Challenges in Implementing Merit Pay Program at Precision Manufacturing Company

This article discusses the challenges faced by Precision Manufacturing Company in implementing a merit pay program based on employee performance. The lack of communication and fair rating system are the major issues that need to be addressed. The article also suggests steps to make the process more effective and efficient.

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.

COMPENSATION AND BENEFIT
b. Precision company is facing problem with the productivity and the pay system that is currently
present in the organization. The pay scale rise is not justified, as it is not based on the
productivity. The employee who is giving higher production and the employee who is giving
lower production are getting the same pay rise. This is wasting the hard work and labor of the
efficient employees. This de-motivates the employee, they start to product less as a result the
productivity of the company is also decreasing, and the company is getting affected. This issue
need to be solved as soon as possible so that the company does not face any loss due to the
decreased productivity. Introducing the merit program will help the company in motivating the
employees and they will work hard to get a huge pay rise. Another urgent issue is the lack of
communication. Lack of communication makes the whole process ineffective and this will have
a negative impact on the merit pay system. Therefore, the problem of communication needs to be
solved as soon as possible.
3.
a. The present pay rise procedure is not giving sufficient production to the company and the
policy is very ineffective. To make the whole system effective Precision manufacturing company
is implementing a merit pay program. Apart from this, the company can follow these steps:
 Reviewing the present workflow: Analyzing the present workflow of the company
means analyzing the people, equipment and technology, processes will help to identify
the changes that are needed in the company. This will assist the manger to bring changes
and make the production process more effective (Jahn et al., 2013).
 Educating and training the employees: Employee education is an ongoing process. This
will help the employee to understand the current situation of the company and they will

COMPENSATION AND BENEFIT
take more responsibility in increasing the production. Training will also make them more
flexible and effective (Mcllwraith, 2016).
b. Precision is implementing a new merit pay program to better the production of the company
and to provide pay increase according to the performance of the employee. The process needs
some change to make it more effective. As discussed earlier the company conduct only one
meeting between the employee and the supervisors this makes the rating process very ineffective
(Paashuis, 2013). The performance appraisal process needs to be done in a weekly basis so that
the supervisors can communicate more with the employee this will ensure accurate rating. The
higher production employee should be given incentives apart from the increase pay so that the
employee gets motivated and work more efficiently.

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References:
Jahn, J. E., Manning, K. P., Palmer, D. R., & Waller, M. G. (2013). U.S. Patent No. 8,619,269.
Washington, DC: U.S. Patent and Trademark Office.
McIlwraith, A. (2016). Information security and employee behaviour: how to reduce risk
through employee education, training and awareness. Routledge.
Paashuis, V. (2013). The organisation of integrated product development. Springer Science &
Business Media.