The Development of a Model for the Distribution of Merit Pay Increase Monies for Municipal Agencies

Merit pay is based on individual performance and is one of the most widely accepted methods to encourage and recognize meritorious job performance. At the core of an agency’s merit pay increase system is the performance appraisal instrument and interview. A recent study discussed the steps involved in creating job-specific performance appraisal instruments that can be used to assess employees’ range of performance and the interview process involved in conducting a well-defined performance appraisal. This article builds on this previous research and focuses on the final steps of a pay-for-performance system to determine how much of a merit increase will be given for different levels of performance. A case study methodology is used to review the literature on the ways in which organizations differentially compensate individuals based on their performance; to implement the recommendations of the literature review to develop a model for the distribution of merit pay increases for the Elmhurst Park District (Elmhurst, Illinois), and to evaluate employees’ attitudes toward the newly developed model in contrast to a previous model. Comparison of employee attitudes toward the original system and the newly developed system found significant mean differences on four of the six items assessing the employees’ overall satisfaction with the system and their perceptions of distributive justice.