Academic journal article Public Personnel Management

The Influence of a Merit Pay Guide Chart on Employee Attitudes toward Pay at a Transit Authority

Academic journal article Public Personnel Management

The Influence of a Merit Pay Guide Chart on Employee Attitudes toward Pay at a Transit Authority

Article excerpt

Compensation systems in the public sector have multiple goals that include attracting qualified employees, retaining those individuals, and motivating their performance. To motivate employees with pay, Lawler[1] prescribed strong linkages between performance and rewards. Merit pay programs are often used to create such linkages.[2] Under a merit pay program, supervisors are expected to award individual pay increases based on performance. Since merit increases become part of an employees base pay, high performers will eventually move to the top of their pay range, average performers will gravitate to the middle, and poor performers will stay at the bottom.

However, other goals of the pay system may cause managers to compromise the linkage between pay and performance. For instance, competitive pressures in the labor market can cause employers to increase pay levels regardless of employee performance in order to attract or retain those who can competently perform their jobs. Furthermore, Hills,[3] Patten,[4] Meyer[5] and Heneman[6] have described problems that merit pay programs have linking performance and pay increases. Some of these difficulties center on supervisors who can obscure the linkage by granting merit increases for reasons other than performance (e.g., friendship, gender or race bias, threat of losing a highly valued employee, and a desire to avoid conflict). These difficulties have received considerable attention by researchers.[7] Indeed, Markham[8] found that supervisor unit effects can diminish the pay increase-performance relationship at the individual level of analysis.

In addition to problems associated with supervisors obfuscating the pay-performance linkages, there are also administrative mechanisms that can weaken these linkages, particularly when pay plans have conflicting goals (e.g., adjusting for inflation or pay demands of occupation in high demand). As a result, it is not surprising that Lawler[9] obtained low correlations between performance and salary levels for managers in four private and three public organizations. Foster and Lynn[10] found that position-in-range had a stronger influence on merit increases than did employee performance. In other words, employees with higher initial salaries within a pay grade (containing similarly valued jobs) received larger pay increase than employees who started with lower salaries.

A Bureau of National Affairs[11] study indicated that 82 percent of the companies studied had established guidelines (guide charts) to assist managers in recommending merit increases for subordinates. Deadrick and Scott[12] found merit pay programs to be the most widely used form of incentive pay program in urban mass transit. Even though merit pay programs and guide charts in particular are widely used, Heneman[13] noted that there is almost no research on the influence of guide charts on pay decisions or employee reactions to these decisions. Consequently, the current study examines the influence of a merit pay guide chart on merit increase satisfaction and instrumentality belief.

Merit Pay Guide Charts

A merit pay guide chart is a "look-up" table for awarding merit increases based on (1) employee performance, (2) position in the pay range, and, in a few cases, (3) the time since the last pay increase.[14] For the merit pay guide chart, employee performance is typically measured with a performance appraisal instrument completed by their immediate supervisor. The pay range indicates the minimum and maximum amount that an employee can earn for the position they hold. An employee's position in the pay range can be attributed to a number of factors including the pay level that the employee had when he or she entered the pay grade, the time in a grade, and pay increases received while in a grade. In a pay structure with ranges, the midpoint is usually designed to be the competitive pay level for an average performer.[15]

One feature of most merit pay guide charts is that they are designed to move new job incumbents relatively quickly up to the mid-point once they can competently perform the job. …

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