Pay for Performance Evaluating Performance Appraisal and Merit Pay (1991) / Chapter Skim
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1 Introduction
1 Introduction
Pages 7-12
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From page 7... ...
Specifically, the committee was asked to review current scientific knowledge about performance appraisal and the use of performance appraisal in merit pay allocations, especially for managers and professionals. We were also asked to examine performance appraisal and pay-for-performance practices of private-sector employers and, if possible, to recommend models that federal policy makers might consider in revising the merit pay plans currently in place.
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From page 8... ...
Consultants, academics, and employee advocate groups (including unions) are also beginning to seriously discuss the effects of pay-for-performance plans and to explicate the potential downsides, in particular the high costs of organizational changes required for effective plan implementation, and the equity problems associated with asking employees to place a larger part of their pay at risk when they have little control over many factors influencing organizational outcomes.
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From page 9... ...
Although there are numerous variations in systems labeled as merit plans, some sort of rating of each employee's performance precedes compensation decisions. In some firms, the rating of performance is informal, with very little committed to paper; some firms undertake detailed job analyses, which provide the underpinnings of the appraisal system; a majority of firms appear to base the performance appraisal on a set of goals established by the supervisor or negotiated by the supervisor and the employee.
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From page 10... ...
In addition, the portion of pay associated with the variable plans is usually a one-time payment, not an increase to base pay. Variable pay plans have taken on an importance in our report that they would otherwise not have had, given our mandate to look at performance appraisal and merit pay, because virtually all of the research on the effectiveness of pay-for-performance plans deals with these compensation plans.
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From page 11... ...
We interpreted the managing of performance to include improvements in organization effectiveness, thus requiring some examination of variable pay plans and comparisons of their intended effects with those of merit pay plans. We broadly defined employee equity to include, not only employee perceptions of the legitimacy and fairness of performance appraisal and merit plans, but also incentives for managers to administer these plans equitably.
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From page 12... ...
In Chapter 5 we review the evidence from economics, sociology, psychology, and practice in the private sector on whether performance appraisal and pay-for-performance plans can affect labor costs, performance, and equity and what determinants or conditions are likely to influence these effects. In Chapter 6 we summarize trends in the design, administration, and use of performance appraisal and pay-for-performance plans with a focus on the practices of five organizations that have a long history of satisfactory performance appraisal and merit pay programs.
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