Future Business Leaders of America (FBLA) Business Management Practice Test

In which type of pay system are salary increases based on job performance?

1. Seniority pay

2. Intrinsic rewards

3. Merit pay

4. Vestibule training

The correct answer is: Merit pay

Merit pay is a compensation system in which salary increases are directly tied to an employee's job performance. This approach encourages employees to improve their performance since they can see a direct financial benefit from their efforts and achievements. Merit pay systems are often designed to reward high-performing employees, thus fostering a culture of productivity and motivation within the organization. In contrast, seniority pay is based on the length of service an employee has with the company, offering raises irrespective of performance. Intrinsic rewards refer to non-monetary benefits that motivate employees, such as personal satisfaction or fulfillment, and do not involve salary changes. Vestibule training involves practical training in a controlled environment, often before employees start their actual jobs, and is unrelated to pay structures. Understanding these distinctions clarifies why merit pay is specifically linked to performance rather than factors like tenure or non-monetary rewards.