Merit Pay Practices: Implications for Pay-Performance Relationships

Donald P. Schwab and Craig A. Olson

ILR Review, 1990, vol. 43, issue 3, 237-S-255-S

Abstract: This study uses a Monte Carlo simulation to examine how the relationship between pay and performance is affected by the pay system, measurement error in appraising performance, the consistency of true performance over time, and the rules governing promotion decisions. The authors find that conventional merit systems achieve a considerably better link between pay and performance than does a bonus system with periodic adjustments in base wages. A bonus system without periodic base wage adjustments also performs less well than conventional merit systems, because merit systems benefit from the consistency of true performance over time. One surprising finding is that even very substantial error in the measurement of performance has only a modest effect on the pay-performance correlation.

Date: 1990
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ilr.sagepub.com/content/43/3/237-S.abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:ilrrev:v:43:y:1990:i:3:p:237-s-255-s

Access Statistics for this article

More articles in ILR Review from Cornell University, ILR School
Bibliographic data for series maintained by SAGE Publications ().