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 1800 s. As a supervisory employee of the Midvale Steel Company, he had become concerned with what he called 'systematic soldiering'.

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. Thesis 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, account abilities, 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 RM 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 percent to 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 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.

Alongwith 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.