Challenges in Implementing Merit Pay Program at Precision Manufacturing Company

Running head: COMPENSATION AND BENEFITS
COMPENSATION AND BENEFITS
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COMPENSATION AND BENEFIT
1. Precision is a manufacturing company that manufactures machinery equipments. The
company has 200 back office employees and 50 front office employees. The company hired a
new compensation manager that Jackson Smith, his main role is to introduce a merit pay
program that will help the company in the performance appraisal function. In the last 10 years,
all the employees have received pay increase but that is not based on their performance. The
company president and Jackson have come to conclusion that implementing a program of
increasing the wage rate based on the performance of the employee will help them in giving a
competitive advantage by increasing their productivity.
Implementing the merit pay programme requires accurate measurement of the
employee’s performance. The measurement should be accurate because the pay increase is very
dependent on the performance and if there is any mistake in calculating the performance then the
company may face problem from the trade union.
However, Jackson’s research on the performance appraisal has come up with many
issues. The employees have no particular job description that may explain the performance
expectation. Another issue that Jackson come up with is that all the supervisors rate the
employees same rating. The most important issue that Jackson has seen in the company is the
lack of communication. Lack of communication between the employee and the supervisor makes
the whole process ineffective. The supervisor communicates only in the meeting that is
conducted once in a year and when the employee is facing a problem. Apart from this the
supervisor and the employee does not communicate with other.
The merit pay program that Jackson and the company president has designed will surely
help Precision in increasing their productivity and thus by giving them a competitive advantage

COMPENSATION AND BENEFIT
but there are many issues that Jackson have to solve. The rating system of the supervisor needs to
be fair and accurate so that the company does not face any problem as well as the employees
does not get affected. The communication system between the employee and the supervisor must
be improved. This will help the supervisor in assessing the employees more effectively and that
will lead to effective rating. Jackson must identify all the problems regarding the present
appraisal program, to lay out a effective plan for the new appraisal program.
2.
a. Jackson and the company president want to implement a new merit pay program in which the
pay rise of the employee will be highly dependent on the performance of the employee. The new
policy will ensure increased productivity of the employee but there are some challenges that may
cause a huge problem in implementing the program. The challenges are:
 The rating of the employee’s performance is dependent on the supervisors. The
Supervisors rate the employees based on their performance and productivity. However,
the supervisor tend to rate the employees in an average. All the employees are rated
almost same and it is very rare that an employee is either rated very high or very low.
This will affect the merit pay program.
 Precision manufacturing company has another issue regarding the communication
process between the employee and the supervisor. The employee and the supervisor tend
to communicate less. The communication between the employee and the supervisor
happens only in the meeting that is conducted once a year and only when the employee is
facing issue. This lack of communication will lead to ineffective rating of the employee.