Pay for performance has long been a goal of federal personnel policy, but in practice few civil servants have been denied their periodic salary increases, regardless of their performance.' Merit pay, as mandated by the Civil Service Reform Act of 1978 (CSRA), bases the compensation of grades 13-15 supervisors and management officials on their rated performance. Merit pay has probably been the most complex of the CSRA's provisions for two reasons. First, the various payout mechanisms had to be established. Such questions as the appropriate size of pay pools and whether managers at the various grades/steps should receive identical salary increases for identical performance ratings had to be determined before payouts could be made. The difficulties of arriving at satisfactory solutions to these problems are reflected in the timing of OPM's comprehensive merit pay guidelines, released in draft in February 1981,' two and one-half years after the passage of CSRA, and in the last-minute General Accounting Office (GAO) intervention to alter the payout formula.3 Second, merit pay was implemented concurrently with the new, objectives-based performance appraisal system on which merit payouts would be based. This new performance appraisal system is significantly different from the trait-based systems used to rate most federal managers prior to the change. Now the elements, or components, of each job need to be specified and objective indicators of relative performance on each element must be developed. Ratings on these individualized contracts are then combined for each manager so that the performance of all the managers in a pay pool can be rated for merit pay purposes. Although there were objections to tying pay to a new, untested, performance appraisal system,4 virtually every agency in the federal government was required by the pressures of statutory deadlines to implement concurrently the new performance appraisal and merit pay systems for managers. This paper assesses the effectiveness of the new merit pay system after the initial government-wide payout in October 1981. Applying a longitudinal research design to the motivational premises on which merit pay is based, we evaluate the early reactions of employees to merit pay. We conclude with a discussion of some of the important contingencies affecting the motivational effectiveness of merit pay.
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