Merit Pay Grids The author of this brief report has been asked to react to the statement "merit pay grids have the potential to undermine employee motivation." The author will use outside sources to agree or disagree with that statement. The author of this response will also include personal analysis about the question and perhaps a bit of personal experience as well. While "pay for performance" is deemed to be one of the best (if not the best) way of paying employees, it is not a fix-all and it can come with some downsides as money is not the main or sole motivator for a lot of employees.

The author of this report would generally agree with the statement being posed but the word "undermines" is perhaps not the best word. If anything, a merit-based system that is step-based is really the best way to go. Indeed, giving the same level of pay to like employees in the same environment is less than wise unless their level of performance happens to be very similar. For example, if two people are in a position where they make widgets and they start on the same day, it stands to reason that they would normally be at...

However, if one person pumps out a lot more widgets and is error free most or all of the time while the other employee is mostly reliable but is slower, than the faster employee should generally be paid more. That person will likely not realize a merit increase until their normally planned annual review. As such, keeping them motivated over all that time may not be the easiest thing to pull off. Regardless, a person's aggregate performance for the review year standing out as compared to other employees should be the basis for them getting a bigger bump in pay than those in the same position that perform at a lesser level (Quast, 2013).
However, that merit system is by no means a panacea if wielded inconsistently and with favoritism of any time. One example where a merit system will be dismissed as biased and slanted would be if there is a nepotism or other favoritism in play. Another example would be if the manager is clearly "rubber stamping" performance reviews and arbitrarily giving out the raises they want to and calling it a merit system. Third, not all…