Abstract
Surveys show that the majority of firms provide merit pay to outstanding employees. Despite the widespread use of merit pay programs, there is no consensus as to their effectiveness. While some plans have been successful in motivating employees to achieve higher performance, others have caused employees' dissatisfaction and discouragement. One previously unexplored area in the implementation of merit pay systems is the effect of the decision-maker's prior involvement with the employee on the decision to grant merit. The purpose of this paper was to examine whether hiring an employee leads to larger merit allocations despite evidence that the standards for merit were not met. 101 accounting students participated to assess the influence of hiring on subsequent merit allocations. Analysis indicated that prior involvement does bias ensuing merit decisions.
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