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Merit Pay Plan: Perceptual problems and biases and ways to improve performance evaluation

Discuss About The Common Source Bias Spurious Relationships?

Merit pay is recognized as one of the most frequently used ways for paying to the organisational employees in respect with their individual performance level. The key objective of a merit pay plan is to have an interconnection to the employees’ performances in such a way that it is consistent with the organisational goal and mission. There are two specific conditions that are mandatory for merit pay plan i.e. some sort of variations in the performances of the employees which measurable in nature and must also be measured. Secondly, the organisational managers must offer with adequate tools for determining the appropriate recognition and rewards (Gerhart and Fang, 2014). The paper will highlight the various perceptual problems and biases associated with the merit pay plan and the ways in which the performance evaluation and success of the merit pay plan can be improved.

The merit pay is a specific approach to compensation that is used for the purpose of rewarding the higher performing employees with incentive pay and additional pay. There are both several advantages as well as disadvantages associated with implementing merit pay plan in the organisations. The best use of these merit pay plans is for improving the retention rate of the employees as well as to motivate them to work harder and retain in the organisation for a longer period of time (Nyberg, Pieper and Trevor, 2016). There are number of perceptual problems as well as bias related issued which are associated with the merit pay plans that results in negative implications for the organisations of taking use of these merit pay plans. There are several perceptual problems such as stereotype, halo effect, selective perception and contrast effects. In the merit pay plan, there is a key role of these perceptual problems such as in the stereotype factor, the managers used to analyse and evaluate the performance of the employees by having a perception of the group in which that individual belongs. Thus, there are extreme chances that the merit pays of the employees can diverse and they might be offered an incorrect pay as they are not analysed in an adequate manner (Den Ouden, Kok and De Lange, 2012). The employees who are might be hard working and have performed well are not offered incentives because of the perception the managers have developed for them because of their group belongingness and thus it results in de-motivation of the employees (Meier and O’Toole, 2012).

Perceptual problems associated with merit pay plan


The second perceptual problem is the halo effect as per which the managers develop an impression or perception of an individual just on the grounds of a unique or single characteristic. The most negative aspect of this perceptual factor which gives rise to number of issues is that the managers tend to avoid all other factor and good characteristics of the employees and evaluate their performance only on the basis of that single aspect. This can be explained as when the managers evaluate the performance of an individual from the way the person communicate and if he is not found to be confident then there develops a perception that the performance of the employee is not good. Thus, such halo effect is one of the major perceptual errors which take place while rewarding the employees (Johnson, et al., 2013). Other perceptual errors include selective perception and contrast effects. On the basis of selective perception, the organisational managers used to evaluate the performance of the individuals on the basis of their own interest, attitude, experience and background rather than evaluating the performance on organisational standards. Thus, it develops a strong negative impact on the employees as they tend to loose faith in the organisation as well as in the reward and merit pays (Hilbert, 2012). The next is contrast effect where the managers evaluate performances of the employees in comparison with the performances that have been recently analysed as lower performers or higher performers. This is also a problem as it is not adequate to compare an individual performance on those characteristics as it can give a diverse result and may also reward a less competent person with higher incentives and pays (Deco, et al., 2013).

There are certain biases also which have a direct influence on the merit pay plan of the organisation. At the time of decision making by the managers regarding the rewards and incentives to be offered to the employees such biasness occurred and influence the decisions of the managers. The biases are called as cognitive biasness that are of majorly six types i.e. memory based biases, statistical based biases, confidence based biases, adjustment, presentation and situation abased biases. On the basis of these biases there are various which the employees also tend to influence the managers for getting higher incentives and rewards (Rolls, Grabenhorst and Deco, 2010). The presence of biasness in the decisions of the managers impact the employees in the most de-motivating way which increases the workplace place disturbance and influence the employees to leave the organisation due to inequitable behaviour and distribution of incentives and merit pays.  Thus, because of presence of all these perceptual errors and biases there is ineffective and less competent merit pay plan in the organisations (Hensher, 2010).

