Literature Review of Pay for Performance

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Literature review of pay for performance The pay for performance (also known as PFP) initiated from the private sector. Its intention is to raise employees’ effectiveness and efficiency, using “incentive theory” to reward employees’ hard work. By noticing the benefits of pay for performance, the public sector began to introduce this model. In 1978, the “Civil Service Reform Act” took effect. This is the first time the federal government introduced performance-related pay into the management system. The most obvious transformation is the act abolished the U.S. Civil Service Commission and distributed its functions to three agencies: the Office of Personnel Management, the Merit Systems Protection Board and Federal Labor Relations. James and Douglas describe this transformation “moving from personnel administration to the specific linking of human resource management to broader management activities and performance.” (James & Douglas, 2000, p 103) From then on, pay for performance began to enter into public sectors. In part, the concept’s attractiveness reflects “the seemingly logical assumption that superior performance should be tied to higher pay and that payment can be used to motivate and control employees.” (Edmund, 2013, p 253) The pay for performance connects compensation with performance, and lets employees realize that the performance is an important element of the compensation. In the wake of New Public Management, the notion of performance related pay “become commonplace in public sector organizations.” (Bruno, Fabian & Margit, 2013, p950) Proponents believe that performance related pay could raise public servants’ motivation and enhance their service quality. Proponents also believe that pay for performance is helpful in recruiting; especially for younger workers, the PFP is attractive. The traditional compensation structure is “point-factor job

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