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Seniority and Longevity Pay

Seniority/longevity pay systems reward employees with periodic additions to base pay based on their length of service with an organization. The longer an employee's tenure, the higher their longevity pay. These systems were common among unionized organizations but are disappearing from for-profit companies due to lack of competitiveness and performance incentives. Merit pay systems tie compensation increases to job performance levels and are more prevalent in private sector companies where individual achievement drives rewards.

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0% found this document useful (0 votes)
392 views17 pages

Seniority and Longevity Pay

Seniority/longevity pay systems reward employees with periodic additions to base pay based on their length of service with an organization. The longer an employee's tenure, the higher their longevity pay. These systems were common among unionized organizations but are disappearing from for-profit companies due to lack of competitiveness and performance incentives. Merit pay systems tie compensation increases to job performance levels and are more prevalent in private sector companies where individual achievement drives rewards.

Uploaded by

Jason
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Seniority/Longevity Pay

Seniority Pay

 Salary or wages based on seniority or length of


service with an organization
 The greater the length of service, the greater
the longevity pay
 Itmay also be used as a bonus for remaining on
a job beyond a certain period
 These systems reward employees with periodic
additions to base pay according to employees’
length of service in performing their jobs
Design of Seniority pay
and Longevity Pay Plans
 Theobject of seniority pay is to
reward job tenure or employees time
as members of the company.

 The Longevity pay rewards


employees who have reached pay
grade maximum and who are not
likely to move into higher grades
Historical Overview

 Job Control Unionism


 Public Sector
 Automatic Pay Adjustments
 Easy to implement in
Government without any
political pressure
Who participates

 Most of the Unionized private and public


sector
 Municipal Government
 State Government
 Federal Government
 Administrative
 Professional
 Managerial
Effectiveness of Seniority
Pay Systems
Disappearing from for profit
organizations due to
competitiveness
Stay in Public Organizations
A Sample Seniority Policy for Junior
and Advanced Clerk Jobs

$8.60/hr
24 months

$7.95/hr
$7.25/hr 9 months
15 months
$7.50/hr
6 months
$6.85/hr
9 months
Advanced Clerk
$6.50/hr
3 months

Junior Clerk
Advantages of Seniority Pay
 To Employees
Perceive they are treated fairly because they
earn pay increases according to seniority,
which is an objective standard

 To Employers
It facilitates the administration of pay
programs
Employers are less likely to offend employees
by showing favoritism to others
Advantages of Seniority
Pay
 Employees perceived it fairly
 Very objective
 Greater cooperation among coworkers
 Easyto estimate and make
arrangement for pay
 No favoritism
 Better motivation
Fitting seniority pay with
competitive strategies

 Not fit for competitive


strategies
 Not related to performance
 Not related to the companies
performance
 Employees don’t have any
incentive
Merit Pay
Merit Pay
 Meritpay assumes that
employees compensation
overtime should be determined
by difference in job
performance
 Who participates?
 Elements of merit pay
Who participates?

 Inprivate for profit sector of


the economy.
 Itfits well with new
environment where reward is
on individual achievement
Elements of Merit Pay

 Objective as well subjective performance


 Workers’ accomplishments
 Meeting the quotas
 Skills and abilities
 Strong relationship between performance and raise
 Funds must be available
 Adjustment according to COL and inflation
 Commitment of management
 Job Design
 Raise reflects the prior performance
 There must be explicit performance standards
Limitations of Merit Pay
Plans
 Failure to differentiate among performers
 Poor performance measures
 Supervisors’ biased ratings
 Lack of open communication between
management and employees
 Undesirable social structures
 Factors other than merit
 Undesirable competition
 Little motivational value
Linking Merit Pay with Competitive
Strategy

 Lowest-cost competitive
strategy
 Differentiation competitive
strategy
THANK YOU

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