Rewards, Compensation, Merit Pay and Performance Review - A Complex Issue

Top : Rewards and Compensation

In A Critical Look At Performance Management - Why It Fails, we cover the topics on this page in more depth. If you want to identify why your performance management system isn't giving you the competitive advantage you need, check out this short book. Click the link below for your FREE preview.

A Critical Look At Performance Management And Appraisals: Why Don't They Work? by Robert Bacal

On the surface of it, it makes sense to use the information gleaned from performance reviews to determine employee rewards, compensation, and those deserving of merit pay. What else WOULD you use?

Like anything though, it's a lot more complex than you might think.

Performance Appraisals and Pay Decisions In Point Form

If you are using review data to make pay and merit decision, or you are considering linking the two, here are some points to be aware of.

  • As soon as you couple reviews to pay, you tend to put the manager and employee on opposite sides, where each operates according to their own agendas. This is problematic when you also want manager and employee to work cooperatively to improve performance.
  • The larger the amount of money at stake, the more employees will bridle at review results, and the more conflicts you will have at review time. Simply, the more at stake, the more employees are invested in getting the "right" results from reviews.
  • Attaching money to reviews can also encourage employees to keep their failures to themselves, and to avoid admitting responsibility. That means managers may not be informed of problems soon enough to address them.
  • Employees will tend to defend themselves at review time, rather than deal frankly with the issues. Again, this can militate against problem solving.
  • Employees' successes are often the result of a team effort. No employee operates in a vacuum, so consider the fairness of rewarding individual employees, when their successes will always partially depend on how co-workers operate.

No Pat Solution - No "Best Practices"

There is no solution that will fit everywhere. The best you can hope for is to consider the pro's and con's of tying monetary rewards to performance review, being aware that you may end up with a lot of unintended consequences.

More Sources To Understand The Complexities Of Rewards and Merit Pay

Incentive Pay Considered Harmful

By Joel Spolsky - A view that hoping to improve performance via incentive pay is at least sometimes, not a good idea. Viewed 1366 Times )

The Folly of Merit Pay -- Education Week

By Alfie Kohn - To this day, enthusiasm for pay-for-performance runs far ahead of any data supporting its effectiveness%u2014even as measured by standardized-test scores, much less by meaningful indicators of learning. But then that, too, echoes the results in other workplaces. To the best of my knowledge, no controlled scientific study has ever found a long-term enhancement of the quality of work as a result of any incentive system. In fact, numerous studies have confirmed that performance on tasks, particularly complex tasks, is generally lower when people are promised a reward for doing them, or for doing them well. As a rule, the more prominent or enticing the reward, the more destructive its effects. So why are pay-for-performance plans so reliably unsuccessful, if not counterproductive? Viewed 618 Times )

Pay-for-Performance: Key Questions and Lessons from Five Current Models

By na - Paying teachers on the basis of performance is gaining increasing support as a vehicle to improve the quality of teaching. Schools, districts and states throughout the country are wrestling with the creation and implementation of pay-for-performance programs. In February 2001, ECS brought together representatives of five leading pay-for-performance models to discuss their efforts and see what lessons could be gleaned for the benefit of policymakers in other states and districts interested in implementing a pay-for-performance system. The models ranged in scope from site-specific to statewide programs in scope; some already had been implemented while others were yet to be adopted. Viewed 1165 Times )

Pay for Performance Not Ready for Prime Time

By M. Baker - Any organization's change to performance pay is a huge undertaking, Walker said in an introduction to the GAO report. How it is done, when it is done, and the basis on which it is done can make all the difference in their success, he wrote. Viewed 1181 Times )

Performance Pay Perils

By Shawn Zeller - Managers who've done it say it's surprisingly hard to link performance and salaries. Written for the government context, issues are relevant to any oranization looking at performance pay. Viewed 1336 Times )

On Pay for Performance, Rank-and-File Workers Speak Out Anonymously

By Stephen Barr - What do employees thing about pay for performance. Some information collected by the Washington post about employee perceptons of merit pay. Viewed 917 Times )

Long, Hard Road From Here To Performance-Based Pay

By Stephen Barr - Any organization's change to performance pay is a huge undertaking, Walker said in an introduction to the GAO report. How it is done, when it is done, and the basis on which it is done can make all the difference in their success, he wrote. Learn more. Viewed 1108 Times )

Why Trying To Manipulate Employee Motivation Always Backfires

By Ken Blanchard - Ken Blanchard explains why the carrot stick method of management to motivate staff fails and that factors like autonomy are more important. Viewed 474 Times )

