Group therapy: the answer to merit pay.

• Author: Waldman, Steven

Steven Waldman, an editor of The Washington Monthly from 1985 to 1987, is a coorespondent in the Washington bureau of Newsweek.

A few years ago I came upon a small company that seemed to provide a strong rebuttal to the Monthly's longtime support of merit pay. Instead of basing salaries on individual performance, it paid everyone the same-clerical workers, professionals, sales reps, accountants, even the artists. The exception was the owner and his assistant, but that seemed fair because they earned much less than other CEOs. I expected the system to engender internal bitterness since the work schedule was particularly brutal. When you're working Saturday nights you damn well want to get paid more than those who don't. But, on the contrary, this unusually egalitarian system forced employees to measure their performance by other standards-praise from the boss or customers, personal yardsticks of achievement, public recognition, and the general success of the enterprise. Pay was mostly irrelevant.

Granted, this company, The Washington Monthly, is not a typical workplace. In most reputable small companies, boss and worker don't communicate through a 2 a.m. "drop off" at the owner's home mailbox. Few companies flirt so regularly with bankruptcy. (Senator Jay Rockefeller, who was a. Monthly investor in the late 1960s and early 1970s, said it all in his federal financial disclosure report, which cited stock in major corporations worth millions. It also listed 215 shares in The Washington Monthly Publishing Corp. with a sad notation explaining that the stock "to the best of our knowledge has no value.")

But when I left the Monthly in October 1987 and went to a morc traditional company, I reatized that the Monthly Management System had some advantages, Long a glazed-eyed believer in the sentimental notion that people should not measure their "worth" by how much they earn, I now, for the first time, find myself doing just that: Do I deserve a raise? Am I getting less than the guy down the hall who doesn't work as hard? That is, of course, what merit pay is supposed to do. By making me ask those questions it's supposed to motivate me to work harder. It didn't, but it did give me a whole new set of worries.

Obviously there are tremendous advantages to giving individuals a direct financial stake in performing well. But as I mentally multiplied my own neuroses by the entire work force I became convinced that the challenge is to devise pay systems that...