In private sector Merit pay or a merit raise is any salary increase the firm awards to an individual employee based on his or her individual performance. It is different from a bonus in that it usually becomes part of the employeeâ€™s base salary, whereas a bonus is a one time payment. Although the term merit pay can apply to the incentive raises given to any employee â€“ exempt or nonexempt, office or factory, management or non-management â€“ the term is more often used for white collar employees and particularly professional, office, and clerical employees.
Government personnel include elected officials, appointees, and professionals or â€œcivil servantsâ€. Professionals are usually covered by some kind of merit system, which is set of procedures for hiring, promoting and discharging employees based upon professional rather than political criteria. Appointees generally serve at the pleasure of an elected official, or are appointed for affixed term. Elected officials may or may not be legally limited to one or two terms. Relationships among these three groups are sometimes difficult. Elected officials and their appointees have objectives which may be thwarted by a civil service resentful of change. On the other hand, civil servants object to â€œpoliticalâ€ appointees with little technical knowledge of an agencyâ€™s activities.
Staffing governmental agencies has three major difficulties. First, existing merit system staff, because of merit system rules, cannot simply be replaced, so officials can only install â€œtheirâ€ people in non merit â€œslotsâ€ generally at the highest levels of an agency. Second, recruitment of new staff must follow detailed procedures, established to prevent favoritism. Often, competitive examinations are required, and / or applicants may be screened by a separate personnel agency. Third salary levels in government are usually below comparable salaries in the private sector, so top quality people are hard to recruit. This is less true in the federal government than in state ad local governments but at the highest levels of management, even in the federal government, pay is lower than in the private sector.
The contingency theory of leadership â€“ the idea that the correct leadership style depends upon the characteristics of the leader, the subordinate, and the situation applies to public as well as private organizations. The situation in government, however, is often (although not always) characterized by routine performance of highly structural tasks in an environment of strict rules and regulations. Partly because of this situation, the people attracted to government service tend to be motivated more by security than by the need to innovate. Thus, the prevalent leadership style in public organizations is directive rather than permissive.
Government employees must be motivated almost entirely without financial incentives, because salaries and promotion are subject to strict procedural controls. Bonus system is almost never possible. Thus employees must be either self-motivated through achievement, affiliation, or power rewards inherent in the job or motivated with non-financial rewards such as praise or increased responsibility. Herzbergâ€™s job enrichment concept may prove to be very useful in government although the steep hierarchy and detailed procedural controls often found in government bureaucracies make job enrichment problematic.
The growing movement toward unionizing merit system employees in government adds a countervailing bureaucracy to existing bureaucratic problems. Although unionization could lead to higher salaries for government workers, thus making recruiting easier, it will not ease the structural rigidities of government bureaucracy on the contrary, it will probably intensify them.
One promising development, however, is productivity bargaining in which public employees agree to new, more efficient production technologies or increased output in exchange for higher wages or better fringe benefits. Productivity bargaining is most applicable in the delivery of services such as garbage collection, road maintenance, rapid transit, and police and fire protection, where measurements of output per unit is clear cut. It has been most widely used by municipal governments.