Merit Pay Going the Way of the Dinosaur: Fallout From Ledbetter

A SHRM alert I received today had this quote in it: "Camille Olson, an attorney at Seyfarth Shaw in Chicago, said that some HR executives have wanted to revisit their companies’ entire pay systems as a result of the new law. Here’s why: An annual pay increase based on merit has a life under the new law until the employee no longer receives a paycheck, she explained." The article went on to discuss alternative methods of paying people as a way to people because of the passage of the Ledbetter Fair Pay Act. Included in these was " Employers might instead adopt policies awarding pay based on objective factors such as job title and years of service, she noted. Employers would pay employees a certain amount, and everyone would get the same percentage increase. " This will certainly eliminate individual merit increases.

An alternative suggestion was “A lot of HR executives are asking me if they should move from performance-related increases to lump-sum payments” so that pay won’t have a continuing effect, she remarked. The merit portion of this compensation scheme would result in bonus payments but not increases in base salaries." This suggestion certainly keeps merit in the pay system, but will require a large attitude change in how compensation is seen, by both employers and employees. Who knows it may open the door to putting everyone on a system of having a significant percentage of compensation "at-risk."

Either way, it appears that merit increases of base wages will be going the way of the dinosaur. What do you think?

Does Recession Equal Performance?

An article in the Career section of the WallStreetJournal Online, entitled It Can Be Done: Landing a Raise in the Recession, talks about what is needed for someone to get an increase in recessionary times. It is going to take understanding your company's position, understanding your accomplishments, being able to articulate those accomplishments, and most of all it is going to take being a top performer. Take a look at the article for their suggestions on how to handle the situation.

But it got me to thinking. Is this deep recession going to force companies to throw off "entitlement" cultures? Are the days of "everyone gets a raise just for still being here" finally going to be done? Will merit pay actually become based on merit? Perhaps. Companies do want to keep top-performers and top-performers are always in demand. It is much cheaper to reward a top-performer than it is to go hire a replacement for one that left.

So here are a couple thoughts I to which I would like your reaction.

From the individual employee perspective:

1. Do you know what it takes to be a top-performer in your organization? If you cannot articulate this you may not be one.


2. Can you show, on paper or spreadsheet, your accomplishments? Have they really contributed to the success of the organization? Much more than average? If no, then you probably aren't a top-performer.

From the Company perspective:

1. Do you know what it takes to define top performance? If no, then you are probably not a top-tier company.


2. Do you know who your top performers are? If not, you are likely to lose them.


3. If you can identify them, are you prepared to reward them in order to keep them? If not, then you are likely to lose them.


4. Do you understand the cost associated with losing a top performer? You should.

Now once the recession ends we may return to an "entitlement" mindset, especially if as a result of the EFCA, we have a greater level of unionism. But I hope not. I hope we truly learn the lesson of performance and merit that are being thrust on us by this recession.

What do you think?