Discuss the Problems Identified with Merit Raises

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The Answer is There are a number of problems identified with merit raises.First,unlike a bonus,a merit raise may be perpetuated year after year even when performance declines.When this happens,employees come to expect the increase and see it as being unrelated to their performance.Second,employees in some organizations are opposed to merit raises because,among other reasons,they do not really trust management.What are referred to as merit raises often turn out to be increases based on seniority,organizational politics,favoritism,or raises to accommodate increases in cost of living or area wage rates.Third,money available for merit increases may be inadequate to satisfactorily raise employees' base pay.Fourth,managers may have no guidance in how to define and measure performance,resulting in vagueness regarding merit award criteria.Fifth,employees may be unable to differentiate between merit pay (i.e.,compensation tied to effort and performance)and other types of pay increases.Sixth,there may be a lack of honesty and cooperation between management and employees.Finally,it has been shown that "overall" merit pay plans do not motivate higher levels of employee performance.There are no easy solutions to these problems.However,organizations may establish a merit pay guidelines chart that functions as a "look-up" table for awarding merit increases on the basis of (1)employee performance,(2)position in the pay range,and in a few cases,(3)time since the last pay increase.In addition,organizations should strive to ensure that their performance appraisal system is reliable and valid.Any deficiencies in the performance appraisal system (as discussed in Chapter 8)can impair the operation of a merit pay plan.A third tactic that organizations may use is to implement a lump-sum merit pay incentive plan.Under this type of plan,employees receive a single lump-sum increase at the time of their review,an increase that is not added to their base salary.This innovative approach provides financial control by maintaining annual salary expenses and helps to provide a clear link between pay and performance.

Discuss the Problems Identified with Merit Raises

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Discuss the Problems Identified with Merit Raises

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