What steps must be taken to ensure that merit-pay systems are effective?

Question

What will be an ideal response?

Answer 1

Those affected by the merit-pay system must support it if it is to work as designed. This is in addition to the requirements for incentive programs. From the very inception of a merit-pay system, it is important that employees feel a sense of ownership of the system. Involve them in the design process, if possible. Here are five other steps to follow:

1. Establish high standards of performance. Low expectations tend to be self-fulfilling prophecies. Excellence rarely results from expectations of mediocrity.
2. Develop and implement sound performance-management systems. Such systems include clear definitions of what good performance looks like, elimination of roadblocks that might impede performance, regular coaching and feedback, and timely rewards that encourage good performance.
3. Train supervisors in the mechanics of performance appraisal and in the art of giving feedback to subordinates. Train them to manage ineffective performance constructively.
4. Tie rewards closely to performance. One review found that 40 of 42 studies looking at merit-pay systems reported increases in performance when pay was tied closely to performance.
5. Use a wide range of increases. Make pay increases meaningful.

Merit-pay systems can work, but they need to follow these guidelines if they are to work effectively.