Incentive vs. Merit Pay for Teachers and Other Professions

Merit pay planning has seen stable and continuous usage in the educational sphere for decades. Merit-based contests, awards, and pay increases are often used straightforwardly: to boost teachers’ motivation and, therefore, their performance. A teacher’s job is also team-oriented: the school’s performance depends on teachers’ work; therefore, their salary is affected not only by their job but also by other teachers. When their wages gain an overall increase, teachers become more motivated to do their job well and feel accomplishment. While some professions benefit from this system, others do not.

More opportunistic professions, such as sales agents, do not benefit from the merit-pay system as much. Their income depends on their month-to-month performance, and applying a merit-pay approach can be detrimental as it discourages taking risks. While it can increase an agent’s overall salary, agents’ pay is often not based on salary but rather on individual sales they made. Merit pay can discourage people from taking risks as it might negatively impact their chance of increasing an overall wage.

Incentive pay, unlike merit pay, evaluates every worker’s performance against the standard rather than the overall company’s performance. Professions which give a person an opportunity to control their income through individual performance are more suitable for incentive pay planning: for example, professional artists, writers, and sales agents. Their pay is entirely dependent on their work rather than team effort or a set salary. It is effective for sales and commission-oriented professions as it motivates employees to work harder and creates a more competitive environment without being affected by overall organization performance. A sales agent earns as much money as they sell commodities, their work benefits the company, but if their evaluation were based on overall team performance, it would suffer.

At the same time, jobs such as teachers, nurses, and retail agents would not be suitable for incentive pay. Studies done to research the effect of incentive pay on teachers’ performance demonstrates less positive impact than merit pay. Retail agents’ work is often repetitive, continuous, and tedious, and there is no concrete end goal but rather an overall performance. They work until their hours end as their task is to maintain a shop’s functionality rather than reach individual goals. Jobs like these would benefit from an overall merit pay increase, and incentive payment would be inappropriate for them.

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