Edward W. Deming , a critic of merit pay, arguedthat it is unfair to rate individual performance because "apparent differencesbetween people arise almost entirely from the system that they work in, not the people themselves.”
Criticisms of merit pay include :
Focus on merit pay discourages teamwork.
Measurement of performance is done unfairly and inaccurately.
There are potential advantages and disadvantages of different types of incentive or pay for performance plans.
Pay plans can have both intended and unintended consequences.
Designing a pay for performance strategy typically seeks to balance the pros and cons of different plans and reduce the chance of unintended consequences.
Pay strategy will depend on the particular goals and strategy of the organization and its units.
Many organizations are working to link pay to performance and reduce fixed labor costs, although sometimes executives appear slow to reduce what are supposed to be performance-based bonuses when firm performance declines.