Is merit pay dead? - From the Editors: Insights on Issues - Brief Article

HR Magazine, Jan, 2003 by Adrienne Fox

It's a sluggish economy out there, and many companies have less money to spend on raises and bonuses. But the economy doesn't dictate how to spend that money. In times like these, employers should allocate precious dollars where they're needed most--toward keeping and motivating star performers.

As reported by Senior Writer Steve Bates in "(Top) Pay for (Best) Performance" on page 30, experts are urging companies to change their compensation strategies. Rather than doling out miniscule, across-the-board salary increases and bonuses, employers should concentrate on rewarding top performers in fairly dramatic fashion.

When star players receive the lion's share of bonuses and raises, you have a better shot at keeping them. And when the rest of your staff sees what they need to do to earn those rewards, you have a better chance of motivating them to excel.

It's a risk to differentiate how you reward your star players from the rest of the field. But, in this economy in particular, it's a risk worth taking.