The Use of Merit Pay and Incentives

The purpose of this paper is to explore the use of Merit Pay and Incentives
as motivators for increased productivity. The key focus is the system at
Richmond Memorial Hospital.To do so, one must begin at the beginning..

The use of financial incentives (financial rewards) paid to workers whose
production exceeds some predetermined standard was popularized by Frederick
Taylor in the late 1800s. As a supervisory employee of the Midvale Steel
Company, he had become concerned with what he called “systematic soldiering”.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

This was the tendency of employees to work at the slowest pace possible and the
fact that some of these same workers still had the energy to run home and work
on their cabins, even after a hard 12-hour day. Taylor knew that if he could
find some way to harness this energy during the workday, huge productivity gains
would be achieved (REFERENCE?). Thus was born the concept of motivational and
incentive systems.

What is “motivation?” The root word is “move” which would mean that anyone
who is moved to do something is motivated. Therefore, sitting on a tack, or at
least the pain associated with it is a motivator. For those of us in Graduate
School, we are aware that without a “B” average we will be eliminated from the
program. Maintaining that average is our motivator. Attaining the certificate
of graduation is our incentive. In psychology, at its most basic, a motivator is
that which impels or compels an individual to act toward meeting a need. On a
physiological level, thirst, hunger and sex are motivators or drives. They are
basic needs which must be met.

Relating this to a hospital environment, it is not base compensation which
drives the employee, but what the base compensation can satisfy in a higher
level of needs. Money can’t buy love, but it can buy some security such as
insurance benefits.After basic and security needs are met, compensation is
not the motivator, but what compensation represents is (REFERENCE?).

One statement that must be made before continuing is that needs are varied
and can occur concurrently or over a period of hours or days, etc. And, needs
are mixed. Hunger is a drive: The satisfaction of hunger can take several
forms and, usually, when one is hungry one also is a little thirsty. Then, if
the book, Tom Jones (AUTHOR, YEAR), was any indicator, food and drink enhance
the sexual drive ((MAY NEED TO TELL A BIT ABOUT THE PREMISE OF THE STORY AND HOW
IT RELATES IN CASE SHE HASN’T READ IT). Sooner or later, one has to rest…and
so it goes. But, do note that a number of needs or motivators may be “acting”
at the same time. In hospital settings, especially those that are undergoing
restructuring needs are highly varied. The same employee who is driven by a
salary motivator may now be driven by a long term security need as a motivator
(REFERENCES??).

Many times, if one is given a bonus for a job well done, the money is not
the motivator, but the recognition is. Initial motivation can occur with the
use of bonus or profit sharing. However since bonuses and other such incentive
compensations occur perhaps as little as once a year, there must be other
motivators at work to get an individual to work towards established goals. This
is an important concept which must be understood in order to have any incentive
compensation system work for the company and individuals (REFERENCES???).

Implementing pay for performance plans, good management, and incentive
plans will motivate personnel to perform at the peak levels necessary to bring
about improvement in the bottom line which is what interests most corporations
(REFERENCE?).

With flatter organizations, and in most cases fewer employees, companies
need to motivate their remaining employees to make a value-added contribution,
take ownership, and be held accountable for their work (REFERENCE?).

Historically, employees have been rewarded with increased base pay, promotions,
and titles (REFERENCE?). However, organizations today are finding other means
of motivating employees. Companies are recognizing the need to change their pay
philosophies, from paying for position or title to paying for people. In
accordance with this changed philosophy, and increasing number of organizations
have taken the step of truly linking pay to performance, through such programs
as variable pay, where a percentage of pay is “at risk,” depending on the
employee’s achievement of predetermined measurable production, operations, or
other goals (REFERENCES??).

Merit pay systems which are based on past performance are flawed by their
very nature and do not work effectively as a reward system. These systems
provide a supervisor with a means of escape from the proper practice of their
authorities, accountabilities, and leadership to subordinates. The merit pay
system depends on the reward to produce the effect rather than planning and
designing the effect at the outset (REFERENCES??).

Presently, this (THIS MEANING WHAT?) is a system that is used at RMH under
the title of Management by Development (MBD), Appendix I. This (WHICH SYSTEM?)
system supposedly evaluates employees on various aspects of their professions.

The evaluation encompasses a personal evaluation by scoring on particular items
separately by the employee and supervisor. Finally a meeting is held in which
both the employee and supervisor come to agreement over each score and discuss
any variances. Once the final score is determined, a mathematical equation is
instituted and from that equation is derived a percentage that is applied to the
employees’ base salary. The percentages range from 1 to 10 percent (REFERENCE?).

