Question

Are compensation systems based on seniority, longevity, yearly pay increases, etc. actually supporting a "compensation entitlement philosophy" that many employees have, as opposed to a "performance" based philosophy? Why? Ultimately should compensation be based on performance as opposed to entitlement? (Provide supporting documentation for your answer.)

Answer 1

Yes, compensation systems based on seniority, longevity, yearly pay increases, etc. actually supporting a "compensation entitlement philosophy" that many employees have, as opposed to a "performance" based philosophy. In the case of a performance-based compensation system, the focus remains on the level of the performance of the employee. If the employee performs better then he or she will receive higher compensation and vice versa. But when we talk about the compensation systems based on seniority, longevity, yearly pay increases, there is no focus on the performance but these are based on various other factors and the employees who perform better do not get any incentive to be a high performer. In fact, this type of compensation system may degrade the productivity of the organization.

Yes, the compensation system should be based on the performance of the employee rather than any other factor as it will help the organization to provide incentives to the better performer and this will also induce and motivate the other employees to have better performance.