Designing Merit Pay Systems
2 Discuss the components of merit pay systems.
As we noted in Chapter 3, companies that use merit pay systems must ensure that employees see definite links between pay and performance. We also reviewed the rationale for using merit pay systems, as well as the possible limitations of this kind of pay system. Establishing an effective merit pay program that recognizes employee contributions requires avoiding such pitfalls as ineffective performance appraisal methods and poor communication regarding the link between pay and performance. In addition to these considerations, managers interested in establishing a merit pay system must determine merit increase amounts, timing, and the type of merit pay increase (i.e., permanent ...
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