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Traditional Bases for Pay

Traditional pay systems sets pay levels in a narrow band with regular annual
increases. There may be 3 to 4 percent pay increase annually. Increases are meant for
promotions, merit, and cost of living. There is less distinction between merit increases
and cost of living increases.

Because of the low levels (3 to 4 percent) of salary budget funding, most people
are familiar with. Often, it includes a set salary or wage, a set schedule for merit
increases, and a set benefits package.

Seniority Pay
Rewards employees with periodic additions to base pay according to employee's
length of service in performing their jobs. These pay plans assume that employees
become more valuable to companies with time and that valued employees will leave if
they do not have a clear idea that their salaries will progress over time. Designed to
award job tenure. Employees perceive that they are treated fairly. Facilitates
administration of pay. Poor fit with most competitive strategies.

Advantages and Disadvantages of Seniority Pay

 Designed to award job tenure
 Set base pay with time-designated increases
 Employees perceive that they are treated fairly
 Facilities administration of pay
 Avoids perception of favoritism
 Poor fit with most competitive strategies

Job Control Unionism

When collective bargaining units negotiate formal contracts with employees and
provide quasi-judicial grievance procedures to adjudicate disputes between union
members and employers.

Longevity Pay
Designed to reduce employee turnover and pay grade maximum for length of
service. Used for most government employees. General schedule system for federal
 Same principle as seniority pay
 Longevity pay designed to: Addresses pay of employees pay of employees who
reach maximum pay grade rates based on seniority.
 Rewards employees with periodic pay increases that do not become part of base
 Used for most government employees
 General schedule system for federal employees

General Schedule
Classifies federal government jobs into 15 classifications based on such factors
as skill, education, and experience levels. Employees are eligible for 10 with-grade pay
increases. The waiting periods within steps: Steps 1-3: 1 year. Steps 4-6: 2 Years.
Steps 7-9: 3 years.

Merit Pay Programs

Assumes that employee's compensation over time should be determined, at least

in part, by differences in job performance. Employees earn permanent merit increases
based on their performance. The increases reward excellent effort or results, motivate
future performance, and help employers retain valued employees

Limitations of Merit Pay Programs

 Failure to differentiate among performers.

 Poor performance measures
 Supervisor's biased ratings of employee job performance
 Lack of open communication between management and employees
 Undesirable social structures
 Factors other than merit
 undesirable competition
 little motivational value
Merit Pay Plans
 Award permanent pay increases for performance
 Reward excellent effort or results
 Motivate future performance
 Help retain valued employees
 In 2014, average merit increase was 3.0%
 Highest performers earned 4.1%
 Health care and social support averaged 2.5% and 3.8% for mining

Elements of Merit Pay

Based on elements of objective and subjective indicators of performance,

periodic performance reviews, realistic and attainable standards, and pay increases
reflecting performance.
Performance Appraisal Plans

Trait Systems
Ask raters to evaluate each employee's traits or characteristics.
Comparison Systems
Evaluate a given employee's performance against that of other employees. Rates
and ranks performance and pay raises based on ranking

Types of Comparison System

 Forced Distribution
Assigns employees to groups that represent the entire range of performance.
 Paired Comparisons
Supervisors compare each employee to every other employee, identifying the
better performer in each pair

Behavioral Systems
Rate employees on the extent to which they display successful job performance
behaviors. In contrast to trait and comparison methods, behavioral methods rate
objective job behaviors.
Types of Behavioral Systems (3)
Critical Incident Technique (CIT)
 Employees and supervisor identify and label job behaviors and results
 Supervisors observe and record
 Requires extensive documentation
Behaviorally Anchored Rating Scales (BARS)
 Based on 8-10 expected job behaviors
 Employees rated on ability to perform each behavior \
 Ratings highly defensible
 Encourage all rates to make evaluations in similar ways
Behavioral Observation Scale (BOS)

Goal Oriented Sytems

Used mainly for managerial and professional employees and typically evaluates
employees' progress toward strategic planning objectives. This is called the
Management by Objectives (MBO) system. Highly effective technique.

Performance Appraisal Practices (4)

1. Perform a job analysis.
2. Incorporate results into rating.
3. Train supervisors on use.
4. Implement formal appeals process.

Five Main Sources of Performance Appraisal Info.

Employees, supervisors, coworkers, subordinates, customers/clients

360 Degree Performance Appraisal

Uses more than one appraisal source. Reduces recruiting and hiring costs.
Appropriate for work team evaluations.

Major Types of Rater Errors

 Bias errors
 Contrast errors
 Errors of central tendency
 Errors of leniency or strictness
Types of Bias Errors (5)
 First Impression Effect
 Positive Halo Effect
 Negative Halo Effect
 Similar-to-Me Effect
 Illegal Discriminatory Biases

Contrast Errors
 Takes place when rater compares employees to other employees rather than
specific employee standards.

 What if the best employee is average

Errors of Central Tendency
Supervisor rates all employees as average. Usually occurs when only extreme
behavior requires documentation.

Leniency Errors

Managers rate employees' performance more highly than they would rate them using
objective criteria. Causes employees to believe that they deserve higher raises than
they actually do.

Strictness Errors
Managers rate employees' performance lower than they would rate them using
objective criteria.