Linking Merit Pay with Competitive Strategy

Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)

Professor Al-Qurmoshi Institute of Business

Management Hyderabad

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Merit PayMerit pay is the increase in pay based on goals

or achievements set by an employer, rather than a pay rate based on a union contract or a defined pay scale for a position.

It is also known as pay for performance. Merit pay typically involves the supervisor

meeting with the employee to discuss the employee's work and to award an increase or a bonus based on performance.

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Who participates in Merit Pay Programs?

Merit pay program most often is introduced in private sector ‘for profit’ of the economy, rather than in public sector organisation

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Elements of Merit PayManagers 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

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Elements of Merit Pay (Contd.)Companies those use merit programs, must

ensure that the funds needed to fulfil these promises to compensate employees, are available

Organisations should make adjustments to base pay according to changes in the cost of living or inflation before awarding merit pay raise

Effective performance appraisals can ensure effective merit pay programs.

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