There are many variations on profit-sharing plans, but most link payouts to selected organization profit measures and often pay out quarterly. Communication of merit pay plans as a means of differentiating individual base salaries according paepr long-term career performance is also suggested as a means of helping employees to see these plans as providing meaningful pay increase potential.

Organizations thus frame their objectives pragmatically. The fact that these different beliefs exist suggests potential problems. For example, when organization conditions all peformance the use of individual incentives, investments in such procedural protections as appeals may be lower than under merit plans because it is easier for employees to accept quantitative performance measures as fair.

One study is not sufficient to support any general propositions about the relationship of pay for performance and retention. The bonus is based on value added or cost savings, defined as the difference between current production or labor costs and research paper on pay for performance historical averages of these costs as established by accounting data.

Yet unions and associations often consider individual incentives plans unfair unless research paper on pay for performance are involved in the development of individual performance measures and in monitoring when measures should change.

The matrix in Figure helps to simplify and guide our discussion of research on pay for performance plans, but it is difficult to classify all plans neatly into one cell or another. Finally, the research suggests that there are different beliefs about how pay increases should be allocated—performance, seniority, across the board, and so forth—throughout U.

The first section describes merit, individual, and perdormance incentive pay for performance plans and classifies them in a matrix formed by two major research paper on pay for performance of plan design. By design, these plans most closely approximate the ideal motivational conditions prescribed by expectancy and goal-setting theories, and the research indicates that they can motivate employees and improve individual-level performance.


Two of the three conditions of expectancy theory—that goals be doable and that the link between employee performance and pay be clear—are not well satisfied.

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In application to pay, procedural concerns would involve employee perceptions about the fairness of procedures used to design and administer pay. This is especially true when merit plans are considered in the context of more complex managerial and professional jobs.

Because these conditions—especially the job conditions—are not research paper on pay for performance collectively in many organizations and do not apply to many jobs, some researchers suggest that organizations might adopt merit pay plans or group incentive plans in an effort to avoid the potentially negative consequences of individual incentive plans while still reaping some of their performance-enhancing benefits.

Perforance survey data indicating wide support for merit pay exist, a sizable portion of the work force may view the automatic step system as most fair and will thus be dissatisfied with any pay distributions based on performacne criteria Advisory Committee on Federal Pay, Page 80 Share Cite.

Page 97 Share Cite. These plans often combine both individual- and group-level pwper of performance, with an emphasis on the latter. Page 88 Share Cite.

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Perfoormance recent study by Gerhart and Om analyzed five years of firm performance and compensation data for 16, mid-level managers and professionals in large corporations.

Evidence of procedural fairness also appears to be important to other organization stakeholders such as regulatory agencies and unions and associations. The matrix cells in Figure provide examples of pay research paper on pay for performance performance plans distinguished on both design dimensions.

Payouts under individual incentive plans are typically larger than those found under merit plans HayGroup, Inc.

Moreover, the research suggests that when individual incentive plans are adopted under these conditions, they are often associated with negative consequences, such as employees’ ignoring important aspects of their jobs, falsifying performance data, and actively restricting work group performance by ”punishing” high performers. Some go so far research paper on pay for performance to suggest that organizational context should be the only focus of productivity improvement efforts; that pay for performance plans will ultimately.


For example, they can emphasize joint employee-supervisor participation in setting performance goals, thus increasing employee understanding about what is expected.

These claims, however, depend on many other factors, such as perflrmance employer’s competitive wage policies and tax treatment of these variable payments. The existing research on distributive justice does suggest that employee perceptions about the fairness of pay distributions do affect their pay satisfaction.

Whether they are couched in terms of an inducements-contributions exchange between employee and employer, or simply as keeping an eye on the budget, trade-offs must also be research paper on pay for performance among multiple pape resource systems selection, training, and so forth and their objectives. When employees believe pay for performance procedures are fair, managers administering these programs may face less hostility, despite employee dissatisfaction with ratings or increases.

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Page 92 Share Cite. Based on feedback from you, our users, paepr made some improvements that make it easier than ever to read thousands of publications on our website. The choice of a performance appraisal format may also assume that the perspectives of both supervisor and employee are needed to set appropriate objectives and avoid gaming.