Strategic HRM: Analysis of IBM's Pay for Performance Compensation Plan

This report provides an analysis of IBM's Pay for Performance plan within the context of its Human Resource Management (HRM) strategy. It evaluates the mission and goals of IBM, detailing how the Pay for Performance system aligns with these objectives. The report examines the advantages and disadvantages of such a system, and proposes the Merrick Plan as a suitable incentive system for IBM to achieve its goals. The Merrick Plan differentiates between beginners, average workers, and superior workers, assigning compensation based on performance levels relative to a benchmark. This approach aims to motivate employees at all levels, reduce turnover, improve customer satisfaction, and foster technological innovation. The report concludes by referencing relevant literature supporting the effectiveness of Pay for Performance strategies.

Running head: HRM
IBM Pay for Performance Plan
Student’s name
Name of the Institute

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Table of Contents
Mission and Goals of IBM.....................................................................................................3
Pay for Performance.............................................................................................................3
Performance Pay Plan for IBM..........................................................................................4
References:................................................................................................................................5

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Mission and Goals of IBM
IBM’s mission is to lead in development, creation and manufacture of most advanced
IT which includes software, computer systems, networking systems, and
microelectronics and storage devices. IBM’s network of services and IBM solutions
professionals helps in translating these technologies into business value for our
customers.
Goals:
 To lead in creation of advanced information technology that includes software,
computer system, storage devices, networking systems and microelectronics
(Campbell & Tawadey, 2016).
 To translate advanced technologies into business values for customers.
 To use services, professional solutions and consulting businesses worldwide
for creating value for customers.
Pay for Performance
Pay for performance is the pay that varies with measure of individual or performance
of organization. The plan includes special recognition plans, stock option plans,
individual incentive plan, cash profit sharing, gain sharing plans and team awards
(Abernathy & Lawler III, 2014).
Advantages: The companies who have applied pay for performance plan have
significantly seen improvement in the performance and productivity of employees.
There is not much supervision required to maintain output level. These methods also
help in costing and budget control.

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Disadvantages: The conflict between employees and management can arise about
quality levels (Hameed & Zubair, 2014). The plan may reduce the willingness of
employees to bring innovation for fear of improving performance.
Performance Pay Plan for IBM
Merrick Plan is the incentive system which can be followed by IBM to achieve its
goals. This plan is different from Taylor’s differential system. The method is used to
distinguish the three levels of workers i.e. beginners, average workers and superior
workers (Drucker, 2017). For IBM, high pay should be given to the workers who
exceed 100% of the benchmark. These are superior employees. Those workers or
employees who reach level between 80 and 100% should be given medium pay.
These are average employees. Finally those who meet below 80% level of production
or standards should be given low salary. These are mostly beginners or low
performers.
The performance plan will be fair and motivate employees at all levels. For example,
performance exceeding 100% standard will give high compensation. So the monetary
satisfaction will also help in decreasing employee turnover. The employees who are
beginners will try to achieve the maximum benchmark. So the compensation plan
keeps them motivated (Shields & Plimmer, 2015). Since performance or expectation
also has element of client or customer satisfaction, so this attribute will improve. The
company will be able to meet long term goals. The other aspect of performance
standard would be technological innovation. This plan will support innovation and
employees who were lethargic earlier will come up with new ideas.

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References:
Abernathy, W. B., Dickinson, A., & Lawler III, E. E. (2014). Pay for Performance
Compensation Systems.
Campbell, A., & Tawadey, K. (2016). Mission and business philosophy. Elsevier.
Drucker, P. F. (2017). The Theory of the Business (Harvard Business Review
Classics). Harvard Business Press.
Hameed, A., Ramzan, M., & Zubair, H. M. K. (2014). Impact of compensation on
employee performance (empirical evidence from banking sector of
Pakistan). International Journal of Business and Social Science, 5(2).
Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean,
P., ... & Plimmer, G. (2015). Managing Employee Performance & Reward:
Concepts, Practices, Strategies. Cambridge University Press.