The Merit Pay Dilemma at Nearbuy.

com

Mr. Priyank Jain

MBA(IB) Student – Full Time (Session 2018 – 20)
Indian Institute of Foreign Trade (IIFT), New Delhi

Ms. Arushi
MBA(IB) Student – Full Time (Session 2018 – 20)
Indian Institute of Foreign Trade (IIFT), New Delhi

Dr. Ginni Chawla

Assistant Professor
Indian Institute of Foreign Trade (IIFT), New Delhi
IIFT Bhawan, B-21, Qutab Institutional Area, New Delhi – 110016, India

Abstract

Merit pay is a known tool for employer to differentiate between the high and low performing

employees at workplace. Merit raises, while pushing individual employees to deliver their

best and achieve more, thus padding their own pay­checks as well as the company's bottom

line, also incentivize others to do better. As the name suggests, merit pay is usually linked to

an   individual’s   work­performance   in   an   organization.   However,   an   important   question

remains: should only a formal performance appraisal system form the basis for disbursement

of merit pay, or can companies experiment a little and dole out merit­raises based on the

employees  expectations  of what they should get? At Nearbuy.com, which is India’s first

hyper­local   online   platform   that   enables   customers   and   local   merchants   to   discover   and

engage with each other, the CEO and Co­founder, Ankur Warikoo, tinkered with company’s

merit­pay system by asking employees about their salary expectations. What followed was a

series of daunting questions without an apparent answer. 

Introduction
Ankur Warikoo had a bone of contention to pick with performance appraisal systems.  The

young and dynamic CEO, and Co­founder, of Nearbuy.com was contemplating the results of

a recent survey he had conducted among his employees. The results had just confirmed his

disdain   for   traditional   management   practices   –   especially   compensation   management;   in

organizations   dealing   with   modern   economies,   consumers   and   employees   “It   reduces   an

individual to a data point on an excel sheet, a rating on a 5 point scale, an increment fitting a

budget. Everything, except a human!” Warikoo[4]  thought as he typed out an email to the

officials heading the divisions for Human Resources (HR) calling for a meeting within the

hour to address the survey results. 

Having sent the email, Ankur sat back in his chair and thought about the points he wanted to

go over with the team. Ankur’s youth had attuned him to the expectations of young millennial

employees  from   their   workplaces  and  employers  in  terms  of  job  descriptions,  workplace

roles, compensation as well as perceived justice. In his opinion, traditional practices were ill­

equipped to deal with such expectations; which was why he had sent out an email to all his

employees on April 12, 2018[4] with one pre­dominant question – ‘what should be your fixed

monthly salary’. The results were surprising and raised important questions which Ankur

needed to discuss with the team he would meet soon enough. 

Company Background

Nearbuy.com a hyper­local e­Commerce company based out of India, allows customers to

discover   and   buy   specifically   curated   deals,   discounts   and   promotional   offerings   among
nearby stores/merchants. Earlier known as Groupon Inc, the company went a management

buy­out and consequent merger with another rival firm through Paytm[5]. 

With   over   300   employees   and   headquartered   in   Gurugram,   Nearbuy.com   is   India’s   first

hyper­local online platform which operates in over 35 cities, more than 18 categories. Its

market penetration has resulted in over 50,000 merchants across 100,000+ unique locations

(Nearbuy.com, 2018). Post the merger, the resultant venture had an approximate market share

of 88 percent in the deal – discovery sub­sector of the O2O (online to offline) platform[6]. 

But   Nearbuy   is   not   just   known   for   its   market   potential   and   ability   to   capture   market

expectations in terms of curated promotional offerings. It is also known for the forthright and

vibrant   nature   of   its   CEO   –   Ankur,   who   believes   in   change,   in   re­imagining   for   better

practices, and improving current processes for a better future – and is pretty vocal about his

refreshing beliefs. The company has gained traction on social media platforms in the recent

past for its unconventional HR policies. These practices reflected in bold and innovative style

of its management and same is much evident in various write­ups by Ankur across pertinent

social media platforms such as Linkedin.

