIORITY, WHICH SHOWING
FAVORITISM TO
IS AN OBJECTIVE
OTHERS.
STANDARD.
 FITTING SENIORITY PAY WITH COMPETITIVE
STRATEGIES

SENIORITY PAY DOES

NOT FIT WELL WITH
THE IMPERATIVES OF
COMPETITIVE
STRATEGIES BECAUSE
EMPLOYEES CAN
COUNT ON RECEIVING
THE SAME PAY RAISES
FOR AVERAGE AND
EXEMPLARY
PERFORMANCE.
 MERIT PAY
THESE PROGRAMS
ASSUME THAT
EMPLOYEES’
COMPENSATION OVER
TIME SHOULD BE
DETERMINED, AT
LEAST IN PART, BY
DIFFERENCES IN JOB
PERFORMANCE.
WHO
PARTICIPATE
S?
MERIT PAY
PROGRAMS OCCUR
MOST OFTEN IN THE
PRIVATE SECTOR
“FOR PROFIT” OF THE
ECONOMY RATHER
THAN IN SUCH
PUBLIC SECTOR
ORGANIZATIONS AS
LOCAL AND STATE
GOVERNMENTS.
 ELEMENTS OF MERIT PAY

Managers rely on objective as well as subjective

performance indicators to determine whether an
employee will receive a merit increase and the
amount of increase warranted.
 ELEMENTS OF MERIT PAY

Employees must know that their efforts in meeting

production quotas or quality standards will lead to
pay raises.
 ELEMENTS OF MERIT PAY

Companies that use merit programs must ensure

that the funds needed to fulfill these promises to
compensate employees are available.
 ELEMENTS OF MERIT PAY

Organizations should make adjustments to base pay

according to changes in the cost of living or inflation
before awarding merit pay raises.
 PERFORMANCE APPRAISAL

Effective performance appraisals drive effective

merit pay programs.
TYPES OF PERFORMANCE APPRAISAL PLANS

TRAIT SYSTEMS
COMPARISON SYSTEMS
BEHAVIORAL SYSTEMS
GOAL-ORIENTED SYSTEMS
 Quality of work
TRAIT Quantity of work
SYSTEMS
Appearance
THIS SYSTEM ASKS
RATERS TO Dependability
EVALUATE EACH
EMPLOYEE’S TRAITS Cooperation
OR
CHARACTERISTICS. Initiative
Judgement
Leadership responsibility
Decision-making ability
Creativity
 COMPARISON SYSTEMS

THIS SYSTEM EVALUATE A GIVEN EMPLOYEE’S

PERFORMANCE AGAINST THAT OF OTHER
EMPLOYEES.
 AN ALTERNATIVE APPROACH TO THE COMPARISON
SYSTEMS

FORCED DISTRIBUTION PERFORMANCE

APPRAISAL, ASSIGNS EMPLOYEES TO GROUPS
THAT REPRESENT THE ENTIRE RANGE OF
PERFORMANCE.
 BEHAVIORAL SYSTEMS

THIS SYSTEM RATES EMPLOYEES ON THE

EXTENT TO WHICH THEY DISPLAY
SUCCESSFUL JOB PERFORMANCE BEHAVIORS.
 TYPES OF BEHAVIORAL SYSTEMS

1. THE CRITICAL INCIDENT TECHNIQUE (CIT)

2. BEHAVIORALLY ANCHORED RATING SCALES
(BARS)
3. GOAL-ORIENTED SYSTEMS
FOUR ACTIVITIES TO PROMOTE NONDISCRIMINATORY
PERFORMANCE APPRAISAL PRACTICES

1. CONDUCT JOB ANALYSES TO ASCERTAIN

CHARACTERISTICS NECESSARY FOR SUCCESSFUL
JOB PERFORMANCE.
2. INCORPORATE THESE CHARACTERISTICS INTO A
RATING INSTRUMENT.
3. TRAIN SUPERVISORS TO USE THE RATING
INSTRUMENT PROPERLY.
4. SEVERAL CASES DEMONSTRATE THAT FORMAL
APPEAL MECHANISMS AND REVIEW OF RATINGS
BY UPPER-LEVEL PERSONNEL HELP MAKE
PERFORMANCE APPRAISAL PROCESSES MORE
ACCURATE AND EFFECTIVE.
SOURCES OF PERFORMANCE APPRAISAL INFORMATION

1. EMPLOYEE
2. EMPLOYEE’S SUPERVISOR
3. EMPLOYEE’S COWORKERS
4. EMPLOYEE’S SUPERVISEES
5. EMPLOYEE’S CUSTOMERS OR CLIENTS
ERRORS IN THE PERFORMANCE APPRAISAL PROCESS

BIAS ERRORS
CONTRAST ERRORS
ERRORS OF CENTRAL TENDENCY
ERRORS OF LENIENCY OR STRICTNESS
 STRENGTHENING THE PAY-FOR-PERFORMANCE LINK

Linking performance appraisals to business goals

Analyze jobs
Communicate
Establish effective appraisals
Empower employees
Differentiate among performers
 POSSIBLE LIMITATIONS OF MERIT PAY PROGRAMS

Failure to differentiate among performers

Poor performance measures
Supervisor’s biased ratings of employee job
performance
Lack of open communication between management
and employees
Undesirable social structures
Factors other than merit
Undesirable competition
Little motivational value