Explanation
Merit-based pay is designed to reward and recognize
employees who perform best in their jobs for exceeding expectations. To define
merit pay, stations must determine targets.
Once the goals are defined, employees can align themselves
with the goals. It is suggested that the organization develop a strategic plan
for the entire year and then break it down by department.
In this way, each employee will be clear about her
achievements, goals and objectives and her role in the competition for merit
pay.
Adapt to flexibility
When it comes to formulating appropriate merit pay, the
organization must be flexible. This becomes important when the organization is
in a very competitive industry. There could be many competitors waiting to
recruit employees for your organization. In such cases, unfair merit pay will
only push existing employees and talents out of the organization. The market is
very volatile and moves quickly.
Things that are released today become obsolete in no time.
Product life has been drastically shortened, and in such cases, keeping employees
on their toes without losing them is a difficult task.
Therefore, the organization must always be flexible when it
comes to designing merit pay. If the employee deserves it, the increase should
occur. Also, if the employee is underpaid compared to his colleagues, this
requires a merit pay adjustment. In all of these cases, merit pay is helpful.
The organization must also opt for merit pay, as markets
fluctuate rapidly. Competitors' pay scales keep changing, requiring the change
in merit pay for the entire organization in order to match them.
Standard merit increase
The standard merit increase for each organization is
different. While it was around 3% in 2018 and 3% again in 2019, the
organization can deliver more orders depending on several factors. It also
depends on what they can afford and what other benefits the employee receives.
For example, an organization may offer market compensation,
which is significantly lower than other companies, but will offer additional
benefits such as time off, insurance, fewer work hours, etc. These intangible
benefits will make a difference. It will also give the employee the benefit of
working for the best employer. Other companies may offer other benefits like
free gym membership, paid time off, etc.
Compensation varies from organization to organization. For
example, if an employer has given a maximum pay to the employee, then he may
offer other benefits that will offset the increase.
Increase in merit versus increase in salary
Merit pay depends on the performance of the employee. The
more efficient the employee, the more salary he will receive. The name itself
is the definition of merit pay. On the other hand, the salary increase is
simply an increase in the salary of the employee during the time he spends in
the organization. It is also sometimes paid as part of cost-of-living
adjustments.
As long as an organization wants a job done quickly, paying
on merit is the best way to do it. This helps get work done faster and benefits
the organization. For example, if an organization wants to increase sales in a
specific area, it can offer short-term quarterly payment plans based on
employee performance. The higher the sale, the higher the payment. In this way,
the organization can get things done in a short time.
On the other hand, a salary increase is a certainty that
will be implemented at the end of the year. While the percentage of salary
increase may differ from organization to organization and is entirely dependent
on timing, it is safer to occur than merit pay, which is more unpredictable.
Merit pay benefits
1. Employee motivation
Merit pay is important to motivate employees. It guarantees
success and helps them achieve their goal. The individual merit pay system is
very clear in making employees understand how their efforts directly relate to
the reward. To obtain a particular reward, they must make certain efforts.
Individual employees find merit pay to be more helpful than