The Survey – Assessing performance appraisals from the employee perspective

The existing performance appraisal process at Nearbuy.com is based on a 4­point rating scale

– Rating 1 for not meeting expectations, 2 for meeting some expectations, 3 for consistently

meeting all expectations and 4 for exceeding expectations. The yearly merit raise eligibility

as a percentage of fixed CTC is set at 0%, 5%, 10% and 20% respectively for the four ratings.

Merit   pay   or   the   pay­to­performance   component   is   decided   based   upon   the   performance
rating received by an individual/employee during the annual year­end review process. The

yearly bonus component combines performance assessment for two components ­ individual

performance and organizational performance, wherein the component weightage varies for

employees across different levels (Annexure one).   The company’s overall performance is

determined   at   end   of   the   performance   appraisal   cycle   by   company’s   board   (Anonymous

Employee, personal communication, January, 2019).

Compensation and Pay ­ The Dilemma

HR   leaders,   as   well   as   employees,   admit   that   talent   management   processes   suffer   from

disdain from the workforce. Yet the greatest contempt is drawn by the performance appraisal

process   which   is   dreaded   even   by   the   process­owners [1].   Changes   in   socio­demographic

variables of millennial employees, coupled with the recent advances in the field of HRM has

brought new perspectives to long­standing concepts of equity and justice in the workplace

(Annexure   2).   Armed   with   such   knowledge,   Warikoo   decided   to   do   something   different

during the appraisal cycle of 2018. So, after the formal year­end appraisal process concluded,

Warikoo floated an email [3, 4] to all his employees and asked them to fill a form (Annexure 3)

while ensuring the privacy of their responses. 

The subject ­ Expected salaries after the performance appraisals.

Employee Reactions!

It was no wonder that the employees  were taken by surprise after reading such an unusual

email. The reactions were as varied and mixed as Warikoo expected. While some employees

felt it was Warikoo’s way of playing an April fool’s prank, others were wonder­struck. Not
one employee had ever heard of or imagined being asked to describe what they through they

deserved   in   terms   of   monetary   compensation.   A   Senior   Executive,   Human   Resources   at

company assured employees about the seriousness of this exercise by saying, “our objectives

include making HR processes less intimidating and more useful for everyone, and act as a

change agent when there is scope for improvement as well as think big and out of the box”.

Another employee commented “I was not much surprised because I expect such mails from

Warikoo”[7].   However,   when   asked   if   this   employee   really   thought   his   salary   would   be

adjusted   on   the   basis   of   his   expectation,   he   said   “I   thought   it   was   an   experiment   for

sentimental analysis and to gauge how many employees actually think about their appraisal

rationally.” On the other hand, an employee with high hopes for enhanced appraisal through

the survey said, “Though I know that Ankur always likes to listen to his employees so he

would definitely consider the inputs, but I was not really sure whether it was a fun activity or

a part of the actual appraisal process”[7]. 

The Survey Results

“The results  of the survey were much more surprising than I imagined  them to be” said

Warikoo after realising that people’s salary expectation (cumulatively) was only 2.1% higher

than what the system was proposing  [4]. It was surprising to note that 193 employees, forming

about 66% of the respondents, expected their salary lower than or within the range of what

the   internal   system   initially   proposed.   Out   of   the   remaining   employees,   23   employees

expected a salary increment between in the range of 5­10%. Furthermore, 76 people i.e. 26%
of employees, expected their salary to be more than 10% of what was proposed by current

system (Annexure 4)

After compiling and analysing the survey results, Warikoo realised, “Some employees are

just "playing" on the survey (what’s the harm in asking!), while results reflect genuine faults

from our side in terms of bad pay benchmarking. But most employees are just in need of a

conversation.” [4]

Having  experienced  this  realization,  a series  of questions  struck  Warikoo,  all without  an

apparent answer. Waiting for his HR team to arrive for the meeting, Ankur sat in his office

thinking,   “Deviating   from   the   prescribed   standards   of   rewards   distribution   by   gauging

individual expectations was undoubtedly a bold move on company’s part. However, is the

hike   (or   even   pay   cut)   justified   without   taking   into   consideration   employees   initial

performance appraisals? Can the same process be repeated next year?” 

