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Merit Pay vs. Incentive Pay(USE AS GUIDE ONLY) Merit Pay vs. Incentive Pay(USE AS GUIDE ONLY)
MERIT PAY VS. INCENTIVE PAY Merit Pay vs. Incentive Pay MERIT PAY VS. INCENTIVE PAY Merit Pay vs. Incentive Pay In order to improve performance organizational leaders employ a host of methods; merit pay and incentive pay are two such methods. However, the two are often used interchangeably and can cause confusion it appears. The purpose of this short paper is to compare and contrast each, in order to bring more clarity. More clarity, in general, can help ensure organizational success in terms of making clear to employees the specific criteria in place for recognizing their contributions. Otherwise, the risk is that the performance criteria necessary for pay increases are unclear and uncertain. According to Noe, Hollenbeck, Gerhart and Wright (2010) forms of merit pay exist in most organizations, although evidence for its effectiveness is scarce. Merit pay is typically awarded to individual workers based on their performance. While merit pay and incentive pay both reward individual performance, merit pay is only used to award individual performance; incentive pay often has both individual and organizational rewards. Yet both strategies may backfire if not implemented properly and clearly. In each reward system, the compensation meted out may be subject to the bias of the individuals who rate performance (Webster, 2012). How can this be offset and be better controlled? Fortunately, there are performance evaluation criteria in place that use statistical data to more accurately assess what a person should be paid for his or her output. Noe et al., (2010) described some of the pitfalls of incentive pay such as the tendency of employees to do whatever they get paid for and nothing else, that incentive pay incentives do not fit well with a team approach, and that the incentives are not consistent with the goals of acquiring multiple skills and proactive problem solving. Lastly, there is also the possibility of rewarding output volume at the expense of quality and customer service. The
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