Value of Merit-Based Plans, Incentive-Based Plans, and Profit Sharing Plans

Merit-based payment plans, incentive-based payment plans, and company profit sharing plans all can be classified as organizational attempts to foster employee loyalty, increase employee productivity, and make the company a more attractive place to work. Their aim is to increase the motivation of employees to do quality work, above and beyond the expected minimum of the 'job description.' However, the plans operate on slightly different psychological principles and thus aim for slightly different motivational results.

Merit-based plans attempt to allocate pay to employees based on the employee's assessed merit to the company. If employees show the level of merit expected according to the plan, they are rewarded. By setting a certain concrete standard for employee performance, usually determined by human resource staff and assessed on a case-by-case basis through the use of regular performance reviews, employee quality is continually monitored....
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