by John Traveler

Created on: July 29, 2010

Merit based pay, put another way, is “pay for performance.” In a merit based pay system, the employer, usually in conjunction with the employee, establishes a performance plan and levels of reward based on degree of accomplishment relating to assigned duties and tasks, or other job criterion. IBM is a company which uses a merit based pay system and provides an excellent model for this discussion. In the 1980’s, IBM’s organizational management approach and merit based pay system was adopted by many companies in Japan and around the world.

In the IBM system, a new hire sits down with his or her direct manager for an initial performance planning session almost immediately. The employee is introduced to the concept of pay for performance as the manager explains what is expected of the employee with respect to job proficiency standards. In most cases, such standards are gleamed from statistical data amassed on other employees doing the same or similar tasks. This provides a degree of objectivity to the managers evaluation.

PERFORMANCE REVIEWS and APPRAISALS

The assessment of employee accomplishment, with respect to performance plan criterion objectives, is carried out with performance reviews, usually on a quarterly basis, and an annual formal appraisal session. A new hire will generally receive their first formal appraisal after three months, establishing their performance base line. During a formal appraisal session, each of usually four or five areas of job performance criterion is assessed a performance level value of 1-4.       

PERFORMANCE LEVELS

Performance levels provide a good and clear assessment of job performance. IBM uses four categories, defined as (1) Consistently Far Exceeds, (2) Consistently Exceeds, (3) Meets Requirements and (4) Does not Meet Requirements. Some IBMers have affectionately coined a slightly altered nomenclature for the companies performance levels; a “1,” performs major miracles, and walks and talks with God providing consultation on matters of great importance, a “2 “ performs minor miracles and regularly talks to God, a “3” performs the occasional miracle and talks to God on rare instance, and finally, a “4” is not on speaking terms with God and in need of a miracle to keep his job.

PAY GRID

IBM uses a pay grid matrix to divvy out raises to employees. Where an employee falls within the matrix depends on pay grade (rank) and performance

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