With so many complications, multiplied with uncertainty of how would employees would

react to such unconventional approach towards performance appraisals and compensation,

Ankur hoped that his own employees could lend him some perspective on the conundrum he

now faced. 

References

1. Sullivan, J. (2011). Performance Appraisal, the Most Dreaded HR Process – A List of

the Top 50 Problems - Dr John Sullivan. Retrieved from

https://drjohnsullivan.com/articles/performance-appraisal-the-most-dreaded-hr-

process-a-list-of-the-top-50-problems/
2. nearbuy.com (Nearbuy India Private Limited) Company, “About nearbuy.com,”

https://www.nearbuy.com/help/aboutus, accessed December 2018.

3. Warikoo, A. (2018a). LinkedIn post. Retrieved from

https://www.linkedin.com/feed/update/urn:li:activity:6367619823605768192
4. Warikoo, A. (2018b). LinkedIn post, https://www.linkedin.com/pulse/we-asked-our-

employees-how-much-salary-wanted-results-ankur-warikoo/, accessed December

2018.
5. Paytm acquires Nearbuy and Little, to merge both apps. (2017). Retrieved from

https://www.businesstoday.in/current/economy-politics/paytm-aquires-nearbuy-little-

merge-both-apps/story/265476.html\
6. Pitchiah, V. (2019). Paytm-owned Little-Nearbuy has a turnaround plan, but can it

stick to the script?. Retrieved from https://www.techcircle.in/2018/07/09/paytm-

owned-little-nearbuy-has-a-turnaround-plan-but-can-it-stick-to-the-script
7. Excerpts from personal interviews with employees quoted with conditional

permission for preserving anonymity of the respondents

 Annexures

Annexure 1: Yearly bonus components for performance appraisal

Employee Level Individual Organizational

component component
1&2 90% 10%
3 70% 30%
4, 5 & 6 50% 50%

Annexure 2: Theories

1. Equity Theory

Originally proposed by psychologist John Adams in the 1960s the equity theory is a widely

acknowledged theory of motivation. The theory addresses the definition and measurement of

an employee’s relational satisfaction with what they give and consequently receive from an

organization with respect to their perception of the same for their colleagues. The theory is

based on the issue of perceived fairness of the inputs and outcomes of an employee’s

relationship with the organization. While the output may be measured in terms of hard

concepts such as salary and soft concepts such as praise or sense of achievement; the inputs

include evaluative metrics such as trust in superiors, personal sacrifices, time, and loyalty.

2. Organizational justice theory

The Organizational justice theory (OJT) finds its roots in the equity theory and refers to an

employee’s judgment of whether he or she is being treated fairly in the workplace. The theory

refers to justice in four forms - distributive, procedural, informational, and interaction. While

traditional perspective of OJT mainly considers the decision rules and criteria that determine

an employee’s judgement and consequent perceptions, contemporary approach to OJT also

considers the reasons why employees may care about fair treatment, processes involved in

perceptual judgement as well as individual reactions to the outcomes of this process,

especially in case of perceived injustice. Research into this area has also shown the multi-

faceted nature of this process which incorporates the impact of organizational climate, culture

and work-group dynamics.

[Note: These theories may be read from given textbooks. Additionally, the following

sources may be referred to for further knowledge,

a. Greenberg, J. (1990). Organizational justice: Yesterday, today, and tomorrow. Journal

of management, 16(2), 399-432.

b. Walster, E., Walster, G. W., & Berscheid, E. (1978). Equity: Theory and research.
c. Leventhal, G. S. (1980). What should be done with equity theory?. In Social

exchange (pp. 27-55). Springer, Boston, MA.

d. Davcik, N. S., Vinhas da Silva, R., & Hair, J. F. (2015). Towards a unified theory of

brand equity: conceptualizations, taxonomy and avenues for future research. Journal

of Product & Brand Management, 24(1), 3-17.

e. Cropanzano, R. S., & Ambrose, M. L. (2015). Organizational justice: Where we have

been and where we are going. The Oxford handbook of justice in the workplace, 3-14.
f. Cassar, V., & Buttigieg, S. C. (2015). Psychological contract breach, organizational

justice and emotional well-being. Personnel Review, 44(2), 217-235.]

