1 the size and frequency of pay increases are most

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1. The size and frequency of pay increases are most often determined by performance rating (since betterperforming employees should be rewarded more than low performers). Comparatio is used to control compensation costs and maintain the integrity of the pay structure. 2. In general, merit pay programs have the following characteristics: a. They identify individual differences in performance, which are assumed to reflect differences in ability or motivation. b. The majority of information on individual performance is collected from the immediate supervisor. c. There is a policy of linking pay increases to performance appraisal results. d. The feedback under such systems tends to occur infrequently, often once per year at the formal performance review session. e. The flow of feedback tends to be largely undirectional, from supervisor to subordinate. 3. Deming, who is a critic of merit pay, argues that it is unfair to rate individual performance because "apparent differences between people arise almost entirely from the system that they work in, not the people themselves." Examples of system factors are coworkers, the job, materials, equipment, customers, management, supervision, and environmental conditions. These factors are the responsibility of management. a. Deming also argues that the focus on merit pay discourages teamwork. b. Deming suggests that the link between individual performance and pay should be eliminated. However, the consequence of this might be that high performers would leave the organization. An appropriate balance between group and individual incentives should be designed.
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c. Another criticism is the way they measure performance. If this is not done fairly and accurately, employees will perceive the whole process to be unfair. Some of the most important aspects of justice that employees assess are distributive (based on how much they receive) and procedural (what process was used to decide how much).
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