Merit based pay system is a system that rewards employees according to the performance; there exist no boundaries in the jobs carried out by the employees (Burger, 122). While the traditional step plan system, payment applies hourly and it is commission based compensation (Burger, 122). The merit based system is structured in a way that individual competence is rewarded (Sims, 180). A fireman in this system is paid according to performance achieved. While in traditional plan system, employees have separate compensation programs where the salary is based on the position at which one holds in the department.
The merit based system rewards the effectiveness of the fireman and the ability to achieve required results (Burger, 182). The compensation programmes in this system are not separated. The firemen under this system can earn above their market rate because compensation is based on high achievements. On the other hand, each position in the traditional step plan system has a specified pay which is based at the market rate. The steps in the traditional step plan system are independent of each other.
The main advantage of the merit based system is that it promotes hard work since the high achievers are rewarded (Sims, 138). While the step plan system, creativity and hard work is not emphasized. This is because the effort they put is only to meet the set performance requirements to get to the next step. In the merit system, competency can be build because achievement is based on performance (burger, 140). While in the traditional plan system, competency is difficult to build and define into the different steps.
It is difficult to measure the performance of the fireman under the merit based system because the job requires skills that cannot be measured (Sims, 154). The system cannot measure the ability of judgment of a fireman, his tact in handling his job and the initiative while carrying out his duties. While in the traditional step system, the performance of a fireman can be measured using the requirements set out in the step category he is (Burger, 140). This is because each step has specific requirements.
The standards used to measure performance in merit based system are ambiguous and very inconsistent (Burger, 125). The system is also expensive and cannot accurately take into account the salary increments that could occur. While in the traditional pay system, it is easier to measure performance because the firefighter only advances to the next step after meeting the specified criteria. If the firefighter does not meet the specified performance requirements, there will be no progress to the next step.
Unlike the merit based plan, the step plan system consists of two pay adjustment components; the step increase and the step adjustment. The fire fighter will be given an extension period in which to meet the requirements. However, job annual review date will not be changed but the firefighter is not paid the wages in the performance improvement period (Sims, 143). The traditional plan pay system is cheap as compared to the merit based system. Under the traditional step system, the firefighter compensation is on the current salary and the relationship to the market rate paid for the job.
The main aim of this step is to keep movement up to the market rate accelerated to ensure that the job is paid for at a competitive market rate. Each position in this plan is adjusted to the specific market rate. All adjustments are made on January 1st of the calendar year (Burger, 151). While in the market rate system, focus is more on the output and ignores the job experience the fireman has. Incase the top performers are not rewarded in this system; the loyalty of employees will be low hence high turnover of the firemen.
It is also difficult to set the wage rates for each category in the merit based system (Burger, 150). The system may violate government policy on salaries of firemen because it is based on performance but not the position held. Under the traditional step pay system, market surveys are done annually to ensure that wages paid to firemen remain competitive (Sims, 139). This is achieved by comparing wages and salaries of firefighters with those of others in the same market. A promoted firefighter moves to the lowest step in the new position which places the firefighter above the current step.
The salary of the firefighter in the new position is higher than their previous step. However, market surveys in the merit based system are not done because pay is pegged on performance (Sims, 140). The main advantage of the step system is that it is easier to consolidate different steps into one in case the fire department wants to downsize (Burger, 132). Experience, rank and performance are rewarded in the traditional step pay system. While in the merit based system, downsizing is difficult achieve without laying off employees (Sims, 144).
In conclusion, I would recommend the use of the traditional step plan system because the system recognizes the experience and the soft skills of the firemen. The system also motivates firemen to work hard in order to attain the highest rank possible. The cost of running the system is less compared to the merit based system because the salaries to be paid are known in advance. Word count: 851 Work Cited Berger Dorothy The Compensation Handbook, New York: McGraw Hill Professional Publishers, 2008. Sims Ronald R. Human resource management: contemporary issues, challenges, and opportunities, IAP Publishers, 2006