It is common knowledge among employees at Richmond Memorial Hospital that the
percentages are manipulated by supervisors to keep salaries within departmental
budget goals. This means of evaluation has created an environment of
generalized apathy amongst employees. Employees have to be coaxed repeatedly to
complete their portion of the MBD even though it will result in increased pay.

No one wants to spend hours evaluating their own performance to achieve a
presumed 3% raise. The MBD further shackles (WONDERFUL VERB!!) the employee and
the supervisor by requiring documentation for any score above average. As
managers, it has been our experience that when one is presented with ten
evaluations and documentation is required on all ten, it is easier to just rate
the person as average and not have to provide so much documentation. According
to Dressler(1994), some supervisors grade more stringently than others, some
truly have mostly stars (SUPERVISORS OR EMPLOYEES?? WHO IS SOME?), and others
are subject to the traditional rating errors. There is also the problem that if
there is very little difference in ratings, then superior performers are not
receiving the appropriate reinforcement, and poor performers are not being given
clear expectations of what they must do in order to improve. This (WHAT?) is
what results when the percentages of the MBD are manipulated for budget goals
and the majority of employees end up with a 3% raise even though the range is
from 1 to 10 percent. Cleaning up these problems may be a prerequisite for
installation of an effective incentive plan. The confusion between reward for
past performance and promise to pay for future performance undermines the
integrity of the employees role (REFERENCES?).

Linking pay increases overtly to future performance and the companies
requirements for work of a given complexity (i.e., Registered Nurse, Licensed
Practical Nurse, Respiratory Therapist, Administrative Assoicate or Technical
Associate) removes the confusion from the merit pay system. It puts
accountability where it should have been in the first place, with the employee
(REFERENCES?). In accordance with this changed philosophy, an increasing number
of organizations have taken the step of truly linking pay for performance,
through such programs as variable pay, where a percentage of pay is at risk,
depending on the employee’s achievement of predetermined measurable goals
(Dressler, 1994). The basic characteristic of all of these at risk pay plans is
that some portion of the employees base salary is at risk. In the Dupont plan,
for instance, the employees at risk pya is a maximum of 6 percent. This means
each employees base pay will be 94 percent of his or her counterparts salary in
other “non at risk” Dupont department (REFERENCE?? NEED PAGE NUMBER FOR DIRECT
QUOTE). At Saturn, the at risk component was initially designed to be about 20
percent but was recently cut back to 5 percent. The at risk approach is aimed
in part at paying employees more like they are partners. It (WHAT IS?) is
actually similar to much more extensive programs in Japan in which the at risk
portion might be 50 to 60 percen tof a persons yearly pay. To the extent that
at risk pay is part of a more comprehensive program aimed at turning employees
into committee partners-programs stressing values of trust and respect,
extensive communications, and participation and opportuniites for advancement,
for instance-at risk programs should be successful (REFERENCES?). Dressler
(1994) also discusses the following types (ONLY ONE TYPE LISTED FOLLOWED BY
INCOMPLETE SENTENCE) of pay programs: Merit Programs which all salaried
employees receive merit salary increases based on their individual performance.

As opposed to automatic step progression. The performance appraisal process at
Federal Express provides the vehicle for rating employees performance and for
sharing that information for the individuals development and making pay increase
recommendations based on sustained performance (REFERENCE?). Another type of
pay system is Pro-Pay where employees can receive lump sum merit bonuses once
they reach the top of their pay range and is only paid for above average
performance (REFERENCE?). Star/Superstar programs are where employees who
represent the top ten percent of performers receive lump sum bonuses. Along
with a Pay for Performance system, there must also be in place a incentive
system. (Grossman, YEAR?). Pay perform ; prod (next lines) (INCOMPLETE
SENTENCE) “Many US business owners are finding that turning to incentive
programs is a good way to boost productivity and improve morale (REFERENCE-
NEED PAGE NUMBER FOR DIRECT QUOTE)..

A properly structured incentive-driven system (IDS) provides several
methods and levels of compensation. All IDS systems must be tailored to each
organization. What works in a hospital may not work in academia (Dressler,
YEAR?). It is usually a mistake to implement an incentive plan without input
from employees. Management should use a program design team composed of
employees and supervisors. They could work with Human Resources in the
development of
Category: Science