1. In a seniority based pay program, employees are put on a vesting schedule wherein all raises (and raise amounts) are pre-determined by years’ service in a given job. Each job has a grade/step based pay table assigned to it, and everyone is paid the same regardless of performance.As a proponent of meritocracy, I’m not a huge fan of seniority based pay plans. 1 With that said, I sometimes wonder if merit based pay programs (as implemented in most organizations) aren’t in practical effect the same thing dressed up a little bit differently.
Most employers give out average merit increases that are larger than annual structure adjustments, which means that (like in seniority based pay plans) an employee that stays in a job long enough will eventually hit the top of their grade. Additionally, merit based pay programs inevitably become an annual entitlement (as in seniority based pay programs). Finally, as Chuck Csizmar recently pointed out on Compensation Cafe the 150% or so differential between what middle and top performers receive in a given year amounts to under 2%, which is so negligible that top performers are often alienated / miffed upon receiving it (in which case you’d have been better off just doing a general adjustment).
…I’m not saying anything new above. Many compensation professionals know that the current merit structure is broken. With that said, I’m curious to learn what leaders in the field are seeing companies do to innovate here. What is your company doing to create significant recognition and differentiation between middling and top performers?
As always, please share your thoughts in the comments section below.
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