Final answer:
Merit pay, or performance-based pay, rewards employees based on job performance and is linked to personal contributions to company productivity. It can contribute to career growth but measuring individual productivity can be challenging. Market supply and demand for skills can influence salary levels.
Step-by-step explanation:
The situation described, where an individual's performance on the job is the basis for the amount and timing of pay increases, is known as merit pay. This system, also referred to as performance-based pay or pay for performance, contrasts with time-based pay or flat rate pay systems. In a merit pay system, salary increases are often linked to how an individual's personal contributions impact overall company productivity. However, measuring an employee's productivity, especially in service-oriented or complex job roles such as an accountant in a tax department, can be challenging. Employers might base pay raises on an assessment of recent productivity trends rather than direct measures of individual output.
Despite this challenge, merit pay systems aim to reward personal growth and development, and often align with opportunities for career advancement. These incentives are in place to encourage employees to expand their skill sets through training and education, enhance their professional relations, and increase their efficiency and productivity. However, it's important to note that research indicates job satisfaction might not strongly correlate with pay level after adjustments to higher salaries have been made.
Employers in a competitive workforce environment consider supply and demand for certain skills when determining compensation. In such scenarios, employees with skills in high demand might command better salaries. Ultimately, the aim of merit pay systems is to align rewards with both effort and the costs incurred in work activity, while also navigating the broader economic context of employment and wage setting.