Merit Pay Increase - Essay Example

? Merit Pay Increases By Your Your School May 28, Merit Pay Increases From a young age Americans are taught the principle, that you get rewarded in accordance to performance. When a child first learns to walk they receive praise. When an elementary school student does well on an assignment they often get stickers that lead to prizes. Likewise, for many decades in American society, if an individual worked hard and did their best they received pay increases or bonuses, accordingly. The concept, though basic in its nature, is vital, due to its profound impact on future performance. Individuals, who receive praise for past actions are more inclined to repeat and possibly increase the action. Due to recent economic turmoil, however, many companies have stopped giving rewards or pay increases for superior performance. This leaves many employees feeling unappreciated, and as a result unmotivated to do better in the future. One particular case study, given, that exemplifies this predicament is the company of Diverse Prints. They are a marketing company that typically gives large bonuses to their employees based on their job performance appraisals. However, due to the faltering economy the lead people in charge, Ann and Sam, are debating as to whether they should give small bonuses to everyone, or continue with the performance based bonuses, though they will be much smaller than usual. After taking a look at the profound impact job performance recognition has on the employee, the company, and eventually the economy, the question of whether or not merit pay increases should be given will become clear. Though some may argue a person should do their job to the best of their ability regardless of extrinsic recognition or praise, it is simply human nature to crave this type of recognition. Diverse Prints typically conducts job performance appraisals, which is the optimal time for managers to review the strengths and weakness of each employee. It also provides the opportunity for the employee to receive constructive criticism on how to improve areas of weakness, and praise for the areas of their job that are done well. As both Sam and Ann agree the performance appraisals must still be conducted for continued company growth and improvement. However, where they disagree is the fact that Sam feels they should take the meager, two percent budget allotted to pay increases and spread it out evenly to all employees to compensate for cost of living increases. Ann, on the other hand, feels that it is, in a way, unfair to give all the employees equal raises, if their performances are not equal. Plus, she wants to keep the top producing workers happy so that when the economy is doing well they will choose to stay with the company. It seems that by giving a small raise to everyone, all will be evenly unsatisfied. It is important to give honor or praise to where it is due, and if a successful, hardworking employee sees that they are given the same bonus as the person that was lazy all year they will not be motivated to try harder in the future. Ann is right in her assessment that it would be best to explain to all the employees that the bonuses will not be as large as previous years, due to financial hard times, but that they will still be given according to job performance. This allows the individual employee to still feel a sense of accomplishment and recognition from the company for a job well done, and will encourage them to do the same if not more in the future. It also may help motivate those who slacked the year before to do better in the future. A good analogy of this concept can be seen in High School. If everyone was given a diploma for simply showing up, and not based on whether they passed or failed their courses, no student would have the motivation to try harder. In the same way by rewarding those who are successful, they are encouraged to do the same or more, and those who slacked have something to work towards. The second aspect that merit based bonus aide in, is the company or organization itself. As mentioned above the merit based program keeps the top performing workers doing their best, and it encourages the underperforming ones to try harder. CNN Money reported that, “Variable pay programs help organizations ... by allowing employers to more effectively manage fixed costs and focus on key business objectives, while at the same time motivating and rewarding employees for attaining performance goals and contributing to business results” (Goldman). This statement is especially true for a commission based marketing company such as, Diverse Prints. The more the employees are encouraged to work harder, sale more, and keep the customers happier, the more business is maintained and gained by the company. This increases profits, which in turn helps with company growth. So, though the merit based bonuses may be small this year, Ann is right in her assumption that by continuing the program they have the best chance of giving larger bonuses next year, if and when the company is doing better. If the company did, as many large corporations across America have done recently, Sam’s idea of giving small equal bonuses to all, then their employees aren’t as motivated to give their best, and as a result the company doesn’t make as much money and they are, therefore, likely to be in the same predicament next year. This leads into the final aspect the merit based bonus program has the possibility of helping and that is the economy as a whole. Since the economy has first faced the downturn many organizations faced with the same dilemma as Sam and Ann in Diverse Prints, have went with Sam’s thought process and given small raises to all. In turn the employees, discouraged by their lack of recognition have not tried as hard or produced as much for their companies, this in turn leads to fewer profits for many companies which leads to a worse economy and perpetuates the vicious cycle. Russ Miller the manager of Clear Blue Compensation Group in New York City reported that, “Clearly, well into the 2011 proxy season there is evidence of a shift in pay practices among the largest corporations in the world, with an emphasis on pay for performance”(Larkin). This comes as these large, fortune 500 companies are realizing that the only way to increase profits is to keep the employees engaged at doing their best, and the best way to accomplish that is to reward them for their hard work. After taking a look at how a merit based bonus program affects the individual employee, the company as a whole, and the economy it is obvious it is in the best interest of Diverse Prints to continue to give their merit based bonuses. Ann was right in her assumption that this is the best way to keep the top producing employees happy and engaged in the company and their work. It is also a good method to insure company growth and success in the future, and hopefully positively impact the economy. Ann was also right in her method for delivering the news to the employees. It is important to inform then that their bonuses will not be as large as they were in the past and while also informing them of the reasons why. In this way the company is acknowledging its best employees, creating more initiative for future performance and ultimately income, and staying within budget. References Goldman, David. "A 3% Raise This Year? That's All Folks: Survey Of Employers Shows About Half Of Businesses Will Cut Back On Salary Increases, Citing Weak Economy.." CNN Money 16 Dec 2008: n. pag. Web. 2 Jun 2011. . Larkin, Gary. "Early Returns on Executive Compensation: Higher Pay, More Shareholder Involvement ." Governance Center Blog. The Conference Board, 29 Apr 2011. Web. 2 Jun 2011. . Read More