1. Identify and discuss concerns managers might have with Lenox’s merit pay plan. What are the advantages for starting a merit pay program?
2. Why might supervising managers resist a merit pay program?
3. Develop a program to introduce a pay-for-performance plan in an organization. Consider what should be covered, who should be involved, and so on.
4. Develop a merit pay guideline chart based on the following levels of performance evaluation: superior, above average, average, below average, and poor. Use current cost-of-living figures for your area or salary survey data available to you to guide your merit percentage increases.

Merit pay programs continue to be one of the more popular pay-for-performance compensation strategies. Yet, as compensation specialists note, these programs often fail to achieve their intended objective and can “backfire” when not administered properly. Consider the experience of Lenox Technology when it implemented a merit pay program for its managers.
There is no debate among industry analysts that the electronics industry is fiercely competitive. Therefore, strategic compensation programs tied to organization objectives are common and prized for improving employee performance. Furthermore, as one industry executive noted, “Compensation budgets are not always large and we need to get as much ‘bang for our buck’ as possible.”