Chapter 3 Traditional Bases for Pay

INSTITUE OF ADMINISTRATIVE SCIENCES

UNIVERSITY OF THE PUNJAB

Performance Compensation Management

Assignment 1

Chapter no 3

Traditional Bases for Pay

SUBMITTED TO:

Ma’am Rabia Nawaz

SUBMITTED BY:

HAFIZ SUBHAN 85 SS F18 MHRM

SUBMISSION DATE: June 09, 2020

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Chapter 3 Traditional Bases for Pay

Chapter 3
Traditional Bases for Pay

Summary

This Chapter covers five main points which includes.

(i) Seniority pay and longevity pay systems.
(ii) Merit pay approach to compensation.
(iii) Variety of performance appraisal methods.
(iv) How compensation professionals can strengthen the pay-for-performance link.
(v) Possible limitations of merit pay programs.

(i) To Understand Seniority Pay First of all we have to understand what is the
concept of Base Pay or Compensation?
Anything which an employee get reward in result of doing work/ duties
according to their job description this is known as compensation or base pay.
This Reward can be Intrinsic or Extrinsic.
If the reward is linked with internal satisfaction of an employee then this is
known as Intrinsic reward while of the reward is in physical form then this is
known as Extrinsic Reward.
In this Chapter the author more focus on extrinsic rewards. Rewards can be in
the form of money and we can say that that money is your base pay.
There are some adjustment in your Base Pay which is depends on following:
1) Seniority Pay
2) Merit Pay
3) Incentive Pay
 Seniority Pay depend on the job tenure of the employee. The More Senior position
the Employee is, the more their employer should paid to him. In other words we can

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Chapter 3 Traditional Bases for Pay

say that increase in pay due to the association with the company or the length of the
employee association.
 Longevity Pay system is a type of system in which the adjustment in salary depends
on the tenure of the employee at the same job.

(ii) Merit Pay system is a type of system in which the adjustment in salary depends on the
performance of the employee toward his/her job. If the employee perform well their base pay
will increase.

(iii) To work on Merit Pay system we need and effective Performance Appraisal Plans. In this
chapter the author discuss some important types of Performance Appraisal plans.

• Trait systems
• Comparison systems
• Behavioral systems
• Goal-oriented systems

Trait systems: In this system a person who is evaluating the performance of the
employee, he rate the each employee’s traits or characteristics while performing his/her
job.
Comparison systems: Evaluate a given employee’s performance against the
performance of other employees. In other words in this system the evaluator evaluates the
performance of employee by comparing it with other employee.
Behavioral systems: Rate employees on the extent to which they display successful job
performance behaviors.
Goal-oriented systems: Used mainly for managerial and professional employees and
typically evaluate employees’ progress toward strategic planning objectives.

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Chapter 3 Traditional Bases for Pay

(vi) Pay for Performance

When a pay for performance Appraisal system or Performance Appraisal Plan functions properly
Outstanding performers will receive the greatest rewards, to acknowledge their superior
contributions and to motivate them to continue high performance. Average performers will
receive substantially smaller rewards, which may encourage them to work harder to achieve
greatest rewards in the future. Poor performers will receive no increase, which is intended to
persuade them to improve their performance or leave.

(v) Possible Limitations for Merit for Pay Program

 Failure to differentiate among performers

 Poor measures
 Supervisor biases
 Poor communication
 Using non merit factors
 Undesirable competition
 Little motivational value

However these limitations can be minimize by the proper attention of Evaluators and
Supervisors and also by giving them training of performing an error free Job
Performance Evaluation.

-THE END-

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