There are four major considerations for a performance-based pay system. These factors considering performance-based pay system are listed below:
1. Professional’s employment: If an organization employs mostly professionals, implementing a merit program is risky. Professional employees often have a marketable skill for which employers are always willing to pay.
Thus, if the new merit compensation system does not meet their expectations of what their compensation should be, they will be likely and able to change jobs.
2. Enjoying a good intrinsic motivation: Employees who like what they are doing and who is enjoying a good deal of intrinsic motivation from their jobs may not like the pressure external rewards placed on their jobs when a merit system is implemented.
In this case, it is better to let the employees enjoy their job without adding performance pressures.
3. Merit pay plan: If cooperation, teamwork, and workgroups are valued above the competition, individual initiative, and superstars, then a merit pay plan is not advisable.
Merit plans tend to make individuals work to better themselves, perhaps even at the expense of others in the workplace.
4. Enforcement of pay system: For any merit pay system to be effective, management must enforce it if the manager is unable or refuse to take suitable may be favorable for the general employees.
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