The Impact of the Merit-Based Wage System on Morale and Productivity

Is the System the "Carrot" or the "Stick"?

Abstract

A survey was conducted among corporate human resource managers and employees on the introduction of a merit-based wage system. The results revealed that a perception gap exists between the two groups. In order to analyze the impact of this system on morale, four criteria were selected, based on the employees' perception of the system. It was found that morale increased among employees who were aware of the implementation of the system. However, when looking at the relationship between the system and productivity, increases in productivity occurred only in companies that had already introduced the system. This suggests that, in addition to morale, there is another factor that has an effect on productivity. As employees recognize the two variables of the system—gross wages and quick promotion/pay rise—it appears that the productivity of employees increases.