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Merit: Pay for Performance

Every person expects a logical relationship between input (performance) and results (pay).  If the relationship is deemed to be unfair, it may lead to dissatisfaction. The individual also judges his/her performance within the context of the environment and the conse­quences thereof.

It is first and foremost extremely important to make a clear distinction between performance discussion & merit assessment.

Every employee has a need for clear and objective feedback on his/her performance.  Without feed­back, it would be impossible to improve performance. Performance feedback is also very important in the development of motivation. Performance discussions evaluate an employee’s performance against agreed performance standards contained in the employee’s employment contract, job description and performance agreement (specific objectives).  Not only do employees receive valuable feedback and understanding with regard to their performance, but they also receive the opportunity to develop an action plan for performance improvement.

Merit assessment comprises a holistic evaluation of each individual’s contribution and value to the organisation, which serves as the basis to determine their remuneration (annual adjustment as well as non-guaranteed remuneration). An attempt is made to distinguish the top performers (10% – 15%) from the broader group that meets the requirements, as well as those who are underperforming. The objective of merit assessment is to reward top performers for their contribution and to encourage other employees to improve their performance.  Research shows that only a small percentage of top performers exerts a huge influence on the organisation’s results and success.

A large group of average performers are present in all organisations.  This is the group of “good and faithful workers” who handle daily work processes and generally comply with the set requirements.  Unfortunately, there are also those who do not “make the grade.”  This is usually the result of incapacity (skills or health), and low levels of motivation or management processes that do not unlock these employees’ potential.

In the modern era, remuneration adjustments should be based on merit. Based on our experience over the past 25 years, the majority of performance management systems implemented by employers, unfortunately fail.  Confusion between performance and merit evaluation often occurs, resulting in incorrect application.

Merit assessment must therefore be clearly distinguished from performance feedback discussions. Performance feedback discussions are focused primarily on personal development, alignment with strategy and improvement of performance. Merit evaluation is an overall evaluation of the person’s contribution taking into consideration the individual’s performance, potential and interpersonal skills as observed within the specific milieu where the person operates.

During the merit assessment process, an evaluation panel determines a merit position based on the following factors:

  • Performance: the quality and quantity of an employee’s work;
  • Potential for wider utilization on same level and/or potential to be promoted to a higher level;
  • Interpersonal Relationships: functioning within the team (and relationships with all interfaces) and culture of the organisation (emotional intelligence);
  • the Environment (milieu) in which the person and organisation function.

Staff members should then be evaluated to determine whether they fall within the norm group of normal (good) performers, underachievers or above-average performers.

Remuneration adjustments and bonuses for the entire group of employees, are determined by the organisation’s available funds and market trends in the labour market.  Under normal circumstances, this group’s remuneration adjusts in a market-related manner (they receive inflation-related adjustments).

The below average employee receives a below average (or even no) adjustment.  The above average group is seen as people who make a valuable contribution to the organisation’s performance as a whole, and who will ensure future successes.  They receive adjustments that are also above the average.

Both instruments (performance feedback discussions and merit appraisals) are important and should form part of a more comprehensive performance management system that also includes other important tools and management practices. Successful organisations succeed in establishing a performance management system as part of their organisational culture, supported by dynamic and strategic human resource management policies and professional support services.

Contact Joubert & Associates to assist your company in establishing a fair and dynamic pay-for-performance system.

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