Merit pay, performance appraisal, and individual motivation: An analysis and alternative

Abstract

Theories of motivation and common expectation argue that people who contribute more to an undertaking should receive more from it. This expectation has significantly influenced the design of compensation systems. Merit pay reflects this influence. Nonetheless, in spite of intuitive appeal and apparent theoretical support, merit pay rarely achieves its objectives. This article reviews five common implementation issues. It also argues that merit plans underemphasize important attribution biases that affect performance judgments. These biases suggest that such plans would still have limited effectiveness, even if implementation problems were overcome. The article presents an alternative focused on group accomplishment. © 1998 John Wiley & Sons, Inc.