Merit pay is a concept that makes a lot of sense – in theory. Its execution can be quite a bit trickier, however. Recognizing and rewarding top performers is a fantastic way to motivate these employees, as they feel as though they’ve earned their increase through their own hard work. Psychologically speaking it can help engage employees further, as those who receive merit increases feel as though they have more ownership over their work and their compensation. At least from an American cultural perspective, it feels intrinsically right that those who work harder and achieve more should be rewarded.
Implementing merit pay in a pay program isn’t as cut-and-dried. Some issues need to be ironed out before merit pay can be administered. A lot of these issues have to do with deciding which factors will influence eligibility for a merit increase. An employer needs to keep a number of different factors in mind, and must think strategically here. What skills and behaviors would be the most beneficial to encourage in our organization? What kinds and levels of competency should we be fostering in our employees? What sort of budget can our organization set aside for merit increases? But the most complicated question you have to ask when it comes to merit pay is how. How are we going to qualify performance? How are we going to determine eligibility?
The answer to this question will probably include some kind of performance management solution which allows supervisors to keep track of their employees’ job performance and productivity, regardless of how their organization has chosen to track them. However, in regards to merit pay, a performance management or HCM solution really only takes care of half of the issue – the merit half. Merging the merit and pay halves together into something understandable, something usable, presents its own set of problems.
Cross-referencing a performance management program with whatever you use to track compensation (say, a spreadsheet) is generally how merit pay would be decided and administered. This is a laborious process necessitating a constant back-and-forth between at least two different programs, making user errors more likely. Compensation will also have to keep track of the allotted merit budget as they determine merit increases, adding an additional layer of complexity and another gateway for the introduction of errors. Factor in a large number of employees and/or a complex organizational structure, and merit pay starts to look like a time-consuming hassle.
Yet there is still merit in merit pay. You still want to reward your top performers and encourage them to keep excelling. But how can you overcome the burden placed on your HR or Comp department?
By looking into the right compensation management tool. One which can integrate with your existing performance management software. One which offers real-time reporting, allowing you to keep track of a merit budget at-a-glance as you plan and administer merit pay. And one with automated workflows, which ensures that managers will have the relevant performance data in the system by the time HR starts the compensation planning process.
Does your organization utilize merit increases in its compensation strategy? Have you found the compensation planning process to be tedious and time-consuming? We here at Harvest can help. If you’d like to learn more about our customized compensation solutions, or would like to request a demo, feel free to contact us.