Annexure 3: Screen shot of the email

Annexure 4: Survey Results
 Teaching notes
Position:

This case can be used by B-school students, researchers and industry professionals pursuing

Management related courses. Though the case would be more suited to students studying

Human Resource Management (HRM) as a specialization, it may also be used for General

Management programs in basic HRM courses.

Course topics:

Compensation, Organizational equity, Justice, Compensation theories

Learning objectives:

1. Managing employee expectations

2. Organizational Justice
3. Equity perception

Assignment questions and points for discussion:

1. Should the compensation for all those who expected lesser than what the internal

system initially proposed be reduced?

Answer may discuss issues pertaining to External pay equity, Individual pay equity

and Job evaluation techniques that can help understand the job’s worth. Accordingly,

discussion can follow on how the pay can be revised and an inventive system created.

2. How should the compensation be fixed for those who had marginally higher (within

5-10%), as well as significantly higher (more than 10%) expectations?

Answer may discuss issues on performance feedback and its process, how to create

incentives based on performance appraisals as well as the concepts of to external pay

equity, Individual pay equity and Job evaluation techniques. It is important to

emphasize here that supervisor should let each employee know his strengths,

weaknesses in terms of performance. This discussion allows individuals to speak up

their mind, discuss performance issues freely with the supervisor and this also allows
 the supervisor to clarify his/her position in terms of why and what rating and

corresponding pay rise he/she has given to that individual. A fair discussion with

every individual regarding his/her performance is critical.

3. What would be the impact on employees’ motivation to perform? If people’s

expectations remained unmet, would they ever take his emails (and him) seriously

thereafter? Alternatively, even if Warikoo decided to pay people what they expected

after the appraisals, was the 2.1% incremental cost justified from company’s

perspective?

Careful consideration can create solutions for every problems and students may be

allowed to formulate creative ideas. But answers should include the following points,

a. Cost is justified only if it rewards the performers and follows principal of equity,
b. Pay can be increased for those who are getting lesser than the prevailing market

rate and some incentive can be added to it to motivate people

c. Communication while giving feedback and appraisals matters. It is imperative

that this communication should be bi-directional.

Teaching Plan

The case is designed for a 90 minute discussion.

1. Introduction [10 minutes]

2. Challenges faced, [15 – 20 minutes]
a. The protagonist(s)
b. Organizational team members (employees)
3. Discuss Nearbuy’s challenges and issues in context of the survey results. Discussion

may incorporate the following [15 – 20 minutes]

a. Prospect of executive sustainable change measures
b. Impact on employee management and workplace exprience (current & future)
c. Avenues for inculcating perceived organizational justice
4. Encourage students to come up with solutions to [10 – 15 minutes]
a. Problems discussed in the case
b. Potential problems anticipated by students
5. Discussion on Ideas and strategies for future growth strategies [20 – 25 minutes]
a. An open discussion on building strategies for creating better employee

experiences and perceived equity/ justice at organizational justice. Students

 may be encouraged to submit their Strategic plans at the end of this class

either individually or in a group.

Additional Readings

1. Palaiologos, A. Papazekos, P. & & Panayotopoulou, L. (2011). Organizational justice

and employee satisfaction in performance appraisal. Journal of European Industrial

Training, 35(8), 826-840, https://doi.org/10.1108/03090591111168348

2. Sudin, S. (2011). Fairness of and satisfaction with performance appraisal

process. Journal of Global Management, 2(1), 66-83.

3. Heslin, P. A., & VandeWalle, D. (2011). Performance appraisal procedural justice: The

role of a manager’s implicit person theory. Journal of Management, 37(6), 1694-1718.

4. Greenberg, J. (1987). A taxonomy of organizational justice theories. Academy of

Management review, 12(1), 9-22.

5. Thurston Jr, P. W., & McNall, L. (2010). Justice perceptions of performance appraisal

practices. Journal of Managerial Psychology, 25(3), 201-228.