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Benefits and issues of a merit pay system

You are the Total Rewards Director for your organization. Over the past few years employees have been leaving to work for competitors. The CEO has expressed that she wants to conduct an organization wide review of the company's current compensation strategy. The company now uses a seniority pay rewards system. The CEO wants to know if they should change to a merit pay strategy in order to make the company more competitive.

Prepare a memo to the CEO outlining your recommendation as to whether or not the company should continue to use the seniority pay system or change to a merit pay system. Be specific as to what model would be the best option for your company, and why. Include pros and cons of your options and conclude with your recommendation. The company is not unionized and is privately held. You do not have to factor in a collective bargaining agreement.

Solution Preview

I would definitely recommend merit pay system in your organization because the organization is losing good talent to competitors due to seniority pay system. The main advantage of merit pay system is that it will not only motivate the employees to work in a productive manner, but will also allow the company to enhance its efficiency due to superior performance ...

Solution Summary

This solution outlines some pros and cons associated with a merit pay system as a company's compensation strategy.