Factors Influencing the Effectiveness of Merit Pay Systems (Government, Managers, Incentives).

Incentive pay systems have often been used by organizations in an effort to motivate effective employee performance. Little systematic research has been conducted, however, to determine what makes an incentive pay system successful. An effective or successful incentive pay system was defined in this dissertation as one which results in increased motivation to perform, increased productivity or performance, and positive attitudes about the incentive system. Drawing from the literature, a model was developed of the factors which influence the effectiveness of merit pay systems (a type of incentive system where pay is tied to performance over a specified period of time). The model proposed that perceptions consistent with expectancy theory (pay valence, control over performance, and performance-pay contingency) and perceptions about the merit pay system itself (its fairness, benefits, and dysfunctional consequences) would have an influence on the effectiveness of merit pay. Further, the model proposed that these perceptions would be influenced by the organizational context, the merit pay plan, the process of merit pay implementation, and the individual characteristics of the participants. The merit pay system studied was introduced in a federal government agency as a result of the Civil Service Reform Act of 1978. Two waves of questionnaire data from approximately two hundred middle-level employees were analyzed in this dissertation, and supplemented by data from interviews and documents. Following a detailed description of the development and implementation of merit pay, specific hypotheses derived from the model were tested. The data supported the proposition that merit pay and expectancy perceptions have an influence on the effectiveness outcomes of motivation and satisfaction. Further, the organizational context, the merit pay plan, the process of merit pay implementation, and individual characteristics were found to have an influence on merit pay and expectancy perceptions. This dissertation concluded with a discussion of the implementation process and the utility of the proposed model. The model was offered as a framework for further testing and as a tool for aiding merit pay implementation.PhDOccupational psychologyUniversity of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/160328/1/8502832.pd