The purpose of this paper is to explore the use of Merit Pay and Incentivesas motivators for increased productivity. The key focus is the system atRichmond Memorial Hospital.To do so, one must begin at the beginning..
The use of financial incentives (financial rewards) paid to workers whoseproduction exceeds some predetermined standard was popularized by FrederickTaylor in the late 1800s. As a supervisory employee of the Midvale SteelCompany, he had become concerned with what he called “systematic soldiering”.
This was the tendency of employees to work at the slowest pace possible and thefact that some of these same workers still had the energy to run home and workon their cabins, even after a hard 12-hour day. Taylor knew that if he couldfind some way to harness this energy during the workday, huge productivity gainswould be achieved. Thus was born the concept of motivational andincentive systems.
What is “motivation?” The root word is “move” which would mean that anyonewho is moved to do something is motivated. Therefore, sitting on a tack, or atleast the pain associated with it is a motivator. For those of us in GraduateSchool, we are aware that without a “B” average we will be eliminated from theprogram. Maintaining that average is our motivator. Attaining the certificateof graduation is our incentive. In psychology, at its most basic, a motivator isthat which impels or compels an individual to act toward meeting a need. On aphysiological level, thirst, hunger and sex are motivators or drives. They arebasic needs which must be met.
Relating this to a hospital environment, it is not base compensation whichdrives the employee, but what the base compensation can satisfy in a higherlevel of needs. Money can’t buy love, but it can buy some security such asinsurance benefits.After basic and security needs are met, compensation isnot the motivator, but what compensation represents.
One statement that must be made before continuing is that needs are variedand can occur concurrently or over a period of hours or days, etc. And, needsare mixed. Hunger is a drive: The satisfaction of hunger can take severalforms and, usually, when one is hungry one also is a little thirsty. Then, ifthe book, Tom Jones, was any indicator, food and drink enhancethe sexual drive. Sooner or later, one has to rest…andso it goes. But, do note that a number of needs or motivators may be “acting”at the same time. In hospital settings, especially those that are undergoingrestructuring needs are highly varied. The same employee who is driven by asalary motivator may now be driven by a long term security need as a motivator.
Many times, if one is given a bonus for a job well done, the money is notthe motivator, but the recognition is. Initial motivation can occur with theuse of bonus or profit sharing. However since bonuses and other such incentivecompensations occur perhaps as little as once a year, there must be othermotivators at work to get an individual to work towards established goals. Thisis an important concept which must be understood in order to have any incentivecompensation system work for the company and individuals. Implementing pay for performance plans, good management, and incentiveplans will motivate personnel to perform at the peak levels necessary to bringabout improvement in the bottom line which is what interests most corporations.
With flatter organizations, and in most cases fewer employees, companiesneed to motivate their remaining employees to make a value-added contribution,take ownership, and be held accountable for their work. Historically, employees have been rewarded with increased base pay, promotions,and titles.
However, organizations today are finding other meansof motivating employees. Companies are recognizing the need to change their payphilosophies, from paying for position or title to paying for people. Inaccordance with this changed philosophy, and increasing number of organizationshave taken the step of truly linking pay to performance, through such programsas variable pay, where a percentage of pay is “at risk,” depending on theemployee’s achievement of predetermined measurable production, operations, orother goals..
Merit pay systems which are based on past performance are flawed by theirvery nature and do not work effectively as a reward system. These systemsprovide a supervisor with a means of escape from the proper practice of theirauthorities, accountabilities, and leadership to subordinates. The merit paysystem depends on the reward to produce the effect rather than planning anddesigning the effect at the outset.
The evaluation encompasses a personal evaluation by scoring on particular itemsseparately by the employee and supervisor. Finally a meeting is held in whichboth the employee and supervisor come to agreement over each score and discussany variances. Once the final score is determined, a mathematical equation isinstituted and from that equation is derived a percentage that is applied to theemployees’ base salary. The percentages range from 1 to 10 percent.
It is common knowledge among employees at Richmond Memorial Hospital that thepercentages are manipulated by supervisors to keep salaries within departmentalbudget goals. This means of evaluation has created an environment ofgeneralized apathy amongst employees. Employees have to be coaxed repeatedly tocomplete their portion of the MBD even though it will result in increased pay.
No one wants to spend hours evaluating their own performance to achieve apresumed 3% raise. The MBD further shackles the employee andthe supervisor by requiring documentation for any score above average. Asmanagers, it has been our experience that when one is presented with tenevaluations and documentation is required on all ten, it is easier to just ratethe person as average and not have to provide so much documentation.
Accordingto Dressler(1994), some supervisors grade more stringently than others, sometruly have mostly stars and othersare subject to the traditional rating errors. There is also the problem that ifthere is very little difference in ratings, then superior performers are notreceiving the appropriate reinforcement, and poor performers are not being givenclear expectations of what they must do in order to improve.
This iswhat results when the percentages of the MBD are manipulated for budget goalsand the majority of employees end up with a 3% raise even though the range isfrom 1 to 10 percent. Cleaning up these problems may be a prerequisite forinstallation of an effective incentive plan. The confusion between reward forpast performance and promise to pay for future performance undermines theintegrity of the employees role.
Linking pay increases overtly to future performance and the companiesrequirements for work of a given complexity (i.e., Registered Nurse, LicensedPractical Nurse, Respiratory Therapist, Administrative Assoicate or TechnicalAssociate) removes the confusion from the merit pay system. It putsaccountability where it should have been in the first place, with the employee.
In accordance with this changed philosophy, an increasing numberof organizations have taken the step of truly linking pay for performance,through such programs as variable pay, where a percentage of pay is at risk,depending on the employee’s achievement of predetermined measurable goals(Dressler, 1994). The basic characteristic of all of these at risk pay plans isthat some portion of the employees base salary is at risk. In the Dupont plan,for instance, the employees at risk pya is a maximum of 6 percent. This meanseach employees base pay will be 94 percent of his or her counterparts salary inother “non at risk” Dupont department.
At Saturn, the at risk component was initially designed to be about 20percent but was recently cut back to 5 percent. The at risk approach is aimedin part at paying employees more like they are partners. It isactually similar to much more extensive programs in Japan in which the at riskportion might be 50 to 60 percen tof a persons yearly pay. To the extent thatat risk pay is part of a more comprehensive program aimed at turning employeesinto committee partners-programs stressing values of trust and respect,extensive communications, and participation and opportuniites for advancement,for instance-at risk programs should be successful.
Dressler(1994) also discusses the following types of pay programs: Merit Programs which all salariedemployees receive merit salary increases based on their individual performance.
As opposed to automatic step progression. The performance appraisal process atFederal Express provides the vehicle for rating employees performance and forsharing that information for the individuals development and making pay increaserecommendations based on sustained performance. Another type ofpay system is Pro-Pay where employees can receive lump sum merit bonuses oncethey reach the top of their pay range and is only paid for above averageperformance.
Star/Superstar programs are where employees whorepresent the top ten percent of performers receive lump sum bonuses. Alongwith a Pay for Performance system, there must also be in place a incentivesystem.. Pay perform ; prod “Many US business owners are finding that turning to incentiveprograms is a good way to boost productivity and improve morale.
A properly structured incentive-driven system (IDS) provides severalmethods and levels of compensation. All IDS systems must be tailored to eachorganization. What works in a hospital may not work in academia . It is usually a mistake to implement an incentive plan without inputfrom employees. Management should use a program design team composed ofemployees and supervisors.
