The movement toward merit-based pay systems in the federal government, such as those seen in the Department of Homeland Security (DHS) and the Department of Defense (DOD), is rooted in a desire to better align pay and performance. Yet, governments have often failed in such attempts and many conclude that merit-based pay may not work in public organizations. Public administration scholars have sought to understand those implementation failures.[i]
Most research has focused on the effects of merit-based pay on individual and organizational performance. Choi and Whitford focus here on the effects on job satisfaction. Job satisfaction is often a good predictor of performance, so understanding the effects of merit-based pay helps us better understand whether it makes government more effective.
Federal Employees Subject to Merit-based Pay
This paper analyzes findings from the federal government that federal employees subject to merit-based pay are consistently less happy with their job, with their organization, and with their pay than those in agencies with traditional compensation systems. Such employees are most negative about their own organization.
This leads to questions about the long-term effects of merit-based pay systems in public organizations. Despite efforts over more than three decades, there are very few signs of desirable outcomes from merit-based pay in government. It is time to reconsider the effectiveness of merit-based pay in the public sector.
[i] Perry, J. L., T. Engbers, and S. Y. Jun. 2009. Back to the future? Performance-related pay, empirical research, and the perils of persistence. Public Administration Review, 69(1): 1-31.