Assessment of a Merit Pay Program for School District Administrators

Pay-for performance (PFP) has long been a subject of theoretical and empirical scrutiny. Such examination has occurred from both individual and organizational perspectives. While ultimately complementary, these two perspectives differ in focus and emphasis. Design and usage of reward systems to influence the motivation of individual employees to perform their own job characterizes the individual perspective. This may be illustrated within an expectancy theory framework. According to expectancy theory, there a re three major variables that will determine an individual's motivation to perform.(1) First, the individual must perceive that there is a relationship between one's own effort and one's subsequent job performance. This is referred to as expectancy. Second, the individual must perceive that job performance will subsequently lead to outcomes such as a pay raise, a sense of accomplishment, and recognition. This is referred to as instrumentality, and there is a separate instrumentality perception for each outcome. Third, the individual must find desirable or attractive outcomes that might occur. This is referred to as valence, and there is a separate valence for each outcome. It should be noted that expectancy, instrumentality and valence perceptions are a matter of degree for the employee. Results of empirical research are very supportive of expectancy theory in general. Additionally, several studies have investigated expectancy theory within the specific context of PFP systems and have obtained results that are consistent with expectancy theory predictions.(2) Thus a PFP system will have a positive impact on employee motivation to perform to the extent that it creates an environmental in which (a) the employee perceives a strong link between effort and performance (i.e., high expectancy), (b) the employee perceives a strong link between performance and outcomes (i.e., high instrumentality), and (c) the outcomes are desirable to the employee (i.e., high valence). The organizational perspective on PFP programs incorporates a concern with usage of PFP into an organization strategy perspective. While the concern with individual motivation remains, it has been expanded into explicitly designing PFP systems that are consistent with the organization's goals, as well as its values and culture. (3) Such an approach forces the organization to carefully specify objectives and then develop PFP programs that align employee motivation toward attainment of those objectives. In practice this often means development of tailor-made PFP programs for different organization units and employee groups, using specially-constructed performance measures that are derived from the goals for those units and groups. The potential motivational effectiveness of PFP programs, accompanied by the strategic perspective, have led to greater experimentation with, and usage of, PFP programs.(4) Much of this is due to recent occurrences of major environmental shocks in the legal environmental (e.g., deregulation), business climate (e.g., foreign competition), and the labor force (e.g., demographic changes). Strategically, these types of shocks have caused heightened attention to goals addressing factors such as productivity, labor costs, and entrepreneurial risk-taking. In turn, PFP programs have been implemented to focus and reward employee motivation to perform toward these goals. Merit pay plans have long been, and continue to be, a dominant type of PFP program. In general they are characterized by the following features: (a) the focus is on the performance of the individual employee, (b) performance is measured subjectively, such as through a performance appraisal system, (c) pay increase are based on measures of past performance, and (d) the pay raise is built into base pay or is received as a one-time bonus that is not built into base pay.(5) Merit pay plans are found in all types of organizations, both private and public, especially for managerial, professional and technical employees. …