Factors influencing instrumentality beliefs in a merit pay environment

Abstract

This research attempts to identify factors which may influence instrumentality beliefs in a merit pay environment. Specifically, the purpose was to investigate the relationship of: (1) of perceived performance appraisal accuracy, merit increase satisfaction, trust in top management, and trust in supervisor to instrumentality beliefs, (2) of performance appraisals, deviations between self and supervisor ratings of performance, and trust in supervisor to perceived performance appraisal accuracy, and (3) merit pay increases and perceived relative size of merit pay increase to merit increase satisfaction.

The research site for this study was a large transit authority on the West Coast. Results of this study of 1,260 managerial, professional, and clerical employees suggest that individuals are more likely to believe that pay is tied to performance if they are satisfied with their merit pay increase and they trust top management. Findings also suggest that for individuals who receive a lower than expected performance appraisal, higher levels of perceived performance appraisal accuracy are likely to be associated with stronger beliefs that pay is tied to performance.

Findings further suggest that individuals are more likely to perceive their performance appraisal to be accurate if the supervisor rating of performance is consistent with their self-rating of performance and they trust their supervisor. Also, the higher the performance appraisal, the more likely an individual is to perceive it to be accurate. Finally, individuals are more likely to be satisfied with their merit pay increase if they perceive it to be large relative to the average pay increase. In addition, the larger the merit pay increase, the more likely an individual is to be satisfied with it.

Study findings in total suggest that a large number of employees are likely to believe that pay is not tied to performance. To the extent successful merit pay programs require strong beliefs that pay is tied to performance, findings cast doubt about the ability of merit pay to elicit improved job performance. Implications for compensation practice are discussed and suggestions for future research are presented.