Chapter 3 Traditional Bases For Pay

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.

Employees must know that their efforts in meeting
production quotas or quality standards will lead to pay

raises.

Companies that use merit programs must ensure that
the funds needed to fulfill these promises to

compensate employees are available.

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

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TRADITIONAL BASES FOR

SENIORITY & LONGEVITY PAY

THE DESIGN OF SENIORITY PAY AND LONGEVITY PAY

who have reached pay

grade maximums and

who are not likely to

move into higher

ADVANTAGES OF SENIORITY PAY

treated fairly because

they earn pay increases

Employers are less

likely to offend some

FITTING SENIORITY PAY WITH COMPETITIVE

well with the

assume that employees

Merit pay programs

ELEMENTS OF MERIT PAY

performance indicators to determine whether an

ELEMENTS OF MERIT PAY

production quotas or quality standards will lead to pay

ELEMENTS OF MERIT PAY

the funds needed to fulfill these promises to

ELEMENTS OF MERIT PAY

according to changes in the cost of living or inflation

TYPES OF PERFORMANCE APPRAISAL PLANS

This system asks

against that of other employees.

AN ALTERNATIVE APPROACH TO THE COMPARISON

employees to groups that represent the entire range of

they display successful job performance behaviors.

TYPES OF BEHAVIORAL SYSTEMS

The critical incident technique (CIT)

Behaviorally anchored rating scales (BARS)

TYPES OF BEHAVIORAL SYSTEMS

The critical incident technique (CIT)

Behaviorally anchored rating scales (BARS)

FOUR ACTIVITIES TO PROMOTE NONDISCRIMINATORY

Conduct job analyses to determine characteristics

Incorporate these characteristics into a rating

Train supervisors to use the rating instrument

Several cases demonstrate that formal appeal

SOURCES OF PERFORMANCE APPRAISAL INFORMATION

Employees customers or clients

ERRORS IN THE PERFORMANCE APPRAISAL PROCESS

STRENGTHENING THE PAY-FOR-PERFORMANCE LINK

POSSIBLE LIMITATIONS OF MERIT PAY

Lack of open communication between management

Undesirable social structures

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