Biases in merit pay plan


To improve the performance evaluations as well as the success of the various merit pay plans in the organizations, there are certain ways and recommendations which the organisations are required to effectively follow and implement. The first and the foremost step is to develop a more clear goal and vision statement of the merit pay plan which should be motivating for the employees to have improved outcome and enhanced efficiency could be seen in their work (Shields, et al., 2015). The second step is that the managers must adequately measure the competencies and the results. The results can be measured through analysing the profit and sales seek by the organisation by the efforts of the employee and the competencies can be evaluating factor such as communication, initiative and teamwork (Prowse and Prowse, 2010). The next way to improve the performance evaluation is to enhance the level of transparency as the decisions and the grounds of decisions regarding pay and incentives must be clear in front of all the employees. The merit pay plan is also required to be simple rather than complicated so that the employees can easily understand their individuals’ results and performances. It is also recommended atht there must be involvement of the teams which developing a framework or metrics for analysing the performances of the individuals (Bowman, 2010). It is also essential that there must be a self-appraisal program where the employees themselves can judge and evaluate their performances as well as the associate positive and negative points so that they can agree on the pays offered to them. All these ways will improve the performance evaluation of the employees as well as also increase the success of the merit pay plans in the organisations (Boachie-Mensah and Dogbe, 2011).

Conclusion

The paper concludes that there is a vital role of merit pay plans in increasing the motivation and retention of the employees as they offer incentives and additional pays to the employees in respect with their higher performances which boost their morale to work harder and with utmost efficiency. But there are several perceptual errors and biases which negatively impacts these merit pay plans and develops a negative thought process for the employees which force them to leave the organisation. Thus, there is an essential that the merit pays must be completely free from these perceptual errors and biases so atht there can be an equitable workplace environment where all the employees are treated and rewarded in an adequate manner. Thus, to improve the performance evaluation as well as to attain success of the merit pay plan is it is necessary that the organisational managers must follow and implement the ways and recommendations offered in the paper.

References

Boachie-Mensah, F., & Dogbe, O. D. (2011). Performance-Based pay as a motivational tool for achieving organisational performance: an exploratory case study. International Journal of Business and Management, 6(12), 270.

Bowman, J. S. (2010). The success of failure: the paradox of performance pay. Review of Public Personnel Administration, 30(1), 70-88.

Deco, G., Rolls, E. T., Albantakis, L., & Romo, R. (2013). Brain mechanisms for perceptual and reward-related decision-making. Progress in Neurobiology, 103, 194-213.

Den Ouden, H. E., Kok, P., & De Lange, F. P. (2012). How prediction errors shape perception, attention, and motivation. Frontiers in psychology, 3.

Gerhart, B., & Fang, M. (2014). Pay for (individual) performance: Issues, claims, evidence and the role of sorting effects. Human Resource Management Review, 24(1), 41-52.

Hensher, D. A. (2010). Hypothetical bias, choice experiments and willingness to pay. Transportation Research Part B: Methodological, 44(6), 735-752.

Hilbert, M. (2012). Toward a synthesis of cognitive biases: how noisy information processing can bias human decision making. Psychological bulletin, 138(2), 211.

Johnson, D. D., Blumstein, D. T., Fowler, J. H., & Haselton, M. G. (2013). The evolution of error: Error management, cognitive constraints, and adaptive decision-making biases. Trends in ecology & evolution, 28(8), 474-481.

Meier, K. J., & O’Toole, L. J. (2012). Subjective organizational performance and measurement error: Common source bias and spurious relationships. Journal of Public Administration Research and Theory, 23(2), 429-456.

Nyberg, A. J., Pieper, J. R., & Trevor, C. O. (2016). Pay-for-performance’s effect on future employee performance: Integrating psychological and economic principles toward a contingency perspective. Journal of Management, 42(7), 1753-1783.

Prowse, P., & Prowse, J. (2010). The dilemma of performance appraisal. In Business Performance Measurement and Management (pp. 195-206). Springer Berlin Heidelberg.

Rolls, E. T., Grabenhorst, F., & Deco, G. (2010). Decision-making, errors, and confidence in the brain. Journal of neurophysiology, 104(5), 2359-2374.

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.

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