Introduction
Performance-Based Pay or Merit Pay is a concept that dominates compensation decisions in private organizations. Eighty percent of private employers use some form of merit pay to compensate their employees. While specific systems vary from company to company, the private sector typically uses merit pay to link an employee’s compensation to their contributions to the overall performance of the company for which they work (Wiscombe, 2001).
The use of performance-based pay systems is far less prevalent among local government organizations, but it is increasing (Taylor & Pierce, 1999). A substantial number of local governments have adopted merit based performance appraisal systems in recent years. By and large translating private sector-like performance-based pay systems into local governments has proven very difficult. “Failed attempts at developing systems that somehow make compensation more of a motivator are legion in the public sector (Walters, 1999)”.
This paper begins with a definition of merit pay and a discussion of its use as a motivational tool. The paper then briefly explores why, according to some authors, government performance-based pay systems are fundamentally more difficult to implement than their private sector equivalents. The paper then turns more specifically to what the recent literature says about implementation problems in government organizations. Finally, the paper focuses on some solutions or corrections that authors have identified that might make public sector performance-based pay systems more effective in not easier to implement.
What is Performance-Based Pay? Does it Motivate?
The term performance-based pay is used to describe a variety of appraisal/compensation systems that seek to ...