The Myths
Traditional merit pay systems work; profit sharing is a major motivator
of employee performance
The Findings
The survey data reported in
The Enthusiastic
Employee show that
large numbers of employees working under a traditional "merit pay" system feel that,
contrary to the promises of the system, their pay increases have little to do with
their performance. By definition, then, the system is not working for these employees
because unless employees believe there is a connection between what they do and what
they earn there is none! How can a reward be a reward if the recipient doesn't see
it as such? There are a number of reasons for these results, such as the fluctuating
nature of salary increase budgets and the leveling off of salary increases -- no matter
what the employee's performance - as pay grows, There are different, but equally
dysfunctional, problems with other payment systems, such as piecework. The research
reported in the book clearly demonstrates that for many types of work the most
effective pay-for-performance method is "gainsharing," through which a group of
employees share in the financial achievements of their group (such as the increases
in the efficiency that they achieve). The research shows improvements of 5% to 78%
under gainsharing, the average improvement being about 25%. Profit-sharing, a
superficially similar but really very different approach, often does not produce
discernible improvements, and when it does, are in the neighborhood of 2-6%.
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