The Development of a Pay-for-Performance Appraisal System for Municipal Agencies: A Case Study

Abstract

Well-designed employee performance appraisal instruments assume great importance by providing agencies with information that can guide administrative and developmental decision-making about their most important asset—their human resources. Administratively, performance appraisals serve as the formal evaluation tool used by managers when making decisions about the distribution of pay increases and the promotion and demotion of an employee. Developmentally, performance appraisals assist agencies in identifying issues such as employee training needs and cross training opportunities. Despite its importance, both employees and management often view the performance appraisal process as frustrating and unfair. These frustrations are largely attributed to a reliance on performance appraisal instruments that: are not job related; have confusing or unclear rating levels, and; are viewed as subjective and biased by staff. This study was undertaken to identify steps for creating a more effective pay-for-performance system for public agencies. Specifically, this case study: (1) identified a systematic procedure for creating performance appraisal instruments; (2) described the appropriate training for those conducting an appraisal interview; (3) implemented performance reviews using the developed instruments and appraisal interview/review training, and; (4) evaluated employee attitudes toward the newly developed system. Survey results identified significant mean differences between employee attitude toward the original pay-for-performance instrument and appraisal interview process and the newly developed system. Results of the case study are analyzed and discussed.