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Benefits of Merit Pay

Merit pay is a pay for performance compensation strategy that provides base pay increases centered on demonstrated performance and desired outcomes. It not only rewards high performers for their additional contributions to the business, but also aims to retain key talent and rising stars. WageWatch has found that for 2012, 71% of 4,515 hospitality and lodging employers use merit as either their primary method for increasing base pay or in combination with other methods depending on the job title.

Merit programs need to be closely aligned with performance management systems and the compensation model. One way for HR to illustrate this alignment to management is with a merit matrix. The merit matrix is a decision making tool that combines an employee’s performance score and the position in the salary range to produce a merit pay recommendation. The merit matrix is used by department managers to plan and forecast their merit budgets.

The following are some advantages of adopting a merit based compensation system:

– The connection between individual effort and reward motivates employees to exceed expectations. Their performance is evaluated based on demonstrated ability and objectively according to measureable standards.

– Merit pay drives individuals to further develop skills that are important in succeeding in their role.

– Merit pay is a company’s investment in high performing employees. This investment encourages high performers to stay with the company. At the same time, the absence of reward for poor performance encourages this group to either improve or look elsewhere.

The widespread use of merit pay comes from the wide acceptance by employees that paying for performance is a fair and equitable way of rewarding individual contribution and high performance. When implementing a merit base pay system for the first time, it is critical that the performance evaluation criteria be valued, measureable, and well communicated. The rewards need to be meaningful to the employees and competitive with what others in the marketplace are paying their top performers.

Compensation surveys or salary reports from WageWatch can help you to establish a budget for salary ranges and merit pay, including bonuses and incentives. We are an innovative, cutting-edge organization that is constantly developing new ways to collect data for surveys and salary reports, which allows us to provide services to a wide range of industries. To learn more about our compensation surveys, salary reports and other services, please call 480-237-6130 or contact us online.

This entry was posted on Wednesday, October 10th, 2012 at 3:52 PM and is filed under Benefits & Compensation. You can follow any responses to this entry through the RSS 2.0 feed. Comments are currently closed, but you can trackback from your own site.