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COMPENSATION
A Human Resource Management Approach
Chapter 3:
Traditional Bases for
Pay: Seniority and
Merit
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Learning Objectives
1. Describe seniority and longevity pay practices.
2. List at least three elements of merit pay.
3. Give examples and definitions of performance
appraisal methods.
4. Explain at least three ways compensation
professionals can strengthen the pay-forperformance link and summarize each one.
5. Discuss three possible limitations of merit pay
programs.
Copyright 2015 Pearson Education, Inc.
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Learning Objective 1
Describe seniority and longevity pay
practices.
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Seniority Pay
Designed to award job tenure
Set base pay with time-designated increases
Employees perceive that they are treated
fairly
Facilitates administration of pay
Avoids perception of favoritism
Poor fit with most competitive strategies
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Collective Bargaining
Designed to:
Negotiate labor contracts
Provide grievance procedures
Led to:
Job control unionism
Collective bargaining units
Union shops
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Start
Staff Nurse I
$19.07
13
25
37
49
months month months months
s
$20.19 $21.31 $22.40 $23.49
Nursing
Assistant
Medical
Assistant
Medical
Technologist
$9.94
$10.17
$10.53 $10.83
$11.01
$14.65
$15.40
$16.13 $16.92
$17.83
$17.66
$18.90
$20.13 $21.38
$22.60
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Longevity Pay
Designed to:
Pay grade maximum for length of service
To reduce employee turnover
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Learning Objective 2
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Learning Objective 3
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- Judgment
- Quantity of work
- Leadership responsibility
- Dependability
- Decision-making ability
- Cooperation
- Creativity
- Initiative
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Trait-Oriented Performance
Appraisal Rating Form Example
Employees name:
Employees position:
Supervisors name:
Review period:
Instructions: For each trait below, circle the phrase that best represents
the employee.
1. Diligence
a. Outstanding b. Above average c. Average d. Below average e. Poor
3. Communication skills
a. Outstanding b. Above average c. Average d. Below average e. Poor
4. Leadership
a. Outstanding
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Comparison Systems
Rates and ranks performance
Pay raises based on ranking
Types
Forced distribution
Paired comparisons
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__X__
__X__
Bob Brown
__X__
Mary Green
Jim Smith
Bob Brown
Mary Green
Jim Smith
__X__
Bob Brown
__X__
Mary Green
Allen Jones
Allen Jones
Jim Smith
__X__
Allen Jones
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Behavioral Systems
Critical-incident technique (CIT)
Behaviorally anchored rating scales
(BARS)
Behavioral observation scales (BOS)
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Behavioral Observation
Scales (BOS)
Documents positive performance
behaviors on job dimensions
Employees rated on exhibited behaviors
Ratings averaged for overall rating
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Goal-Oriented System
Management-by-objectives
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Performance Appraisal
Practices
Conduct a job analysis
Incorporate results into ratings
Trains supervisors on use
Implement formal appeals process
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Sources of Performance
Appraisal Information
Employee
Supervisor
Coworkers
Subordinates
Customers/clients
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Bias Errors
First-impression effect
Positive halo effect
Negative halo effect
Similar-to-me effect
Illegal discriminatory biases
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Contrast Errors
Supervisor compares employees
performances to other employees not to
explicit performance standards
What if the best employee is average?
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Errors of Leniency or
Strictness
Leniency errors managers rate employees
performances more highly than they would rate
them using objective criteria
Causes employees to believe they are going to
receive larger pay raises than they deserve
Strictness error supervisors rate employees
performance lower than they would rate them
using objective criteria
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Learning Objective 4
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Learning Objective 5
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Failure to differentiate
among performers
Undesirable social
structures
Using nonmerit factors
Poor measures
Undesirable competition
Supervisor biases
Poor communication
Copyright 2015 Pearson Education, Inc.
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