TRADITIONAL BASES FOR

PAY
SENIORITY AND MERIT

OVERVIEW

These systems
reward employees
with periodic
additions to base pay
according to
employees length of
service in performing
their jobs.

SENIORITY & LONGEVITY PAY

THE DESIGN OF SENIORITY PAY AND LONGEVITY PAY

PLANS

SENORITY PAY
To reward job tenure or

LONGEVITY PAY
To reward employees

employees time as

who have reached pay

members of a company

grade maximums and

explicitly through

who are not likely to

permanent increases to

move into higher

base pay.

grades.

ADVANTAGES OF SENIORITY PAY

TO EMPLOYEES
Perceive they are

TO EMPLOYERS
It facilitates the

treated fairly because

administration of pay

they earn pay increases

programs.

according to seniority,

Employers are less

which is an objective

likely to offend some

standard.

employees by showing
favoritism to others.

FITTING SENIORITY PAY WITH COMPETITIVE

STRATEGIES
Seniority pay does not fit

well with the

requirements 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.

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.

WHO PARTICIPATES?

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

 Initiative

TRAIT
SYSTEMS

Creativity
Judgement

This system asks

Appearance

raters to evaluate

Cooperation

each employees

Dependability

traits or

Quality of work

characteristics.

Quantity of work
Decision-making ability
Leadership responsibility

COMPARISON SYSTEMS
This system evaluate a given employees 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

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 determine 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.

Employees supervisor

3.

Employees coworkers

4.

Employees supervisees

5.

Employees 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
Supervisors 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