Merit Pay vs. Incentive Pay(USE AS GUIDE ONLY) / Merit Pay vs. Incentive Pay(USE AS GUIDE ONLY)

Merit Pay vs. Incentive Pay(USE AS GUIDE ONLY)

Merit Pay vs. Incentive Pay(USE AS GUIDE ONLY)

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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