Creating an Effective Pay for Performance Culture

By David - At last month's virtual tradeshow one of our customers gave a presentation about how to foster a performance oriented culture - one in which employees focus on the organization's goals. Ron Bates, Human Resources for Harbor Group International had some great points to make about how HR can help develop individuals to adopt high performance attitudes, emotions and behaviors; ultimately fostering collaboration and teamwork. Viewed 1046 Times )

Executive Comp: Pay Without Performance : HBS Working Knowledge

By Mallory Stark - Out-of-control executive compensation schemes are widespread, persistent, and systemic,and new reforms won't clean up the mess, argue law professors Lucian Bebchuk and Jesse Fried. QandA and book excerpt. Viewed 1056 Times )

CEO Pay: The New Rules

By John S. McClenahen - For CEOs and other senior executives in manufacturing, performance-related bonuses are up, stock options are less popular and per-formance-tied long-term incentives are more common. But will they make for better management decisions? That's not yet clear. Viewed 1620 Times )

Will Pay for Performance Programs Introduce a New Set of Problems? (Medicine)

By Martin Sipkoff - Paying incentives to physicians to practice evidence-based medicine appears to be an idea whose time has come. Such programs -- even if successful -- may create a new set of problems. Viewed 606 Times )

Is Pay for Performance Part of the Cure or the Problem?

By Martin Sipkoff - Paying for performance promises improved quality, reduced cost, and higher income for doctors. So why are some of them worried? Viewed 1178 Times )

Incentive Pay or Pay for Performance

By Gregorio Billikopf Encina - Incentive pay, also known as pay for performance is generally given for specific performance results rather than simply for time worked. While incentives are not the answer to all personnel challenges, they can do much to increase worker performance. In this chapter we discuss casual and structured incentives. Although each rewards specific employee behaviors, they differ substantially. In structured incentives, workers understand ahead of time the precise relationship between performance and the incentive reward. In a casual approach, workers never know when a reward will be given. Viewed 2141 Times )

How to Design a Good Incentive Plan

By Bob Normand - Want to provide incentives related to better employee performance? Here are some tips to help you design an effective incentive plan. Viewed 1570 Times )

Why Incentives Are Effective, Irresistible, and Almost Certain to Backfire | Fast Company

By Dan Heath - Incentives are often the first resort of most managers, perhaps because they all think they're smart enough to create the perfect carrot. Think again. Viewed 646 Times )

Incentive Pay Considered Harmful

By Joel Spolsky - Most software managers have no choice but to go along with performance review systems that are already in place. If you're in this position, the only way to prevent teamicide is to simply give everyone on your team a gushing review. But if you do have any choice in the matter, I'd recommend that you run fleeing from any kind of performance review, incentive bonus, or stupid corporate employee-of-the-month program. Viewed 1626 Times )

Do bonus schemes result in high performance?

By Dr Michael Brookes - Draws on two research studies on the relationship between having bonus reward programs and productivity and corporate success. Can you guess what the conclusions were? Newest Additions Viewed 0 Times )

How to Design a Good Incentive Plan - Bob Normand

By Bob Normand - Incentive plans should not result in arbitrary distributions of money casually decided upon by senior management. Instead, a good incentive plan must be quantified, must be a predictable result to the employee and must be directly related to measurable performance beyond the norm. This differentiates incentive plans from savings or retirement plans. Viewed 1419 Times )

Rethinking Rewards

By Kathleen M Joyce - According to a study released earlier this year, the right incentive programs can boost performance among teams of employees by as much as 44%, and among individual workers by as much as 25%. Viewed 1854 Times )

Not Even Pay-for-Performance Is Safe

By Jacque Vilet - Some companies are moving away from individually based pay for performance, sometimes called merit pay. Here's a provocative article that talks about three companies that have done so. Viewed 413 Times )

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Pages Updated On: 27-Nov-2015 - 13:23:56

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Bacal & Associates was founded in 1992 by consultant and book author, Robert Bacal. Robert's books on performance management and reviews have been published by McGraw-Hill. He is available for consultation, training and keynote speaking on performance and management at work.


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We Believe

  • Performance management and appraisal MUST be a partnership between manager and employee where BOTH benefit.
  • Performance management can be the lever for improved employee engagement.
  • The review process is the LEAST important part of performance management
  • If managers aren't managing employee performance, why are they there?