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Exploding some myths about merit pay.

Hospitals are feeling bone-shaking financial stress these days. And the old panacea--raising charges--is being cleared from the shelves by government regulators.

As a quick fix, many beleaguered health-care institutions are turning to salary incentives to increase productivity. The American worker's output is down, after all, and the work force is the top expense item at hospitals. Little wonder, then, that the merit pay gambit looks attractive.

"Tie pay to performance" has been a managerial buzz phrase for years. Why didn't every organization adopt the seemingly reasonable and pragmatic philosophy of merit pay long ago? And why the recent renewal of interest?

It isn't because hospital CEOs feel guilty about not rewarding top performers. The record shows that hospitals were among the last organizations to offer compeitive salaries and substantial fringe benefits. Their chief motivation for doing so was escalating competition for skilled employees and the threat of unionization.

We get back to expedience. Unlike quality circles and other motivational strategies, merit pay or bonus programs can ber instituted quickly and with minimal effort--except by the poor supervisors who must evaluate employees. Best of all, they needn't cost more: Give a little more to the good workers and a little less to the poor ones.

The economy has also spurred interest in merit pay. Until recently, hefty cost of living adjustments weakened any substantial efforts to recognize good performance through salary. Now that inflation is under control, the budget barrier to merit pay has been removed.

Who supports merit pay? President Reagan is a keen spokesman, but his effectiveness as a cost cutter isn't impressive. Some behavioral theorists espouse it, but they themselves supervise only a secretary and a few graduate students. And a host of consultants and lecturers--many of them refugees from the business world--now hawk it as their latest medicine-show miracle cure.

It seems that only a few merit pay disciples are directly responsible for implementing such schemes. Some plans have been successful, notably among production-line workers, salespeople, and others whose range of job activities is limited or whose output is easily measured. but the successes can't always be traced to merit pay alone. If an organization implements a multifaceted motivational campaign, for example, no one may know which strategy is really working. Productivity could increase despite salary incentives.

Even when an incentive salary system proves to be the sole motivator, dollars may not be the energizing force. An effective incentive system requires better job descriptions, work objectives, and performance standards, which carry their own beneficial effects.

Employees do receive more recognition under an incentive system. Recognition, however, can be expressed effectively in ways that circumvent the problems of merit pay. First, let's look at some of those problems.

* The individual increment is too small. In some organizations, merit pay is so entrenched in rigid formulae, so diluted by insignificant salary increments, and dispersed among so many employees that it reflects merit in name only. It may also compete with seniority and cost of living raises for limited budget dollars. Minimal incentives may keep employees from leaving, but they won't increase productivity.

* Evaluations are complex and tricky. Evaluators must base decisions on personalities, qualifications, and so-called behaviorally anchored rating systems. Evaluations are thus highly subjective, and they can make the system a curse instead of a helpful supervisory tool.

What do you do when only one person performs a certain task? For example, how do you compare the performance of a microbiology instructor with that of a research chemist?

Do supervisors know every employee's performance well enough to select those who will be rewarded? Can they then give other employees the bad news without demoralizing them? Will all supervisors grade employees uniformly?

If an employee receives a merit increase, as opposed to a one-time bonus, does the supervisor rescind it if performance slips next year? Does an employee who is not performing up to expectations have an equal chance to compete with this year's winners in next year's race?

An effective merit pay system demands meticulous standards of performance and work objectives. Too often, these key elements are missing or unclear. Productivity increases only when the staff strives to meet known standards and to achieve documented objectives. In that case, employees will know when they have caught the brass ring. The laboratory's announcement of merit pay winners should bring no surprises!

* Effects on top performers aren't always good. After the celebration comes the hangover. Cries of favoritism go up. The knee-jerk reaction of the runners-up is to point out deficiencies in the performance of the all-stars, who encounter resentment and declining peer support in their new elite status.

Effects on poor performers are usually bad. It's a myth that these workers will face reality and admit they can work harder after failing to achieve a merit raise. In fact, studies show that most employees, including underachievers, believe that they are performing at superior levels. It's doubtful they will accept being rated "inferior."

Another myth is that they'll work harder in the future. A few might, but not those who think they're already pulling their share. These employees will grow resentful or discouraged instead; they certainly won't feel valued.

You don't have to look far to find the harmful side effects of merit pay. It has surfaced several times just in the pages of the Lancaster New year, a teacher who was denied a merit increase wrote: "As one who evidently has not performed in a meritorious manner, I feel as though I the face. . . . Motivated? Devastated is more like it."

Another teacher described a previous experience: "I was not surprised to learn that the district had opened a Pandora's box of troubles for itself by starting merit pay. Because of its terrible effect on teacher morale, I saw our district deteriorate in quality during the next eight years."

Excluded employees with fragile egos may feel so unappreciated that they'll look for other jobs. Some may satisfy a self-fulfilling prophecy by lowering performance to what they think their superiors believe it to be.

Salary incentives may also mean that the time-honored general or seniority increase is eliminated. This nettlesome rearrangement of the organizational landscape isn't likely to cause dancing in the aisles. A program that tries to accommodate both kinds of increases runs up against the problem of limited funds.

If employees think that they can't get more pay directly from the organization, they may try end runs. Coalitions of those who feel themselves the victims of shabby treatment may join a union. I suspect that the union organizer who appears at a laboratory a week after merit pay recipients are selected will be able to find many sympathetic ears.

* Temawork suffers. When individuals instead of groups are rewarded, temawork is likely to weaken. This is especially counterproductive in hospitals, where cohesive action among various departments is so important. It doesn't pay to turn good workers against other good workers.

There are less risky alternatives to a full-scale merit system: Shift some of the funds earmarked for merit pay to management training of supervisors. Make an all-out effort to improve your employee recognition system. Insist on more expressions of appreciation from section heads and other managers.

Encourage increased employee participation in policy making, and work for better publicity programs such as bulletin board notices, newsletter announcements, award ceremonies, and press releases, to spread word of outstanding achievement.

If you still want a merit system, why not reward departments or sections instead of individuals? Tie the rewards to specific objectives, such as "decrease section costs by 5 per cent." Then, instead of a merit salary increase, give part of the savings to all members of the section as a one-time bonus. And don't undo good results by making it more difficult for them to achieve the same reward the next time around.

Rewarding groups should improve teamwork through cooperation and peer pressure. Subpar performers will be brought into line by their colleagues.

Merit pay schemes should be regarded like any other managerial remedy. Avoid leaping into one with a paucity of data. Sound out hospitals using merit pay programs and determine their experience. If you decide that nothing but merit pay will do, administer the program under the guidance of a management consultant who specializes in this kind of incentive. Watch closely for adverse effects.

Last of all, remember that merit pay is like hormonal replacement therapy: Once you start, you must continue indefinitely.
COPYRIGHT 1984 Nelson Publishing
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Copyright 1984 Gale, Cengage Learning. All rights reserved.

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Title Annotation:salary incentives may not be best way to boost employee output
Author:Umiker, William O.
Publication:Medical Laboratory Observer
Date:Aug 1, 1984
Words:1403
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