Survey of merit pay schemes

MERIT PAY

A successful merit pay scheme needs to be properly communicated to staff, transparent, consistent and provide pay awards that are large enough to motivate staff, according to new research by IRS.

But when asked to rate the success of their merit pay schemes, a clear majority of respondents to the IRS survey described their arrangements as only "reasonably successful".

Reasons for introducing merit pay

According to the 48-employer survey, the three most common reasons for introducing merit pay were:

to better reward overall performance (cited by 91% of respondents)
to improve individual employee performance (71%)
to motivate staff (70%)

How many levels?

The number of levels in a rating scale is probably one of the most controversial issues in performance management. IRS found that the most common practice is for employees to be given one of five performance ratings (used in 28% of employee groups). But as many as 21% of employee groups are covered by rating scales with four levels.

Want to know more?

Title: "Performing the pay gamble: performance-related pay", IRS Employment Review 810/Pay and Benefits, 22 October 2004.

Survey sample: IRS received 74 responses to its postal questionnaire 48 of these organisations used performance-related pay for at least some employees. In total, IRS gathered information on performance pay schemes for 87 employee groups.

Availability: To purchase this six-page survey contact the subscriptions department at IRS in London, tel: 020 8686 9141 or visit www.irsemploymentreview.com

Posted 27 October 2004