Merit Pay in the Public Sector: the Case for a Failure of Theory

Contingent pay has become very popular in response to criticisms of traditional pay policies in government. The new systems, however, have generally failed to increase productivity. Although many scholars have attributed failures of merit pay to poor implementation or weak top manage ment commitment, an alternative explanation is that the theory on which merit pay is based is flawed. It is argued here that merit pay is not appropriate for managerial work, imposes excessive informa tion demands on an organization, and diminishes an organization's ability to coordinate interdependencies.