Employee Satisfaction in Agencies with Merit-Based Pay: Differential Effects for Three Measures

While many studies have sought to understand the association between merit-based pay and organizational performance, few have assessed the psychological well-being of employees in agencies with such incentive schemes. We show that employees in agencies with merit-based pay are less satisfied with their organization than are those working in agencies that do not implement the incentive systems. We also show that this negative effect is larger in the case of organizational satisfaction than for pay satisfaction or employee satisfaction with the job itself.