Two-thirds of organisations use merit pay

MERIT PAY

Reports of the demise of merit pay appear to have been greatly exaggerated. Just over two-thirds of organisations surveyed by the Work Foundation said that they link pay to individual performance.

The 113-employer survey found that merit pay is the norm in financial services where 95% of companies are using it. This remuneration tool is much less widespread in the public and voluntary sectors -- just 60% have so far adopted it.

Key survey findings

The three most common reasons for operating merit pay are to "reward according to contribution" (54% of respondents) to "link reward to business objectives" (45%) to "reward the best performers" (42%).
Nearly half of organisations that use merit pay believe their system is either "very" or "quite effective" at rewarding good performance.
The traditional "top down" appraisal scheme is the most frequently-used appraisal method for all employee groups.

What you will find in this report

This 62-page report looks at "best practice" in restructuring merit pay schemes. It is divided into four main parts:

1. A survey of 113 organisations covering:

extent of merit pay and employee groups covered
why operate merit pay?
the achievements which merit pay schemes seek to measure
appraisal methods
responsibility for setting merit awards
merit review and changes made following reviews
effectiveness
monitoring merit awards.

2. Case studies of six organisations:

Anglia Housing Group
Barclays Bank
British Waterways
Forestry Commission
RNLI
Borough Council of Wellingborough.

3. Extracts from management documents:

Achieving results -- competencies 1-4, Anglia Housing Group
Application form 1, Anglia Housing Group
Application form 2, Anglia Housing Group
Application form 3, Anglia Housing Group
8 steps to great reviews, Barclays Bank
Contribution pay 2002, British Waterways
Performance categories, Forestry Commission
Competency framework, Forestry Commission
Performance and development meetings, RNLI
STARS, Borough Council of Wellingborough.

4. Consultancy advice:

The Work Foundation's associate Angela Wright interviewed about restructuring performance-related pay.

Want to know more?

Title: "Restructuring performance-related pay", Managing Best Practice no. 105, Work Foundation.

Methodology: Questionnaires were sent in December 2002 and January 2003 to 5,600 human resource specialists drawn from the Work Foundation database.

Sample size: The report draws on replies received from 113 organisations.

Availability: To subscribe to the monthly report Managing Best Practice, contact the Work Foundation on tel: 0870 165 6700.

Formerly the Industrial Society, the Work Foundation seeks to "improve the productivity and quality of working life in the UK, with a unique fusion of research, consultancy and advocacy". To find out more visit www.workfoundation.com

Posted 18 July 2003